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Global Climate Games: How Pricing and a Green Fund Foster Cooperation

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Abstract

The international game of cap and trade begins when countries choose their quantity targets, which are largely selected according to self interest. The analogous public-goods game, in which countries choose their abatement levels, has an uncooperative outcome. Compared to that, the Nash equilibrium of the cap-and-trade game shows that abatement can increase but that trade provides opportunities for uncooperative behavior. By contrast, a game in which all countries vote for a global quantity target or a global price target can lead to a highly cooperative choice of target. However, the assignment of responsibilities for a global quantity target stymies implementation of a global cap. The global-price-target game largely overcomes this barrier because a uniform global price provides a focal point for cooperation. However low-emission countries apparently prefer a much lower global-price than more prosperous countries unless a Green Fund is implemented. A game that couples such a fund to the global price target can largely overcome this barrier to cooperation. We describe such a game along with its equilibrium outcome, which promises to be inexpensive and cooperative.

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  • Peter Cramton & Steven Stoft, 2012. "Global Climate Games: How Pricing and a Green Fund Foster Cooperation," Papers of Peter Cramton 12csgcg, University of Maryland, Department of Economics - Peter Cramton, revised 2012.
  • Handle: RePEc:pcc:pccumd:12csgcg
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    File URL: http://www.cramton.umd.edu/papers2010-2014/cramton-stoft-global-climate-games.pdf
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    References listed on IDEAS

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    1. Helm, Carsten, 2003. "International emissions trading with endogenous allowance choices," Journal of Public Economics, Elsevier, vol. 87(12), pages 2737-2747, December.
    2. Rand, David Gertler & Dreber, Anna & Fudenberg, Drew & Ellingson, Tore & Nowak, Martin A., 2009. "Positive Interactions Promote Public Cooperation," Scholarly Articles 3804483, Harvard University Department of Economics.
    3. Odd Godal & Bjart Holtsmark, 2011. "Permit Trading: Merely an Efficiency‐Neutral Redistribution away from Climate‐Change Victims?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(4), pages 784-797, December.
    4. Hoel, Michael, 1992. "Carbon taxes : An international tax or harmonized domestic taxes?," European Economic Review, Elsevier, vol. 36(2-3), pages 400-406, April.
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    Cited by:

    1. Joseph E. Stiglitz, 2015. "Overcoming the Copenhagen Failure with Flexible Commitments," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    2. Martin L. Weitzman, 2015. "Internalizing the Climate Externality: Can a Uniform Price Commitment Help?," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    3. Frondel, Manuel, 2017. "Deutschlands Klimapolitik: Höchste Zeit für einen Strategiewechsel," RWI Materialien 117, RWI - Leibniz-Institut für Wirtschaftsforschung.
    4. Martin L. Weitzman, 2016. "How a Minimum Carbon Price Commitment Might Help to Internalize the Global Warming Externality," NBER Working Papers 22197, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    global warming; climate change; climate treaty; cap and trade; carbon tax; carbon price; public goods;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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