Discussion Papers No. 505, June 2007 Statistics Norway, Research Department
Geir B. Asheim and Bjart Holtsmark
Pareto-efficient climate agreements
Abstract:
Recent contributions show that climate agreements with broad participation can be implemented as weakly renegotiation-proof equilibria in simple models of greenhouse gas abatement where each country has a binary choice between cooperating (i.e., abate emissions) or defecting (no abatement).
Here we show that this result carries over to a model where countries have a continuum of emission choices. Indeed, a Pareto-efficient climate agreement can always be implemented as a weakly renegotiation-proof equilibrium, for a sufficiently high discount factor. This means that one need not trade-off a “narrow but deep” treaty with a “broad but shallow” treaty.
Keywords: Climate, non-cooperative game-theory, repeated games, weakly renegotiation-proof agreements
JEL classification: C72, F53, Q54.
Acknowledgement: We thank Jon Hovi for many helpful comments.
Address: Geir B. Asheim, Department of Economics, University of Oslo.
E-mail: g.b.asheim@econ.uio.no
Bjart Holtsmark, Statistics Norway, Research Department.
E-mail: bjart.holtsmark@ssb.no
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