The use of game theory in environmental problems has increased over time. Game theory offers a powerful tool to understand strategic interactions between diverse agents in the economy that face environmental problems, i.e., pollution, climate change, and biodiversity loss, among others. Solutions of such problems require international collaboration between countries, which may differ in their incentives and capabilities. In addition, countries may have asymmetric information. All these factors may affect optimal behavior of agents involved. Our main aim is to analyze efficient mechanism of international collaboration for the solution of environmental problems from game theoretic perspective. For this purpose, the course consists of two parts. The first part introduces basic concepts of game theory in an approachable, intuitive, and interdisciplinary way. The second part demonstrates how we can apply game theoretical methods for developing efficient mechanisms of international cooperation to solve global environmental problems. Among others, we will analyze the efficiency of cooperation versus selfish counties’ behavior, issues related to the formation and stability of coalitions, the role of asymmetric information, commitment and fairness. Practical applications include the reduction of greenhouse gas emissions, regulation of nuclear power and control of acid rain.
Upon successful completion of this course, the student will be able to:
• Define the basics of a “game”; apply them into a range of real situations related to environmental policy
• Analyze strategic interaction in real life from the standpoint of individual rationality
• Appraise theoretical predictions obtained from Game Theory analyses against real world interactions related to environmental management.
• Evaluate Game Theory principles in workplace settings.
Part I. Game theory.
1) Simultaneous games: basics of games, dominated strategies, Nash equilibrium in pure and mixed strategies, tragedy of commons, free-riding problem.
2) Sequential games: backwards Induction, subgame perfect Nash equilibrium, repeated games.
3) Games with incomplete Information: static and dynamic Bayesian Games.
Part II Application for Environmental problems and International Environmental Agreements (IEA) analysis.
4) IEA as a game: the non-cooperative and full cooperative outcomes, the equilibrium in unilateral policies, the one-shot, self-enforcing IEA.
5) Stability of IEA: Beliefs, credibility, and norm-breaking, minimum participation, strategic complements and coordination, compliance versus participation, the strategic role of side payments.
6) Special aspects of IEA: trade leakage and the strategy of trade restrictions.
7) Application to acid rain, ozone layer depletion and global climate change.
This course has no prerequisites. However, some basic mathematics, algebra, and graphing will be used.
1. Presentation, Discussion and Participation (25%)
2. Mid-term Exam (25%)
3. Assignments (25%)
4. Final Exam (25%)
Seminar participation: active participation is essential. Be ready to answer questions and discuss assigned readings as well as material used in the classroom and to provide feedback on other students’ presentations.
Presentations: Students will be given an assignment to find a real word situation or phenomena for which obtained in class knowledge may be applied. Students have to present their judgment on described situation relating presentations to the material studied during the class. Presentations will be followed by in-class discussions among students.
Mid-term exam: a multiple-choice test intended to check the understanding and progress in the middle of the course.
Assignments: there will be small written assignments every week to test the understanding and check the progress of the students; some assignments might be in the form of summarizing the key points from the core readings.
Final exam will consist of two parts: multiple-choice questions and several problems covering the material of the whole course.
For informal introduction to Game theory:
Dixit, Avinash K., Barry J. Nalebuff, The Art of Strategy: A Game Theorist's Guide to Success in Business and Life, Norton, 2008
Dixit, Avinash K., Susan Skeath, and David McAdams. Games of Strategy: Fifth International Student Edition. WW Norton & Company, 2020.
McCain, Roger A. Game theory: A nontechnical introduction to the analysis of strategy. World Scientific Publishing Company, 2014.
For analysis of International Environmental Agreements:
Barrett, Scott. The theory of international environmental agreements. Handbook of environmental economics 3 (2005): 1457-1516.
Further readings will be suggested during classes. Obligatory reading is up to 30 pages per week.
Last updated: 16 January, 2023