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Who wins in climate change?

Investigating game theory and climate change

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In a recent paper, entitled Game theory and climate diplomacy, Stephen J. DeCanio and Anders Fremstad look into the factors that influence global politics relating to climate change and what governments are doing about it.  The paper runs nearly parallel with the material covered in our course, looking at the 25 cases of “New Periodic Table” (NPT) games from a 2×2 grid.

Often, the media represents the conflict of environmental and economic interests among superpowers as very similar to that of a prisoner’s dilemma, no country wants to sacrifice their own productivity only for another to gain.  In this case it is two global giants, say the United States and China that are facing off.  Both countries want to keep their economies and military strength as high as possible relative to each other.  If their choices are to either abate (A) and decrease their pollution levels, or to simply pollute (P) and ignore the environment, with payoffs (USA, China) of

(A, A) = (3,3)

(A, P) = (1,4)

(P, A) = (4,1)

(P, P) = (2,2)

As we have learned, the Nash equilibrium will be (2,2), as that is the best response for each country economically, and both countries will pollute.  However, as DeCanio and Fremstad find, there is no real reason to declare the Prisoner’s Dilemma as the best representation of this climate game.  They summarize that the Coordination Game is actually a better representation.  Again, as we have seen in class, the coordination game consists of two Nash equilibria.  They offer the following payoffs in the game;

(A, A) = (4,4)

(A, P) = (1,3)

(P, A) = (3,1)

(P, P) = (2,2)

Both countries will either abate or pollute but, if they decide to follow a abatement policy, there will be no incentive for either of them to start polluting as they will have a lower payoff regardless.  Even with all of this analysis, it is hard to say exactly what countries will do in the world today.  As seen with the original Kyoto Protocol, the United States refused to ratify the treaty as they saw it as too large of an economic loss.  In today’s economic climate, it is very difficult for any country to force expensive legislation on it’s corporations and the incentives to do so must be quite large and very apparent in order for countries to truly become pareto efficient and abate from polluting.

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