On a Boundedly Rational Pareto-Optimal Trade in Emission Reduction

Kryazhimskiy, A.V. (2009). On a Boundedly Rational Pareto-Optimal Trade in Emission Reduction. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-09-017

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Abstract

We consider the emission reduction process involving several countries, in which the countries negotiate, in steps, frequently enough, on small, local emission reductions and implement their decisions right away. In every step, the countries either find a mutually acceptable local emission reduction vector and use it as a local emission reduction plan, or terminate the emission reduction process. We prove that the process necessarily terminates in some step and the final total emission reduction vector lies in a small neighborhood of a certain Pareto maximum point in the underlying emission reduction game. We use examples to illustrate some features of the proposed decision making scheme and discuss a way to organize negotiations in every step of the emission reduction process.

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