Game Theoretic Analysis of Research Consortia for Developing Technologies to Tackle Climate Change

Abstract

Climate change is perhaps the biggest threat faced by human beings in their history. Mitigating climate change would require development of expensive technologies (e.g., carbon capture and sequestration) in presence of considerable uncertainties and positive externalities. Research consortia are considered to be an effective mechanism for developing these technologies. However, ensuring participation in these consortia is not straightforward. We study participation in such consortia using a non-cooperative game theory framework. First, we look at a baseline consortium where a firm may utilize the technology even if it didn’t participate in the consortium – i.e. is possible. We show that the non-cooperative outcome is mostly inefficient. Next, we analyze an exclusion-based mechanism where a firm can utilize the developed technology only if it is a part of the consortium, and show that now the non-cooperative outcome is mostly efficient. That is, we show that this mechanism essentially solves the free-riding problem. Finally, we derive policy recommendations that would increase participation in research consortia.