Game theory and climate diplomacy

Starting with the “New Periodic Table” (NPT) of 2 × 2 order games introduced by Robinson and Goforth (2005), we provide an exhaustive treatment of the possible game-theoretic characterizations of climate negotiations between two players (e.g., Great Powers or coalitions of states). Of the 144 distinct 2 × 2 games in which the players have strict ordinally ranked utilities, 25 are potentially relevant to climate problem. The negotiations may be characterized as a No-Conflict Game, Prisoner's Dilemma, Coordination Game, Chicken, Type Game, or Cycle, depending on the payoff matrix. Which game corresponds to the actual state of the world depends both on the severity of risks associated with climate change and the perceptions of the governments engaged in the negotiations. Nash equilibrium or Maxi-min equilibrium (or neither) may be the outcome. Achieving universal abatement of greenhouse gas emissions may require side payments or enforcement mechanisms outside the game framework, but we show how the negotiations themselves may offer opportunities to select between Nash equilibria or alter the payoff rankings and strategic choices of the players. In particular, scientific information pointing to the severity of the risks of climate change suggests characterization of the negotiations as a Coordination Game rather than a Prisoner's Dilemma.     

Of mice and men: Within gender variation in strategic behavior

We study behavioral differences across and within genders in a family of ultimatum and dictator games. We find these differences are due not only to altruistic preferences but also beliefs about the strategic behavior of others. The behavior of men in strategic situations is not significantly more aggressive than women on average. But this average masks wide variation in intra-gender behavior. In particular, a sizable minority of males are “mice,” behaving timidly in strategic environments. Our experimental design shows that the standard ultimatum game can mask significant inter- and intra-gender differences in strategic behavior. These behavioral patterns in strategic environments are shown to be correlated with preferences for altruism in non-strategic settings. Such gender differences could well manifest themselves in real-world large-stakes transactions, such as salary negotiations.     

(Un)fair Delegation: Exploring the Strategic Use of Equity Rules in International Climate Negotiations

We provide a new approach for identifying a strategic use of equity arguments in international (climate) negotiations. We first develop a theoretical model of strategic delegation which accounts for both environmental as well as equity preferences. We show that the strategic use of equity arguments qualitatively depends on the extent to which environmental preferences can be misrepresented: representatives from different countries may be expected to have similar equity views rather than widely differing perceptions of a fair share. Based on survey data on climate negotiations, we then provide empirical evidence for differences between equity preferences of citizens from Germany, China, and the U.S. and the perceived view on the position of their respective countries.     

Of mice and men: Within gender variation in strategic behavior

We study behavioral differences across and within genders in a family of ultimatum and dictator games. We find these differences are due not only to altruistic preferences but also beliefs about the strategic behavior of others. The behavior of men in strategic situations is not significantly more aggressive than women on average. But this average masks wide variation in intra-gender behavior. In particular, a sizable minority of males are “mice,” behaving timidly in strategic environments. Our experimental design shows that the standard ultimatum game can mask significant inter- and intra-gender differences in strategic behavior. These behavioral patterns in strategic environments are shown to be correlated with preferences for altruism in non-strategic settings. Such gender differences could well manifest themselves in real-world large-stakes transactions, such as salary negotiations.     

Trade liberalization in environmental goods

Trade negotiations have started to pay attention to liberalization in environmental goods (EGs), whose production may require dirty intermediate goods. We construct a two-country trade model to explore the effects of trade liberalization in EGs on the local pollution, the global environment and welfare in the presence of such an environmental conundrum. We find that countries do not necessarily benefit from trade liberalization in EGs in the absence of an environmental policy. With the assistance of an upstream pollution tax, trade liberalization in EGs improves each country's welfare. This result holds independent of whether the upstream market is competitive or not, or whether we have upstream trade across countries. For asymmetric countries, trade liberalization in EGs improves the world welfare and the welfare for the country if it has a smaller demand for EGs; or experiences less damage from the production of dirty inputs; or values environment improvement more.     

