transfers to sustain dynamic core theoretic cooperation in international stock pollutant control international environmental agreements aiming at correcting negative externalities generated by transboundary pollution are difficult to achieve for many reasons important obstacles arise from asymmetry in costs and benefits and instability may occur due to the fact that coalitions of countries may attempt to do better for themselves outside of any proposed agreement in a static context it has already been shown that it is possible to achieve stability in the sense of the core of a co operative game by means of appropriately defined transfers between the countries involved however the transboundary pollution problems that are most important are caused by accumulated pollutants so that a dynamic analysis is required this paper provides a transfer scheme that yields a core property in a dynamic context the possibility of computing such transfers numerically is discussed

non cooperative and cooperative climate policies with anticipated breakthrough technology abstract global warming can be curbed by pricing carbon emissions and thus substituting fossil fuel with renewable energy consumption breakthrough technologies e g fusion energy can reduce the cost of such policies however the chance of such a technology coming to market depends on investment we model breakthroughs as an irreversible tipping point in a multi country world with different degrees of international cooperation we show that international spill over effects of r d in carbon free technologies lead to double free riding strategic over pollution and underinvestment in green r d thus making climate change mitigation more difficult we also show how the demand structure determines whether carbon pricing and r d policies are substitutes or complements

best policy response to environmental shocks applying a stochastic framework abstract the paper develops a general framework for the analysis of environmental shocks in growing economies endogenous capital investments allow identifying the dual role of capital as a buffer against shocks and a source of pollution we study the effects of recurring natural disasters on optimal growth and efficient environmental policies emissions may cause continuous fluctuations entail discrete and recurring jumps or trigger so called tipping points with large costs to the economy closed form solutions are provided for all the model variants we discuss possible applications in environmental economics and identify current research gaps

coalitional game theory approach to modeling suppliers collaboration in supply networks abstract suppliers collaboration is a new paradigm to improve the utilization of collective intelligence in supply networks although existing literature advocates the notion of cooperation in supply networks there is a dearth of studies quantitatively analyzing cost and benefit of cooperation in this study we first develop a model for suppliers dynamic coalition formation using coalitional game theory the proposed cost structure influences the utility of each possible coalition and restricts the coalition size and search space for finding possible coalitions to distribute the profit earned by cooperation in a fair manner a criterion named shared capacity index is developed according to suppliers capacity share in the corresponding coalition a suppliers cooperation algorithm is then proposed to resolve possible conflicts among network members whereby each supplier is able to explore coalitional structures autonomously the efficiency of the proposed approach is evaluated through simulation studies and compared to other solution methods including shapley value and proportional fairness results demonstrate that long term cooperation among suppliers leads to enhanced average individual profit in the network

pollution control under a possible future shift in environmental preferences abstract we examine how the possibility of a future shift in environmental preferences affects optimal pollution emissions for example is a more stringent carbon cap called for if excessive carbon emissions today may trigger a shift toward greener preferences in the future in contrast to the related literature which largely focuses on regime shifts in damages not preferences we find that the possibility of a shift in environmental preferences can induce higher or lower optimal current emissions this hinges on an economically interesting interplay between the magnitude of the possible shift whether the shift is endogenous and the magnitude of environmental damages this helps reconcile the tension between the conservationists view of pollution reduction to reduce damage and lessen the likelihood of regime shift and the traditional economic rationale emphasizing risk and discounting

optimal fishery management with regime shifts an assessment of harvesting strategies this paper compares outcomes from informed and uninformed harvesting strategies for a fish stock with switching dynamics where the probability of switching is influenced by climate using data on sea surface temperature anomalies the impacts of climate on the conservation and the welfare that can be extracted from the stock are investigated results indicate that an informed management policy leads to stock biomass and resource rents that are up to 2 7 and 2 times higher respectively than under an uninformed policy also the fishery is open 54 longer under the informed policy the magnitude of these effects depends on the choice of the discount rate indicating that when the future is highly discounted gains from the informed policy dissipate

