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Flexibility mechanisms and credit discounting

Published online by Cambridge University Press:  23 April 2003

Sungwhee Shin  and
Sang-Chul Suh
Sungwhee Shin
Affiliation:
Department of Economics, University of Seoul, 90 Cheonnong-dong, Tongdaemun-gu, Seoul, ZIP 130–743, Korea. Tel: 82–2–2210–2636. Fax: 82–2–2215–2719. E-mail: [email protected]
Sang-Chul Suh
Affiliation:
Department of Economics, University of Windsor, Ontario, Canada.
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Abstract

We consider the international treaties on climate change as self-enforcing agreements. Applying non-cooperative game theory, we interpret the UN framework Convention on Climate Change as a Nash equilibrium outcome of an international abatement game where only domestic abatement is allowed. The Kyoto Protocol is a Nash equilibrium outcome of the game where flexibility mechanisms are introduced. We also show that credit discounting on foreign abatement can Pareto improve the welfare of all countries.

Type
Theory and Applications
Information
Environment and Development Economics , Volume 8 , Issue 2 , May 2003 , pp. 247 - 260
Copyright
© 2003 Cambridge University Press

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Footnotes

We gratefully acknowledge the financial support of the University of Seoul Research Fund of the year 1999 and the BK 21 project. Sang-Chul Suh gratefully acknowledges the financial support of the SSHRCC. We thank the participants of the related sessions of the year 2000 Western Economic Association Meeting at Vancouver, Applied Microeconomic Workshop in Korea, and the year 2000 Korea International Economic Association Meeting for their comments. We are also grateful to Janghyung Cho and Jongjin Kim for their research assistance. We also thank anonymous referees for useful comments. All remaining errors are our own.