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International Journal of Game Theory

, Volume 26, Issue 3, pp 379–401 | Cite as

The core of an economy with multilateral environmental externalities

  • Parkash Chander
  • Henry Tulkens
Article

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.

Keywords

Characteristic Function Economic Theory Game Theory Optimal Outcome Environmental Externality 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Physica-Verlag 1997

Authors and Affiliations

  • Parkash Chander
    • 1
  • Henry Tulkens
    • 2
  1. 1.Indian Statistical Institute and California Institute of TechnologyNew DelhiIndia
  2. 2.COREUniversité Catholique de LouvainLouvain-la-NeuveBelgium

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