The Economics of Climate Change: Game Theory
When: Decisions of agents depend on decisions of other agents,
(Compare: Violation of the “No ‘Market’ Power assumption”)
Then: We are facing strategic actions of type “If I think that you
Such a decision
problem is studied using game theory!p g g y
Two types of approaches:
h Non‐cooperative game theory:
Assumes that binding agreements are not possible.
Cooperative game theory:
A h bi di ibl H fi b Assumes that binding agreements are possible. Hence first‐best
solutions are possible as well.
In reality this is generally not the case…
W f ti We focus on non‐cooperative games