The Role of Gatt in Trade Negotiations: A Game-Theoretic Perspective

The purpose of this paper is to explain theoretically the role of GATT in tariff negotiations, without narrowly interpreting GATT as an agreement. This paper, which establishes a game model where two nations are involved in tariff negotiations, shows the following points. First, free trade is difficult to realize even in a world with complete information. Second, GATT can serve as a mechanism for nations to find a particular cooperative tariff under incomplete information. Third, gradual tariff reduction can be explained as the interaction between the gradual decline of domestic political pressure and multilateral tariff negotiations under GATT. [F13]     

Making executive politics mutually productive and fair

Winner-take-all elections for executive offices create high-stakes electoral conflict that distorts policy-making and constitution-making behavior. When the stakes are high, so long as it increases the chances of victory, office-seekers seek to shift perceived benefits toward and burdens away from potentially pivotal participants. This can entail the strategic allocation of spoils, the strategic selection of public policies that mobilize one’s base or divide the opposition, the strategic shifting of benefits into the present and costs into the future, and the strategic deception of the uninformed. This paper proposes a “turn-taking institution,” an electoral system in which the whole term is only awarded to a sufficiently inclusive supermajority coalition; if no coalition qualifies, the plurality winner and the runner-up take alternating one-year turns for the length of the term. This institution lowers the stakes of electoral conflict by roughly an order of magnitude, and fosters the formation, enforcement and adaptation of mutually productive policy-making and constitution-making behaviors. Critically, these results hold up even when voters and policy-makers are impatient, and when only short-run commitments are possible.     

Convergence of outcomes and evolution of strategic behavior in double auctions

We study the emergence of strategic behavior in double auctions with an equal number of buyers and sellers, under the distinct assumptions that orders are cleared simultaneously or asynchronously. The evolution of strategic behavior is modeled as a learning process driven by a genetic algorithm. We find that, as the size of the market grows, allocative inefficiency tends to zero and performance converges to the competitive outcome, regardless of the order-clearing rule. The main result concerns the evolution of strategic behavior as the size of the market gets larger. Under simultaneous order-clearing, only marginal traders learn to be price takers and make offers equal to their valuations/costs. Under asynchronous order-clearing, all intramarginal traders learn to be price makers and make offers equal to the competitive equilibrium price. The nature of the order-clearing rule affects in a fundamental way what kind of strategic behavior we should expect to emerge.     

International support of climate change policies in developing countries: Strategic, moral and fairness aspects

International transfers in climate policy channeled from the industrialized to the developing world either support the mitigation of climate change or the adaptation to global warming. From a purely allocative point of view, transfers supporting mitigation tend to be Pareto-improving whereas this is not very likely in the case of adaptation support. We illustrate this by regarding transfer schemes currently applied under the UN Framework Convention on Climate Change (UNFCCC) and the Kyoto framework.However, if we enrich the analysis by integrating distributional aspects, we find that international adaptation funding may help both the developing and developed world. Interestingly this is not due to altruistic incentives, but due to follow-up effects on international negotiations on climate change mitigation. We argue that the lack of fairness perceived by developing countries in the international climate policy arena can be reduced by the support of adaptation in these countries. As we show - taking into account different fairness concepts - this might raise the prospects of success in international negotiations on climate change. Yet, we find that the influence of transfers may induce different fairness effects on climate change mitigation negotiations to run counter.We discuss whether current transfer schemes under the UNFCCC and the Kyoto framework adequately serve the distributive and allocative objectives pursued in international climate policy.     

中国工业产业结构与企业技术研发行为的实证分析

产业结构升级一直是我国经济学界所关心的一个问题，工业产业的升级更是一个众所关注的焦点。本文在前人研究的基础上，利用中国工业产业数据，采用了经典的SCP范式模型．对熊彼特的两个经典假说进行了验证。发现竞争与企业利润同时对企业研发具有促进作用．熊彼特两个相互矛盾的结论同时得到了支持。通过对应分析，我们对中国工业内产业不同特点和企业不同特点进行了归类，提出国有企业在不同行业的产值比重是导致了这两个看似矛盾的结论同时并存的原因。     

