Environmental 7: IEAs Flashcards
What is a prisoners’ dilemma? How does it apply to climate change?
In a prisoners’ dilemma, each player has a dominant strategy of defection, so the unique pure-strategy Nash equilibrium is (Defect, Defect). However, this outcome is Pareto-dominated by (Cooperate, Cooperate).
Climate change is characterised by similar dynamics. Although the best outcome for everyone is for all countries to abate their emissions, each country has individual incentives to free-ride off others’ efforts, leading to the Pareto-dominated outcome where no-one contributes much.
What is a chicken game? What is the outcome?
A chicken game is a prisoners’ dilemma with much worse outcomes from (Defect, Defect), such that it is individually rational to cooperate if the other player will not. The two pure-strategy Nash equilibria are (cooperate, defect) and (defect, cooperate). There is also a mixed-strategy Nash equilibrium. Who ends up being the cooperator (the ‘chicken’) will depend on credibility of threats to defect. In a sequential game, player 1 defects and player 2 cooperates.
What is an assurance game?
An assurance game is a form of coordination game where costly contribution is worth it only if everybody contributes. The two pure-strategy Nash equilibria are (Contribute, Contribute) and (Don’t, Don’t). Common applications are in the elimination of a disease, or coordination on a ‘stag hunt’ that needs us both to kill the stag. If we can communicate, we can agree to contribute and this agreement will be self-enforcing.
In the public goods contribution game, what is the Nash equilibrium? Is this Pareto efficient?
Countries choose contribution levels [0,1] to maximise a payoff b(y_i+Y_-i)+c(1-y_i).
Contributing 0 is a dominant strategy. Therefore, the Nash equilibrium is zero provision. This is Pareto dominated by full provision, provided that bN>c.
What is the setup of Barrett’s “treaty game”?
Before the public goods contribution game is played, countries can agree to join a ‘treaty group’ that will all choose a jointly optimal strategy. The treaty enters into force only if it is large enough for signatories to benefit.
Is there a stable, self-enforcing treaty in Barrett’s treaty game?
Yes. At k=⌈c/b⌉ participants, leaving the treaty is irrational for any signatory, since this will trigger the rest of the participants to stop contributing. Joining is also irrational, since non-signatories are free-riding on the contribution, and only hurt themselves by joining, since c>b.
How large will the treaty be?
k*=⌈c/b⌉. Counterintuitively, this means that the greater the benefits are from the public good, the smaller the stable treaty group.
Can Barrett-style treaties secure large benefits?
No. If costs are large, many countries will join the treaty, but the high costs mean that benefits are not large. If costs are small, very few countries will join the treaty, since they know that others will provide for them. Either way, large benefits are not secured.
Could treaty members declare that they would only contribute if everyone joins, in order to induce full participation?
No, this is not a credible threat. Once k>k*, the treaty group are made worse off by not contributing. Therefore, a threat not to contribute unless k=N cannot constitute a subgame perfect Nash equilibrium.
What factors make environmental treaties more likely to be agreed?
- International political institutions that can administer and enforce agreements
- Greater private, localised and near-future benefits than public/transnational/far-future benefits
- High cultural similarity, or continuous reciprocal relationships, between the parties
- Leadership role from one nation
- Small uncertainty about costs and benefits
- Low bargaining costs
- Other benefits to the treaty - either formal (other treaties) or informal (reputation).
Why was the Kyoto Protocol not particularly effective?
Emissions reductions were not particularly stringent, and could be traded between countries. Since many ex-Soviet countries significantly deindustrialised over the treaty period, many of their ‘reduced’ emissions were used as substitutes for abatement in developed countries.
In addition, the Protocol had very little legal force. When on track to miss their targets, Canada simply withdrew and faced no punishment.
Why can the treaty game not be solved through infinite repetition and ‘grim-trigger’ punishment?
Assuming that the only possible punishment is lowering the level of abatement effort, punishment isn’t credible. It is not renegotiation-proof.
Why do ‘social costs of free riding’ significantly increase the amount of participation that can be sustained?
Participation is difficult to sustain in the treaty game because punishments affect all members, including signatories. Social costs of free-riding affect only non-signatories. If these are large, there are large costs to defection that do not affect the signatories, and so participation becomes much more attractive.
How does the Paris agreement determine countries’ contributions to emissions reductions? Is this a good mechanism?
Countries announce Nationally Determined Contributions unilaterally. These are then subject to comparison and overall assessment of likely consequences. Countries with low ambition are ‘named and shamed’.
This means there is no effective treaty in place that ensures emissions will fall - countries unconcerned with their international reputation can simply announce very unambitious NDCs. However, experimental evidence shows that the review process can improve targets and pledges, or at least provide a focal point for countries to coordinate their ambitions.
What is the catastrophe avoidance game? What is its Nash equilibrium?
The catastrophe avoidance game is a modification of the public goods provision game, such that large damages D are faced by all unless contributions exceed Z. \bar Z≤N, so avoiding the catastrophe is feasible. One Nash equilibrium is zero contribution from anyone, but another is that all contribute Z/N. Deviation triggers the catastrophe, so there are no incentives to deviate.