ex ante and ex post welfare optimality under uncertainty it is widely believed by economic theorists that if there were no transactions costs and if all information about the economy were perfectly shared by all then arrow debreu contingent commodity markets should bring about an ideal allocation the basis for this belief seems clear we have the two efficiency theorems of welfare economics which assure us that in the absence of external effects any competitive allocation is pareto efficient and that any pareto efficient allocation is competitive provided that appropriate lump sum transfers are made of course there are some reservations that need to be made local satiation and non convexities are well known to cause problems but these are not the problems i wish to discuss here to return to the usual argument the next step involves noticing how with contingent commodity markets the efficiency theorems of welfare economics carry over to an economy with uncertainty as explained for instance in chapter 7 of debreu s theorpj of value the fundamental value judgment that gives these efficiency theorems their normative interest is what may be called consumer sovereignty it is an assumption that the social welfare ordering should respect the preferences that govern consumers market behaviour it is a serious value judgment more serious than most economists have been prepared to concede but its seriousness increases when there is uncertainty we know full well that individuals misperceive the probabilities of certain events assuming that they even perceive any probabilities at all see for example kahneman and tversky 1979 nor are we always willing to accept as appropriate the attitudes to risk of individuals who seem either extremely reckless or extremely cautious societies are often willing to make some gestures towards property owners who have not insured themselves adequately against damage from fire flood or tempest and not just because of imperfect insurance markets or even misperceptions of probabilities in addition the inequalities of income that arise when some individuals take more risks than others are not necessarily seen to be desirable particularly if an individual has undertaken a useful but risky activity and has a very low income as a result of failure such gestures are examples of contingent lump sum transfers it seems clear that if such transfers occur to a sufficient extent they could supplant completely the securities markets which are usually sufficient to bring about pareto efficiency they may even be able to go further and correct the imperfections of an arrow debreu market allocation when individuals do misperceive probabilities or else have wrong attitudes to risk this is the main question i wish to consider here the idea that consumer sovereignty should not always extend to economies with uncertainty is not new it can be found in work by diamond 1967 dr6ze

a theory of endogenous coalition structures consider an environment with widespread externalities and suppose that bind ing agreements can be written we study coalition formation in such a setting our analysis proceeds by defining on a partition function an extensive form bargaining game we establish the existence of a stationary subgame perfect equilibrium for such a game our main results are concerned with the characterization of equilib rium coalition structures we develop an algorithm that generates under certain conditions an equilibrium coalition structure our characterization results are especially sharp for symmetric partition functions in particular we provide a uniqueness theorem and apply our results to a cournot oligopoly journal of economic literature classification numbers c71 c72 c78 d62 q 1999 academic press

dynamic coalition formation and the core this paper presents a dynamic model of endogenous coalition formation in cooperative games with transferable utility tu the players are boundedly rational at each time step a player decides which of the existing coalitions to join and demands a payoff these decisions are determined by a best reply rule given the coalition structure and allocation in the previous period further the players experiment with myopically suboptimal strategies whenever there are potential gains from trade we establish an isomorphism between the set of absorbing states of the process and the set of core allocations and show that the process converges to one of these states with probability one whenever the core is non empty these results do not require superadditivity of the characteristic function and they carry over to the case of coalitional values depending on the coalition structure and to non transferable utility ntu games

the changing climate of climate change economics climate change economics is now four decades old much of what it has achieved as a field of academic enquiry can be linked back to issues of integrated assessment modelling this paper shows that the standard approach is going through a major change in scope as of the last five years the conventional focus on determining optimal mitigation paths based on modelling the social cost of carbon is being enlarged to embrace promising new waves of research these are 1 the economics of insurance against catastrophic risks 2 the economics of trade and climate and 3 the economics of climate change adaptation the paper helps to bridge the gap between economics and climate policy by showing that the analytical toolkit of climate change economics has shifted towards more realistic representations of climatic policy

nuclear power externalities and non standard pigouvian taxes the external effects arising from the use of nuclear power are in a fundamental way related to uncertainty in this paper we locate these external effects and derive a dynamic pigouvian tax in order to make the decentralized economy support the command optimum another interesting result is that a small constant energy tax which we interpret as a second best policy can take the decentralized economy reasonably close to the command optimum

international pollution control cooperative versus noncooperative strategies abstract international pollution control involving two neighboring countries is modeled as a simple two player dynamic game each country produces a good that is consumed by domestic households production of each consumption good results in emissions of pollutants households in each country derive utility from the consumption of the domestically produced good but incur costs through the total stock of pollution stock externality in this setting we characterize cooperative as well as noncooperative pollution control strategies of the governments of the two countries that maximize the discounted stream of net benefits of a representative consumer it turns out that when the governments are restricted to use linear strategies noncooperative behavior results in overall losses for both countries if on the contrary governments use nonlinear markov perfect strategies and the discount rate is small enough a pareto efficient steady state pollution stock can be supported as a differentiable subgame perfect equilibrium thus the emergence of first best solutions cooperative outcomes does not require any institutional arrangements threats retaliation etc but can be brought about through the use of nonlinear markov perfect equilibrium strategies