Tough negotiations: Bilateral bargaining with durable commitments

We offer a tractable model of tough negotiations and delayed agreement. The setting is an infinite horizon bilateral bargaining game in which negotiators can make strategic commitments to durable offers. Commitments decay stochastically, but uncommitted negotiators can make new commitments. The game's unique Markov Perfect equilibrium outcome takes the form of a war of attrition: Negotiators initially commit to incompatible offers, but agreement occurs once a negotiator's commitment decays. If commitments decay more quickly, the terms of the agreement become more equal. In expectation, more patient, committed, and less risk averse negotiators obtain a larger fraction of the surplus.     

Interregional negotiations and strategic delegation under government subsidy schemes

We examine the strategic delegation problem in the context of interregional negotiations under the subsidy policies of a central government. It is well known that when such negotiations are delegated to representatives, each region in a country elects its representative strategically, resulting in inefficient negotiation outcomes. This study focuses on a common subsidy policy called a cost-matching grant to examine whether an optimal grant exists that restores the efficiency of negotiation outcomes. Our results show that the central government obtains this optimal grant if the manipulability of the negotiation breakdown outcome is sufficiently weak. The strength of the manipulability is important because introducing a grant generates a new kind of manipulation of negotiation breakdown outcomes. However, when a new representative is elected after a negotiation breaks down, the new manipulability is negated. Hence, the central government always obtains the optimal cost-matching grant.     

Aumann's and Schelling's Game Theory: The Nobel Prize in Economic Science, 2005

Abstract

Robert Aumann and Thomas Schelling won the Nobel Prize in Economic Science in 2005. Their work in game theory shows two different approaches to understanding strategic interaction. Schelling's work on the strategic aspects of negotiations, focal points, and self-command is mathematically informal and is based on experimental and inductive knowledge of players' capabilities. Aumann's work on repeated games and common knowledge is mathematically deductive, and assumes highly rational agents. An exploration of their work allows for a comparison of these two approaches.     

On the emergence of an MFN club: equal treatment in an unequal world

Abstract .  Motivated by GATT, we endogenize the formation of a club whose members have to abide by the MFN principle of non-discrimination. The underlying model is that of oligopolistic intraindustry trade. While an MFN club does not alter average tariff levels across countries, it increases aggregate world welfare; makes non-members worse off; and can immiserize its high cost members. These results imply that (i) core WTO rules such as MFN are valuable even if multilateral negotiations deliver limited trade liberalization and (ii) the distributional effects of MFN maybe one reason why developing countries have been granted Special and Differential treatment at the WTO.     

Economic valuation of the vulnerability of world agriculture confronted with pollinator decline

There is mounting evidence of pollinator decline all over the world and consequences in many agricultural areas could be significant. We assessed these consequences by measuring 1) the contribution of insect pollination to the world agricultural output economic value, and 2) the vulnerability of world agriculture in the face of pollinator decline. We used a bioeconomic approach, which integrated the production dependence ratio on pollinators, for the 100 crops used directly for human food worldwide as listed by FAO. The total economic value of pollination worldwide amounted to €153 billion, which represented 9.5% of the value of the world agricultural production used for human food in 2005. In terms of welfare, the consumer surplus loss was estimated between €190 and €310 billion based upon average price elasticities of − 1.5 to − 0.8, respectively. Vegetables and fruits were the leading crop categories in value of insect pollination with about €50 billion each, followed by edible oil crops, stimulants, nuts and spices. The production value of a ton of the crop categories that do not depend on insect pollination averaged €151 while that of those that are pollinator-dependent averaged €761. The vulnerability ratio was calculated for each crop category at the regional and world scales as the ratio between the economic value of pollination and the current total crop value. This ratio varied considerably among crop categories and there was a positive correlation between the rate of vulnerability to pollinators decline of a crop category and its value per production unit. Looking at the capacity to nourish the world population after pollinator loss, the production of 3 crop categories - namely fruits, vegetables, and stimulants - will clearly be below the current consumption level at the world scale and even more so for certain regions like Europe. Yet, although our valuation clearly demonstrates the economic importance of insect pollinators, it cannot be considered as a scenario since it does not take into account the strategic responses of the markets.     

