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 behavior, 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.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Barrett, S., 1990. The problem of global environmental protection, Oxford Review of Economic Policy, 6(1), 68–79.
Bernheim B.D, Peleg, B. and Whinston, M.D., 1987. Coalition proof Nash equilibria 1 concepts, Journal of Economic Theory, 42, 1–12.
Carraro, C. and Siniscalco, D., 1993. Strategies for the international protection of the environment, Journal of Public Economics, 52, 309–328.
Champsaur, P., 1975. How to share the cost of a public good, International Journal of Game Theory, 4, 113–129.
Chander, P., 1993. Dynamic procedures and incentives in public good economies, Econometrica, 61, 1341–1354.
Chander, P. and Tulkens, H., 1991-2001. Strategically stable cost sharing in an economic-ecological negotiation process. CORE Discussion Paper no 9135, also in A. Ulph (ed.), Environmental policy, International agreements, and International trade. Oxford: Oxford University Press 2001, chapter 4, 66–80.
Chander, P. and Tulkens, H., 1992a. Theoretical foundations of negotiations and cost sharing in transfrontier pollution problems, European Economic Review, 36(2/3), 288–299. (Chapter 6 in this volume).
Chander, P. and Tulkens, H., 1992b. Aspects stratégiques des négociations internationals sur les pollutions transfrontières et du partage des coûts de l’épuration, Revue Economique, 43(4), 769–781.
Chander, P. and Tulkens, H., 1995. A core-theoretical solution for the design of cooperative agreements on transfrontier pollution, International Tax and Public Finance, 2(2), 279–294. (Chapter 9 in this volume).
Foley, D., 1970. Lindahl solution and the core of an economy with public goods, Econometrica, 38, 66–72.
Friedman, J., 1990. Game theory with applications to economics (2nd ed.). Oxford: Oxford University Press.
Germain, M., Toint, P. and Tulkens, H., 1996. Calcul économique itératif pour les négociations internationales sur les pluies acides entre la Finlande, la Russie et l’Estonie, Annales d’Economie et de Statistique (Paris), 43, 101–127.
Kaneko, M., 1977. The ratio equilibria and the core of the voting game G(N, W) in a public goods economy, Econometrica, 45, 1589–1594.
Laffont, J.J., 1977. Effets externes et théorie économique. Monographies du Séminaire d’Econométrie. Paris: Editions du Centre national de la Recherche Scientifique (CNRS).
Mäler, K.-G., 1989. The acid rain game, in H. Folmer and E. Van Ierland (eds.). Valuation methods and policy making in environmental economics. Amsterdam: Elsevier, 231–252.
Mas-Colell, A. and Silvestre, J., 1989. Cost sharing equilibria: a Lindahlian approach, Journal of Economic Theory, 47, 329–256.
Moulin, H., 1987. Egalitarian-equivalent cost sharing of a public good, Econometrica, 55, 963–976.
Ray, D. and Vohra, R., 1997. Journal of Economic Theory, 73, 30–78.
Scarf, H., 1971. On the existence of a cooperative solution for a general class of N-person games, Journal of Economic Theory, 3, 169–181.
Shapley, L., 1967. On balanced sets and cores, International Journal of Game Theory Quarterly, 14, 453–460.
Shapley, L., 1971. Cores of convex games, International Journal of Game Theory, 1, 11–26.
Shapley, L. and Shubik, M., 1969. On the core of an economic system with externalities, American Economic Review, LIX, 678–684.
Starrett, D., 1972. A note on externalities and the core, Econometrica, 41(1), 179–183.
Tulkens, H., 1979. An economic model of international negotiations relating to transfrontier pollution, in K. Krippendorff (ed.). Communication and control in society. New York: Gordon and Breach, 199–212. (Chapter 5 in this volume).
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2006 Springer Science+Business Media, LLC
About this chapter
Cite this chapter
Chander, P., Tulkens, H. (2006). The Core of an Economy with Multilateral Environmental Externalities. In: Chander, P., Drèze, J., Lovell, C.K., Mintz, J. (eds) Public goods, environmental externalities and fiscal competition. Springer, Boston, MA. https://doi.org/10.1007/978-0-387-25534-7_10
Download citation
DOI: https://doi.org/10.1007/978-0-387-25534-7_10
Publisher Name: Springer, Boston, MA
Print ISBN: 978-0-387-25533-0
Online ISBN: 978-0-387-25534-7
eBook Packages: Business and EconomicsEconomics and Finance (R0)