Using Game Theory to reduce Greenhouse Gas Emissions
Journal article: http://www.pik-potsdam.de/members/heitzig/how-to-cooperate-in-the-emissions-game-and-other-repeated-public-good-games
Summary of journal article: http://www.huffingtonpost.com/2011/09/16/climate-change-solution-game-theory_n_965027.html
The first link is for a journal article written by Jobst Heitzig called “Self-enforcing strategies to deter free-riding in the climate change mitigation game and other repeated public good games,” and the second link is a summary of the journal article in the news. The article describes a game theory strategy proposed by economists to successfully convince nations to participate in greenhouse gas mitigation programs.
In the past, the Kyoto Protocol, an international agreement intended to limit all countries’ greenhouse gas emissions, has failed. The United States is the only country that has not yet signed it. One reason for this is because rapidly industrializing developing countries are not required to limit their greenhouse gas emissions while the United States is required to limit them. According to projections, these countries’ greenhouse gas emissions will eventually surpass those of the United States. Thus, the Kyoto Protocol would give these countries an economic advantage over the United States. To put this into terms used in class, the currently proposed Kyoto Protocol has a much larger negative payoff for the United States than for developing countries. As a player in the GHG emissions reduction game, the Unites States stayed out of the agreement for a selfish, rational reason.
As another way to reason why the Kyoto Protocol has failed is to view the GHG emissions reduction agreement as a version of the Prisoners’ Dilemma. Here, “agree to limit emissions” is parallel to “not confess” because it requires the cooperation of different countries, and “emit the country’s optimum” is parallel to “confess.” Hence, all countries have reason to suspect that they will be at an economic disadvantage if they cap their emissions and then other countries fail to follow the Protocol to which they agreed. Like in Prisoners’ Dilemma, the dominant strategy for these countries is to emit the country’s economically optimal level of emissions.
The new strategy proposed by Heitzig balances the negative payoffs for participating countries. The strategy is called linear compensation, and it works in the way shown in the figure below, which uses three people gardening as an example. According to linear compensation, if one person fails to produce enough carrots (i.e. a nation falls short of the required GHG reductions) , then the person must produce a larger number of carrots during the next harvest, while the other gardeners are required to produce fewer carrots (i.e. the nation that fails to reduce its GHG’s by the required amount one year must reduce its GHG’s by an even larger amount the following year).
an analogy of community gardening to LinC
This LinC strategy is a Nash equilibrium because a country’s best response to other countries’ abiding by the agreement is to abide by the agreement as well. The strategy is also pareto-optimal because countries are not better off when they choose not to reduce their emissions by the specified percentage. The researchers’ proposition is a fair game to implement because it requires little knowledge of other countries’ costs and benefits.