environmental innovation and the cost of pollution abatement revisited it is widely assumed in the literature that environmental innovation reduces the marginal cost of pollution abatement in this paper we show that this is not necessarily the case and we provide some unexpected outcomes

the management of fragile resources a long term perspective excessive exploitation diminishes the capacity of natural resources to withstand environmental stress increasing their vulnerability to extreme conditions that may trigger abrupt changes the onset of such events depends on the coincidence of random environmental conditions and the resource state determining its resilience examples include species extinction ecosystem collapse disease outburst and climate change induced calamities the policy response to the catastrophic threat is measured in terms of its effect on the long term behavior of the resource state to that end the l methodology developed originally to study autonomous systems is extended to non autonomous problems involving catastrophic threats

managing the endogenous risk of disease outbreaks with non constant background risk there is a growing concern that risks of disease outbreak and pandemics are increasing over time we consider optimal investments in prevention before an outbreak using an endogenous risk approach within an optimal control setting using the threat of pandemic influenza as an illustrative example we demonstrate that prevention expenditures are relatively small in comparison to the potential losses facing the usa and these expenditures need to be flexible and responsive to changes in background risk failure to adjust these expenditures to changes in background risk poses a significant threat to social welfare into the future

equilibrium binding agreements abstract we study equilibrium binding agreements the coalition structures that form under such agreements and the efficiency of the outcomes that result we analyze such agreements in a context where the payoff to each player depends on the actions of all other players thus a game in strategic form is a natural starting point unlike the device of a characteristic function explicit attention is paid to the behavior of the complementary set of players when a coalition blocks a proposed agreement a solution concept and its applications are discussed journal of economic literature classification numbers c70 c71

utilitarianism egalitarianism and the timing effect in social choice problems two theorems are derived about social choice functions which are defined on comprehensive convex subsets of utility allocation space theorem 1 asserts that a linearity condition together with pareto optimality implies that a social choice function must be utilitarian theorem 2 asserts that a concavity condition together with pareto optimality and independence of irrelevant alternatives implies that a social choice function must be either utilitarian or egalitarian these linearity and concavity conditions have natural interpretations in terms of the timing of social welfare analysis before or after the resolution of uncertainties and its impact on social choices

a prospect theory nash bargaining solution and its stochastic stability abstract we consider the long run outcomes of bargaining games when players obey prospect theory we extend the evolutionary bargaining model of young 1993 to a two stage nash demand game two players simultaneously choose whether to exercise an outside option in the first stage and play the nash demand game in the second stage which will be reached only if neither player exercises the outside option we address the influence on the stochastically stable division of reference dependent preferences where the reference point is the value of the outside option we show that the division consistently differs from the nash bargaining solution under expected utility theory inspired by this we propose a prospect theory nash bargaining solution which coincides with the stochastically stable division

comparative risk aversion abstract even when some risk prospects have no certain equivalents increases in risk aversion are equivalent to concave transformations of the utility function strict or sharp increases in risk aversion correspond to concave and non linear or strictly concave transformations respectively

stochastic stability under logit choice in coalitional bargaining problems abstract this study examines a dynamic process of n person coalitional bargaining problems we investigate the evolution of social conventions by embedding a coalitional bargaining setting in a dynamic process in each period a group of players may make some coalitional move that is forming a new team or negotiating the division of a surplus players revise their coalitions and surplus divisions over time in the presence of stochastic noise which leads players to make a suboptimal decision under a logit specification of choice probabilities we find that the stability of a core allocation decreases in the wealth of the richest player furthermore stochastically stable allocations are core allocations that minimize the wealth of the richest player

a dynamic game of emissions pollution with uncertainty and learning we introduce learning in a dynamic game of international pollution with ecological uncertainty we characterize and compare the feedback non cooperative emissions strategies of players when the players do not know the distribution of ecological uncertainty but they gain information learn about it we then compare our learning model with the benchmark model of full information where players know the distribution of ecological uncertainty we find that uncertainty due to anticipative learning induces a decrease in total emissions but not necessarily in individual emissions further the effect of structural uncertainty on total and individual emissions depends on the beliefs distribution and bias moreover we obtain that if a player s beliefs change toward more optimistic views or if she feels that the situation is less risky then she increases her emissions while others react to this change and decrease their emissions

