International Negotiations on Climate Change: A Non-cooperative Game Analysis of the Kyoto Protocol

Abstract

We investigate international negotiations on CO2 emissions reduction in the Kyoto Protocol by non-cooperative multilateral bargaining theory. The negotiation model has two phases, (i) allocating emission reductions to countries and (ii) international emissions trading. Anticipating the competitive equilibrium of emissions trading, each country evaluates an agreement of reduction commitments. We formulate the negotiation process as an n-person sequential bargaining game with random proposers. We show that there exists a unique stationary subgame perfect equilibrium of the bargaining game and that the equilibrium emissions reduction proposed by every country converges to the asymmetric Nash bargaining solution as the probability of negotiation failure by rejection goes to zero. The weights of countries in the asymmetric Nash solution are determined by their probabilities to be selected as proposers. Finally, we present numerical results based on actual emission data on the European Union (EU), the former Soviet Union (FSU), Japan and the United States (USA).asymmetric Nash bargaining solution, CO2 emissions trading, international negotiations, Kyoto Protocol, non-cooperative bargaining games