The Core of an Economy with Multilateral Environmental Externalities

INTERNATIONAL JOURNAL OF GAME THEORY, Vol. 26, No. 3 (1997)

Posted: 2 Sep 1997

See all articles by Parkash Chander

Parkash Chander

National University of Singapore (NUS) - Department of Economics

Henry Tulkens

Catholic University of Louvain - Center for Operations Research and Econometrics (CORE)

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 behaviour 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 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 constructivein 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 behaviour of the other countries. This strategy is also shown to have an equilibrium interpretation in the economic model.

JEL Classification: Q20, Q30, C70

Suggested Citation

Chander, Parkash and Tulkens, Henry, The Core of an Economy with Multilateral Environmental Externalities. INTERNATIONAL JOURNAL OF GAME THEORY, Vol. 26, No. 3 (1997), Available at SSRN: https://ssrn.com/abstract=11014

Parkash Chander (Contact Author)

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

Henry Tulkens

Catholic University of Louvain - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium
+32 10 47 43 21 (Phone)
+32 10 47 43 01 (Fax)

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