BC3-UPV/EHU Seminars: Aggregative Environmental Games

BC3-UPV/EHU Seminars
“Aggregative Environmental Games “

Seminar given by Prof. Richard Cornes  (Professor of Economics and F H Gruen Chair in Economics, Research School of Economics, Australian National University)

Abstract

At the heart of the subdiscipline of environmental economics is a judgement, shared by this author, that even in the absence of the other standard sources of “market failure”, a decentralized market equilibrium is likely to be inefficient as a consequence of various externalities, or spillovers, that are generated by production and consumption activities. These links, that are not mediated through the system of voluntary exchange, and may be variously categorized as pollution, congestion, resource depletion, over-exploitation, have quantitatively significant implications for human welfare. The tasks of environmental economists include the attempts to quantify these externalities, explore their role in generating inefficient equilibria, and to suggest implementable mechanisms that overcome, or at least mitigate, the inefficiency. This paper is concerned with the issue of how best to analyze situations involving reciprocal externalities. I consider two basic models, and various extensions of those models. The first – the voluntary pure public good contribution model – captures the essential features of situations involving positive, or beneficial, reciprocal externalities. The second – the open access resource model, or the tragedy of the commons – captures the essential features of situations involving negative, or detrimental, reciprocal externalities.