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In Light of Game Theory, Australia’s New Carbon Tax is Not a Good Bargaining Chip


The current prime minister of Australia, Julia Gillard, set into motion a carbon tax in an effort to reduce the Australia’s carbon emissions, and hopefully encourage the rest of the world to follow suit.  The article describes the futility of such a gesture, if its only goal were to decrease carbon emissions in only Australia.  30,000 million tons of carbon dioxide emissions can be attributed to human activity in 2008.  If the carbon tax is successful in its reduction plan, it will reduce carbon dioxide emissions by 160 million tons, less than 0.5% of the world’s emissions.  It is argued that this tax is only beneficial if it sets into motion global reductions by encouraging other nations.

This article was written by a member of parliament who belongs to a different party than the prime minister, which may explain the level of criticism, and his bottom line is he is promoting his party’s plan as superior to Gillard’s tax.    Despite this bias, as the situation is described, Gillard’s form of the carbon tax would be a poor choice in light of Game Theory, and more specifically, the Prisoner’s Dilemma.  In this situation, the “prisoners” would be all of the nations including Australia.  Furthermore, each nation has two strategies: to incur the carbon tax in their respective nation, or to not implement the tax.  Just as in the prisoner’s dilemma, the ideal strategy should be for everyone to “stay silent” and cooperate, or in this case implement the tax, the only problem is, you are not sure if the other parties will “confess” or defect from the tax.  In the fear of other nations defecting, many others may defect in response.  The nations would benefit from implementing the tax by experiencing global emission reduction, but would be facing costs, costs which may prove higher if other nations defect.

The author in this article criticizes Gillard’s approach of implementing the tax regardless of other nation’s actions, a weak prospective strategy at the bargaining table with other nations. He therefore proposes a plan called the Coalition’s Direct Action Plan, which is different in that the plan would pull out of the tax if there was no global agreement by the year 2020. This exploits the fact that, though cooperating seems like a potentially bad idea in the short term, we could reduce our losses if we respond to the lack of cooperation in subsequent years.  This advantage is seen in multi-round game of game theory.

http://www.abc.net.au/unleashed/2900870.html

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