Information, bilateral negotiations, and worker recruitment

This paper studies experimentally how firms choose between using a centralized market and bilateral negotiations to recruit new personnel. In the market firms interact with several workers but do not have information about workers’ behavior in the past. In the bilateral negotiations firms negotiate bilaterally with prospective workers and learn about workers’ performance in previous jobs. We show that the interaction between social preferences, the incompleteness of contracts and the existence of information about a worker’s past performance provides an explanation for firms forgoing market opportunities and bilaterally negotiating with a worker. We observe that approximately 30% of all job contracts were bilaterally negotiated when these contracts are incomplete as opposed to only 10% when contracts were complete. The surplus from trade is higher when incomplete contracts can be bilaterally negotiated, which can be attributed to the presence of information.     

Renegotiations in the Greenhouse

International climate policies are being shaped in a process of ongoing negotiations. This paper develops a sequential game framework to explore the stability of international climate agreements allowing for multiple renegotiations. We analyse how the incentives to reach an international climate agreement in the first period will be impacted by the prospect of further negotiations in later periods and by the punishment options related to renegotiations. For this purpose we introduce a dynamic model of coalition formation with twelve world regions that captures the key features of the climate-economy impacts of greenhouse gas emissions. For a model with one round of renegotiations we find that a coalition of China and the United States is the unique renegotiation proof equilibrium. In a game with more frequent renegotiations we find that the possibility to punish defecting players helps to stabilise larger coalitions in early stages of the game. Consequently, several renegotiation proof equilibria emerge that outperform the coalition of China and USA in terms of abatement levels and global payoff. The Grand Coalition, however, is unstable.     

On the core of economies with multilateral environmental externalities

We revisit the cooperative model of coalition formation in economies with environmental externalities. Motivated by recent concerns over the true behavior and incentives of key players in international negotiations over the climate and the environment, we construct a cooperative game where the members of each coalition have uncertainty over the behavior of the nonmembers, and in particular they face uncertainty over their coalition structure. As a result, a coalition assigns various probability distributions over the set of partitions the outsiders can form. We compute the payoff of each coalition under this assumption and we derive conditions under which the core of the induced cooperative game is nonempty.     

Heterogeneity,impatience, and dynamic private provision of a discrete public good

We analyze dynamic private provision of a discrete public good by heterogeneous agents, who differ in terms of their levels of impatience, in a differential game framework. In contrast to the strategic complementarity result for homogeneous individuals, we show that an asymmetric completion Markov perfect equilibrium exists, where the individual contributions and the strategic behaviors depend crucially on an impatience differential: the difference in rates of time preference across groups of individuals. When this differential is insignificant, contributions of both types of individuals are strategic complements. On the other hand, when this impatience differential exceeds a threshold, the contributions of impatient individuals become strategic substitutes, whereas the contributions of patient individuals remain strategic complements. We show that group size has an interesting role to play in the strategic behavior: increasing the number of patient individuals aggravates the incentives to free‐ride by the impatient agents. We also derive a condition under which all the socially beneficial projects get completed in the equilibrium.     

Segmented Work and Divided Workers: A Review Article

The Coase theorem is often interpreted as demonstrating why private negotiations between polluters and victims can yield efficient levels of pollution without government interference. It is considered by many to provide the theoretical underpinnings for "free-market" solutions to environmental problems. This article explains why misinterpreting Coasian negotiations as a market driven process leads to erroneous conclusions. More importantly, this article demonstrates why negotiations between polluters and victims would fail to yield efficient outcomes even if property rights were well-defined, even if there were only a single victim, even if negotiations entailed no transaction costs, and even if negotiators behaved rationally and reached a successful agreement. Unlike other critiques of the Coase theorem that focus on irrational behavior and transaction costs, our critique identifies perverse incentives that arise even under conditions most favorable to the theorem. By accepting, rather than challenging, the premises of the theorem, our analysis provides an "internal" critique that strengthens well-known "external" criticisms.