Abstract
This paper studies CO2 emissions at a global level. The authors use Dynamic Optimisation to derive the minimum penalty cost on countries every single time. They then use an Imputation Distribution Procedure to allocate the minimum penalty cost among countries. Their work provides the extension of the Shapley value cost allocation as a penalty to reduce CO2 emissions. The paper has implications for how to provide initiatives to improve cooperation on reducing CO2 emissions at an international level. Results show that a reduction in cost of only one country can be harmful for other countries. In this way, some countries can end up or worse off in a case where all countries experience a uniform decrease in their penalty cost. Therefore, the findings of this work suggest a low penalty-cost scenario that helps the countries fight for pollution reduction and provide fruitful links for policy-makers. They show that the Clean Development Mechanism (CDM) of the Kyoto Protocol could be implemented by the Shapley value cost allocation.
Highlights
In CO2 emissions at a global level, free-riding is a key problem for countries designing and signing an agreement because of the nature of public goods
Our work provides a new extension of the Shapley value cost allocation as a penalty to reduce CO2 emissions among the players
We examined the characteristic function on assigning the Shapley outcome to every country and its time decomposition to distributing the penalty cost among the countries
Summary
In CO2 emissions at a global level, free-riding is a key problem for countries designing and signing an agreement because of the nature of public goods. Our work provides a new extension of the Shapley value cost allocation as a penalty to reduce CO2 emissions among the players. An airport game theoretic analysis which was introduced by Littlechild and Owen (1973) could be used for the cost allocation of CO2 emissions among countries to reduce pollution. In the literature, this approach is widely used in different kinds of cost-allocation problems (for more details see Castro, Gomez, & Tejada, 2009; Littlechild & Thompson, 1977; VazquezBrage, Van den Nouweland, & Garcıa-Jurado, 1997).
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