Differential Game Approach for International Environmental Agreements with Social Externalities
Year: 2015 Volume: 9 Issue: 3 Pages: 135-154
Abstract: In this work we study an N-player differential game, in which positive social externalities affect the payoffs of the players when they make an agreement. We divide the N players in two homogeneous groups, N1 developed countries and N2 developing countries. For the latter, we consider a damage-cost function that evolves in time. We imagine the externalities as the possibility that bilateral or multilateral agreements of various nature are by-products of an International Environmental Agreement (IEA). After the determination of emissions solutions, we use the externalities to investigate whether it is possible to have a self-enforcing agreement on pollution emissions in the short run.
JEL classification: C72, C73
Keywords: Differential game, self-enforcing agreement, social externality, asymmetric players
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