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The core of an economy with multilateral environmental externalities

Chander, Parkash and Tulkens, Henry (1997) The core of an economy with multilateral environmental externalities. International Journal of Game Theory, 26 (3). pp. 379-401. ISSN 0020-7276. https://resolver.caltech.edu/CaltechAUTHORS:20170829-104517613

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Abstract

When environmental externalities are international — i.e. transfrontier — they most often are multilateral and embody public good characteristics. Improving upon inefficient laissez-faire equilibria requires voluntary cooperation for which the game-theoretic core concept provides optimal outcomes that have interesting properties against free riding. To define the core, however, the characteristic function of the game associated with the economy (which specifies the payoff achievable by each possible coalition of players—here, the countries) must also reflect in each case the behavior of the players which are not members of the coalition. This has been for a long time a disputed issue in the theory of the core of economies with externalities. Among the several assumptions that can be made as to this behaviour, a plausible one is defined in this paper, for which it is shown that the core of the game is nonempty. The proof is constructive in the sense that it exhibits a strategy (specifying an explicit coordinated abatement policy and including financial transfers) that has the desired property of nondomination by any proper coalition of countries, given the assumed behavior of the other countries. This strategy is also shown to have an equilibrium interpretation in the economic model.


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https://doi.org/10.1007/BF01263279DOIArticle
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Additional Information:© 1997 Physica-Verlag. Received: 15 September 1995; Revised: 15 September 1996. Acknowledgements are due to Karl Göran Miller for numerous fruitful discussions and his hospitality at the Beijer International Institute for Ecological Economics, Royal Swedish Academy of Sciences, Stockholm, during May-June 1992, as well as to Francis Bloch and Jacques Drèze for their comments on earlier versions of this paper. We also benefitted from discussions at seminar presentations made at CORE, the Copenhagen Business School, the Séminaire Cournot (Paris I), the 1994 FEEM-IMOP workshop "Environment: Policy and Market Structure" in Athens, and the 1994 Maastricht meeting of the Econometric Society. This work was initially stimulated by the European Science Foundation programme "Environment, Science and Society". The first author is grateful to California Institute of Technology for providing an adequate environment for completing this research. The second author thanks the Fonds de la Recherche Fondamentale Collective, Brussels (convention no 2.4589.92) and the Commission of the European Communities (DG XII: Project "Environmental Policy, International Agreements and International Trade") for their support.
Issue or Number:3
Record Number:CaltechAUTHORS:20170829-104517613
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20170829-104517613
Official Citation:Chander, P. & Tulkens, H. Int J Game Theory (1997) 26: 379. https://doi.org/10.1007/BF01263279
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:80898
Collection:CaltechAUTHORS
Deposited By: Tony Diaz
Deposited On:30 Aug 2017 17:55
Last Modified:03 Oct 2019 18:36

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