dynamic resource management under the risk of regime shifts abstract this paper provides a framework through which a dynamic resource management problem with potential regime shifts can be analyzed both in a strategic environment and from a social planner s perspective based on a fairly general model a condition for a precautionary policy is discussed by applying the framework to a common property resource problem with a linear production technology we illustrate how the qualitative as well as quantitative nature of equilibrium is altered due to the possibility of regime shifts in particular when the risk is endogenously affected by the players behavior potential regime shifts can facilitate the precautionary management of resources as long as the resource stock is in good shape as the stock of resource becomes scarce however the precautionary effect vanishes and more aggressive resource exploitation emerges the impacts of irreversibility on the equilibrium behavior are highlighted it is also shown that there can exist a resource depletion trap in which a regime shift once it happens triggers a continuous decline of resource stock no matter which regime materializes in the subsequent periods

does the optimal size of a fish stock increase with environmental uncertainties we analyze the effect of environmental uncertainties on optimal fishery management in a bio economic fishery model unlike most of the literature on resource economics but in line with ecological models we allow the different biological processes of survival and recruitment to be affected differently by environmental uncertainties we show that the overall effect of uncertainty on the optimal size of a fish stock is ambiguous depending on the prudence of the value function for the case of a risk neutral fishery manager the overall effect depends on the relative magnitude of two opposing effects the convex cost effect and the gambling effect we apply the analysis to the baltic cod and the north sea herring fisheries concluding that for risk neutral agents the net effect of environmental uncertainties on the optimal size of these fish stocks is negative albeit small in absolute value under risk aversion the effect on optimal stock size is positive for sufficiently high coefficients of constant relative risk aversion

how to design and use the clean development mechanism under the kyoto protocol a developing country perspective under the kyoto protocol industrialized countries committed to emission reductions may fullfil part of their obligations by implementing emission reduction projects in developing countries in doing so they make use of the so called clean development mechanism cdm two important issues surround the implementation of the cdm first if the cheapest abatement measures are implemented for cdm projects developing countries may be left with only more expensive measures when they have to meet their own commitments in the future the so called low hanging fruits lhf issue second a choice must be made on the type of baseline against which emission reductions are measured an absolute baseline or a relative to output one the baseline issue the purpose of this paper is to study the interactions between these two issues from the point of view of the developing country two major results are obtained first when possible future commitments for developing countries and irreversibility of abatement measures are taken into account we show that the industry where cdm projects are implemented enjoys larger profits under an absolute baseline than under a relative one second concerning the lhf problem the financial compensation required by the developing country for implementing too many cdm projects is larger under the relative baseline

coalition formation in fisheries with potential regime shift a system can undergo rapid regime shift in which the growth of natural resources suddenly and permanently declines we examine how the threat of such a shift alters the strategic management of a common pool renewable resource we consider exogenous and endogenous threats and examine their effects on both incentives to join a coalition and harvest decisions we find that an exogenous threat of reduced resource growth may cause the coalition to grow in size and perhaps of most interest we identify conditions under which members of the stable coalition reduce harvest while non members increase harvest in response to the threat in contrast an exogenous threat of total stock collapse may destabilize coalitions resulting in higher harvest from former members but reduced harvest by non members when the threat of either type of shift is endogenous the threat of regime shift can induce stable coalitions with more than two members in particular we identify cases in which the first best full cooperation is sustained as an equilibrium outcome finally we find that the relation between the magnitude of the shift and the size of stable coalitions may be negative

catastrophes and ex post shadow prices how the value of the last fish in a lake is infinity and why we should not care much abstract catastrophic risk is currently a hotly debated topic this paper contributes to this debate by showing two results first it is shown that for a certain class of optimal control problems the derivative of the value function with respect to the initial state may approach infinity as the state variable goes to zero even when the first order partial derivatives of the integrand and transition functions are finite in the process it is shown that standard phase diagrams used in optimal control theory contain more information than generally recognized and that the value function itself may be easily illustrated in these diagrams second we show that even if the value function has an infinite derivative at some point it is not correct to avoid this point in finite time at almost any cost the results are illustrated in a simple linear quadratic fisheries model and proven for a more general class of growth functions

