Game analysis of Kyoto and post-Kyoto schemes

Abstract

Game theory is a tool utilized in economics to analyze the consequences of interaction among rational agents. It has been found to be especially useful for evaluating the workings of economic schemes at the theoretical level and also designing a possible mechanism to improve the economic system. In environmental economics, the use of game theory is most prominent in the analysis of IEAs (international environmental agreements), and the current negotiations on post-Kyoto (or post-2012) present a potential interesting application of game theory. Furthermore, such studies inspire further use of game theoretical tools in the study of such issues. In this chapter, we examine game theory analysis in this context and suggest some further directions of study with an emphasis on the role played by one particular mechanism under the Kyoto protocol (KP) called the CDM (clean development mechanism).