Tuesday, September 11, 2007

Prisoners of Bali

Interesting new paper from New Energy Finance on the lessons of game theory for international emissions-reduction agreements. It's an easy introduction to the problem of international cooperation considered as the familiar form of the Prisoner's Dilemma - basically, individual countries can not bother to cut their own emissions in the faith that other countries will do enough to avert the worst effects of climate change. The problem, obviously, is that if everyone does that, nowt gets done.

The NEF paper quite sensibly points out that the real world situation isn't a one-off game, as in the classic case, but a repeated game - a player who acts selfishly in one round can find himself punished in subsequent rounds. Back in the '80s, US political scientist Robert Axelrod showed this tit-for-tat strategy could reach a sustainable equilibrium, and boiled it down to four rules, with clear equivalents in the emissions-cutting game:
Be nice (start by cooperating - cut your emissions unilaterally);
Be retaliatory (if another player isn't nice, punish the bastard - sanctions, tariffs or other economic hurt);
Be forgiving (if he mends his ways, restore cooperation - help them with tech transfer if appropriate); and
Be clear (make sure your oppo knows what you're doing, so he knows what he has to do - the UN may have a role in education and communication here).

As the big global players get ready to head to Bali to knock out the successor to the not-entirely-successful Kyoto Protocol, their lessons according to this analysis are clear: the US needs to be nice; Europe needs to be retaliatory; the developing world needs to forgive the developed's past sins; and everyone needs a good deal more clarity.

The NEF paper is available as a PDF here.

The application of simple game theory models like the Prisoner's Dilemma to such problems of international cooperation isn't new, of course. The problems of coordination and free-riding become more acute as the number of participants increases, a particular problem for sumnative technologies such as carbon emissions. Still, there's some optimistic findings in the economic literature - this 2006 paper from Manfred Milinski et al finds that individuals can behave altruistically to help protect the global climate, with the basic level of altruistic behaviour increasing if the decision-makers are given expert information on climate research, and if they gain social standing by so doing. Let's see how that plays out in Bali.

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