the optimal management of renewable resources under the risk of potential regime shift abstract complex dynamic systems can undergo changes in feedbacks between system components causing a rapid and persistent shift in system behavior regime shifts and potentially reduce welfare from declining provision of important ecosystem services in this paper we provide an analytical condition that determinfilefs whether the threat of a potential regime shift causes management to be more aggressive or more precautionary in numerical simulations we find that aggressive management can occur for reasonable parameter values which is counter prior results that the potential for harmful regime shift always leads to precautionary management

the environmental kuznets curve semi parametrically revisited this paper re examines the existence of an environmental kuznets curve ekc across countries using a semi parametric regression estimator which places no restrictions on the functional form our results using cross country panel data on sulfur and carbon dioxide strongly suggest that the relationship between wealth and environmental degradation is not bell shaped as suggested by an ekc rather that there is a positive link for the very poorest countries and no clear relationship for richer countries

abrupt positive feedback and the social cost of carbon optimal climate policy should act in a precautionary fashion to deal with tipping points that occur at some future random moment the optimal carbon tax should include an additional component on top of the conventional present discounted value of marginal global warming damages this component increases with the sensitivity of the hazard to temperature or the stock of atmospheric carbon if the hazard of a catastrophe is constant no correction is needed of the usual pigouvian tax the results are applied to a tipping point resulting from an abrupt and irreversible release of greenhouse gases from the ocean floors and surface of the earth which set in motion a positive feedback loop convex enough hazard functions cause overshooting of the carbon tax but a linear hazard function gives rise to undershooting a more convex hazard function and a high discount rate speed up adjustment

consumption pollution tradeoffs in an environment vulnerable to pollution related catastrophic collapse abstract this paper considers the consequences of an avoidable risk of irreversible environmental catastrophe for society s optimal long run consumption pollution tradeoffs the risk is assumed to be a nondecreasing function of pollution concentration which evolves as a dynamic environmental renewal process the main objective of the paper is to derive qualitative insights regarding the effects of such risk on optimal management

optimal management with reversible regime shifts abstract in this paper we examine the management of a natural resource a fishery subject to regime shifting dynamics a regime shift is defined as an episode in which the dynamics of the resource can switch between two alternative regimes at random times specifically we study the impact of reversible regime switching both observed and unobserved on optimal harvesting policy the case in which the regime is not directly observed i e observational uncertainty is addressed by using the extended pomdp approach developed in fackler and pacifici 2014 we illustrate the performance of the model under different assumptions on the underlying stochastic growth variability the biological structure of the stock in different regimes and the resilience of the regimes when the regime is known optimal policies depend on the population level and which regime is currently active when the regime is unobserved on the other hand the optimal policy depends on the population level and a belief distribution about the current regime in general when the probability of regime change is fixed and hence is not affected by harvesting policy the optimal policy is of the constant escapement variety when the probability of switching regime is endogenous the optimal policy is no longer of the constant escapement type optimal policies when the regime is uncertain are approximately equal to a weighted average of the policies when the regime is certain with the weights equal to the beliefs in the associated regimes but there are differences

perturbed adaptive dynamics in coalition form games abstract players adaptively learn how to bargain a characteristic function describes the available surplus the underlying bargaining game extends the nash demand game by allowing subcoalitions to reach an agreement players demands must be multiples of a money unit we show that stochastically stable allocations ssa i e allocations that are most stable to unlikely errors are a subset of the core uniqueness does not obtain even when the money unit becomes arbitrarily small nonetheless every ssa is related to the allocation that maximizes the product of players utilities over the core i e constrained egalitarian solution for tu games journal of economic literature classification numbers c71 c72 c78

adaptive play in multiplayer bargaining situations we study the dual issues of allocation and coalition formation in a model of social learning for a class of economies which can be expressed in terms of a real valued characteristic function we first show that all self perpetuating allocations realized from a simple bargaining game must be core allocations although players make simultaneous demands for surplus and only on their own behalf following this we provide a sufficient condition under which the society eventually learns to divide the surplus according to some core allocation regardless of the initial history

modelling the interaction between flooding events and economic growth abstract socio hydrology describes the interaction between the socio economy and water recent models analyze the interplay of community risk coping culture flooding damage and economic growth di baldassarre et al 2013 viglione et al 2014 these models descriptively explain the feedbacks between socio economic development and natural disasters like floods contrary to these descriptive models our approach develops an optimization model where the intertemporal decision of an economic agent interacts with the hydrological system in order to build this first economic growth model describing the interaction between the consumption and investment decisions of an economic agent and the occurrence of flooding events we transform an existing descriptive stochastic model into an optimal deterministic model the intermediate step is to formulate and simulate a descriptive deterministic model we develop a periodic water function to approximate the former discrete stochastic time series of rainfall events due to the non autonomous exogenous periodic rainfall function the long term path of consumption and investment will be periodic

accounting for global warming risks resource management under event uncertainty abstract optimal management of atmospheric pollution is discussed with a special emphasis on the uncertainty concerning the occurrence of undesirable events associated with the greenhouse effect the uncertainty considered here stems from our ignorance of the exact pollution level required to trigger the event rather than from the genuinely stochastic nature of the processes involved taking atmospheric pollution level as the state variable it is found that uncertainty implies the existence of an equilibrium interval within which the emission rate of the greenhouse gases should be kept equal to the natural removal rate of these gases processes initiated outside the equilibrium interval must converge monotonically to its nearest endpoint the determination of the interval requires no knowledge of the optimal policy in contrast ignoring event occurrence risk implies a single equilibrium level attracting the optimal process from any initial level

optimal management with potential regime shifts we analyze how the threat of a potential future regime shift affects optimal management we use a simple general growth model to analyze four cases that involve combinations of stock collapse versus changes in system dynamics and exogenous versus endogenous probabilities of regime shift prior work in economics has focused on stock collapse with endogenous probabilities and reaches ambiguous conclusions on whether the potential for regime shift will increase or decrease intensity of resource use and level of resource stock we show that all other cases yield unambiguous results in particular with endogenous probability of regime shift that affects system dynamics the potential for regime shift causes optimal management to become precautionary in the sense of maintaining higher resource stock levels

dynamic coalition reformation for adaptive demand and capacity sharing abstract to deal with volatile product demand and rapidly changing manufacturing technologies for sustainable returns selective collaboration among companies in supply networks sns is required recently demand and capacity sharing among independent and non competitive manufacturers at the same horizontal layer in sns has been studied through an appropriate coalition for collaborative demand and capacity sharing manufacturers can minimize their lost sales as well as maximize production capacity utilization against lumpy real demand in a previous study we have developed the collaborative demand and capacity sharing cdcs protocol which addresses a long term profitable and well balanced collaboration for each manufacturer through distributed decision making however the uncertainty of circumstances calls for an effective and timely reformation of coalitions in reality there is a trade off between frequent accommodation to changeable environments and high additional costs incurred by reformation hence in this paper we design the adaptive cdcs protocol based on dynamic contract mechanism in each period our protocol suggests whether to reform existing coalitions or not based on theoretical analyses of long term expected net profit to evaluate its performance a numerical experiment is conducted by comparing three models no collaboration static collaboration and dynamic collaboration by adaptive cdcs protocol dynamic collaboration results in more profits and its balanced redistribution by accommodating with changeable conditions

choosing between adaptation and prevention with an increasing probability of a pandemic abstract the risk of pandemics is increasing driven by changes in human behavior and climate both of which are difficult for policymakers to control there are two main strategies available for reacting to these changes this paper considers the decision to invest in either adaptation domestic capital or prevention foreign capital before a pandemic in an interval of time when pandemic risk is increasing this paper demonstrates how relatively small investments in the two strategies can provide large savings through smaller expected future damages the technical relationships between adaptation prevention and risk also determine the optimal mixture of investment over time as risk increases the technical relationships between these three stocks causes the optimal mixture of strategies to change over time

conflict leads to cooperation in demand bargaining abstract we consider a multilateral nash demand game in which short sighted players come to the bargaining table with requests for both coalition partners and the potentially generated resource we prove that the resulting process converges with probability one to a state in which all players agree on a strictly self enforcing division of resources i e a strict core allocation highlighting group dynamics we show how the myopic actions of players may lead to the break up of groups in the short run but can ultimately bring about a situation from which a strictly self enforcing allocation can be reached

the pareto principle of optimal inequality the pareto principle is often viewed as a mild requirement compatible with a variety of value judgements in particular it is generally thought that it can accommodate different views on the desirable degree of equality we show that this is generally not true in intertemporal models where some uncertainty prevails to do so we formalize the concept of inequality aversion we show that different degrees of inequality aversion are not possible in typical models of time consistent dynamic decision under uncertainty

a note on clean technology adoption and its influence on tradeable emission permits prices in this paper we give an example in which the price of tradable emission permits increases despite firms adoption of less polluting technology a result that is in contrast with montero j environ econ 44 23 44 2002 and parry j regul econ 14 229 254 1998 among others if two cournot players switch to a cleaner technology the price for permits may increase due to an increase in the net demand for permits and a decrease in the net supply of permits after the clean technology is adopted this is only the case when output demand is quite elastic

adaptation mitigation and risk an analytic approach abstract the adaptation vs mitigation dilemma is considered by analyzing a simple dynamic model of managing a polluting process subject to the risk of abrupt occurrences of harmful events the occurrence hazard can be mitigated by reducing the polluting emissions while the occurrence damage can be controlled via investments in adaptation activities a full dynamic characterization of the optimal mitigation adaptation processes is presented the adaptation and mitigation policies interact strongly and the evolution in time of each is affected by the option to implement the other the conditions under which adaptation investments should begin promptly take place after some delay or be avoided altogether are derived in terms of some key model parameters

constraining equitable allocations of tradable co2 emission quotas by acceptability since the signing of the kyoto protocol future commitments are likely to be framed in terms of tradable quotas the discussions on the allocation of the quotas among countries will be based at least partly on rules corresponding to a certain conception of equity for instance allocating quotas in direct proportion to population in relation to gdp or according to past emissions has been advocated taking a long term perspective we compute such allocations of tradable quotas with a dynamic closed loop model the total amount of quotas to be distributed at each period corresponds to the world optimal amount of emissions to be realized at each period we observe that most equitable allocation rules do not make the agreement individually rational for every country along the entire time path we then propose a mechanism which determines allocations of quotas that are as close as possible to any equitable allocation while satisfying individual rationality

insurance and climate driven extreme events abstract we investigate how insurance affects agents decisions when being faced by endogenous climate driven extreme events this is not only important in order to understand how the possibility of insurance augments mitigation and saving decisions but it also improves our understanding of how insurance should be provided since there are no studies as of now that rely on such an integrated approach we extend the literature along two lines firstly we develop a neoclassical growth framework with endogenous extreme events and an insurance sector secondly we introduce a simulation method that allows us to explicitly take these extreme events into account and which yields additional numerical insights in doing so we can fully characterize and quantify the impact of different insurance policies for mitigation and economic growth decisions our analytical results and computational experiments show that i transparency of the insurance sector is the decisive requisite for abatement activities implying substantial policy opportunities ii a decentralized economy will under invest in abatement without adequate policy interventions iii precautionary beliefs on the frequency of extreme events lead to more sustainability iv a social security system which prices insurance fairly is preferable to an insurance industry which provides insurance with an overhead

pollution control in an uncertain environment abstract the effects of the threat of occurrence of environmental catastrophes on optimal pollution control are considered recent analysis of irreversible events is extended to two types of reversible events single occurrence and multiple occurrence recurrent events while it is possible that the threat of irreversible events induces more pollution we show that reversible events under quite general conditions induce more conservation less pollution the analysis is carried out via a simple method the h method to identify optimal steady states by comparing steady state policies with small variations from them for recurrent events the optimal state process must approach a unique steady state from any initial level in this case the h method characterizes the dynamic behavior of the optimal state process without actually solving for it

targets for global climate policy an overview a survey of the economic impact of climate change and the marginal damage costs shows that carbon dioxide emissions are a negative externality the estimated pigou tax and its growth rate are too low to justify the climate policy targets set by political leaders a lower discount rate or greater concern for the global distribution of income would justify more stringent climate policy but would imply an overhaul of other public policies catastrophic risk justifies more stringent climate policy but only to a limited extent

the comparison of multi dimensioned distributions of economic status the literature on inequality measurement has been largely concerned with single dimensioned indicators this paper explores some of the issues which arise when there are several dimensions to inequality and these are not readily reduced to a single index concentrating particularly on the two dimensioned case we make use of results on multi variate stochastic dominance in portfolio theory extending these and applying them to the measurement of inequality the use of the dominance conditions is illustrated by an application to the international distribution of income and life expectancy

a noncooperative view of coalition formation and the core a noncooperative implementation of the core is provided for games with transferable utility the implementation obtained here is meant to reflect the standard motivation for the core as closely as possible in the model proposed time is continuous this idealized treatment of time is most amenable for capturing an essential feature of the core there is always time to reject a noncore proposal before it is consumated

a controversial proposal concerning inequality measurement abstract an axiom system on a policy maker s preferences is proposed and shown to characterize the class of linear inequality measures a measure for the policy maker s degree of equality mindedness is then developed the essay concludes with an exploration of the interplay between the policy maker s preferences and the prevailing tax structure the controversial aspect lies in an attempt to use the tax structure to retrieve the policy maker s preferences through the principle of equal sacrifice

regime shifts and uncertainty in pollution control we develop a simple model of managing a system subject to pollution damage such as climate change under the risk of an abrupt and random jump in the damage function the model allows the full dynamic characterization of the optimal emission policies under uncertainty the results imply precautionary behavior in contrast with the ambiguous outcomes reported in the literature for models of catastrophic occurrences the framework is used to analyze the adaptation vs mitigation dilemma and provides a simple criterion to determine when adaptation activities should be undertaken

choosing between risky prospects the characterization of comparative statics results and location independent risk we consider expected utility maximizers choosing from a family of risky prospects and examine how choice is influenced by the decision makers attitude to risk if the family of risky prospects can be ordered so that as decision makers are more risk tolerant they choose a gamble higher in the ordering then it is natural to say that the family of risky prospects admit a comparative static result the paper characterizes when comparative static results of this sort exist an application is to propose a criterion of location independent riskiness

on modeling and interpreting the economics of catastrophic climate change with climate change as prototype example this paper analyzes the implications of structural uncertainty for the economics of low probability high impact catastrophes even when updated by bayesian learning uncertain structural parameters induce a critical tail fattening of posterior predictive distributions such fattened tails have strong im plications for situations like climate change where a catastrophe is theoretically possible because prior knowledge cannot place sufficiently narrow bounds on overall damages this paper shows that the economic consequences of fat tailed structural uncertainty along with unsureness about high temperature damages can readily outweigh the effects of discounting in climate change policy analysis

optimal adaptation strategies to face shocks on groundwater resources we consider an exogenous and reversible shock to a groundwater resource namely a decrease in the recharge rate of the aquifer we compare optimal extraction paths and the social costs of optimal adaptation in two cases under certainty i e when the date of occurrence of the shock is known and under uncertainty when the date of occurrence of the shock is a random variable we show that an increase in uncertainty leads to a decrease in precautionary behavior in the short run and to an increase in precautionary behavior in the long run we apply our model to the particular case of the western la mancha aquifer in spain we show that in this context it is advantageous for the water agency to acquire information on the date of the shock especially for high intensity and intermediate risk events

recontracting and stochastic stability in cooperative games abstract an evolutionary style model of recontracting is given which guarantees convergence to core allocations of an underlying cooperative game unlike its predecessors in the evolution learning literature this is achieved without assumptions of convexity of the characteristic function or a reliance on random errors the stochastic stability properties of the model are then examined and it is shown that stochastically stable states solve a simple and intuitive minimization problem which reduces to maximizing a rawlsian swf for a common class of utility functions in contrast to previous analyses the stochastically stable state is unique for a broad class of utility functions

endogenous discounting and climate policy under risk of abrupt climate change the occurrence hazard is added to the social discount rate as a result the social discount rate 1 increases and 2 turns endogenous to the global warming policy the second effect bears profound policy implications that are magnified by economic growth in particular we find that greenhouse gases ghg emission should be terminated at a finite time so that the ensuing occurrence risk will vanish in the long run due to the public bad nature of the catastrophic risk the second effect is ignored in a competitive allocation and unregulated economic growth will give rise to excessive emissions in the long term the ghg emission paths under the optimal and competitive growth regimes lie at the extreme ends of the range of feasible emissions

international aspects of pollution control pollution is a by product of production is only gradually dissolved by the environment and crosses national borders the market outcome ignores the adverse effects of pollution and thus yields higher levels of output and pollution than would prevail under a supranational social planner which does care about pollution in practice governments often do not cooperate and this leads to outcomes of pollution and production in between the market outcomes and the outcomes under supra national social planning absence of precommitment leads to lower emission charges less cleaning up activities and more pollution appropriate levels of emission charges under the various outcomes are a result of this analysis attention is also paid to investment in clean technology the debate between optimists who believe that higher production is compatible with sound environmental policy and pessimists can be analysed in this way