A game-theoretic approach to reduce the economic impact of global climate change*

Climate change threatens the fabric of life for people around the world – it affects key health, environmental and social dimensions including access to clean water, food production, and the sustainability of ecological systems and the urban built environment. According to economist Nicolas Stern, urgent action about climate change is essential since the cost is estimated to be 20 times the cost (up to $4 trillion) by 2100 given the high future potential damages. In this paper we examine solutions to what the economists Gernot Wagner and Martin Weitzman refer to as the “free driver problem” in their recent book Climate Shock. In stark contrast with the more widely known “free rider problem”, free driving assumes that it is inexpensive for players (individuals, nations or organizations) to attempt a unilateral solution to global climate change. This risk is increasing since the pace of technological advance means that it easier for rogue players to impose a geoengineering fix that modifies the earth’s climate such as releasing sulphur into the atmosphere (to mimic volcanic eruptions which have a significant cooling effect) . While game theoretic tools have been widely applied to by economists to climate change conflict, traditional decision analysis assumes that decision makers, options, and preferences are fixed. On the other hand, a new theory of mutual interactive game design allows for the re-definition of the conflict and emphasizes that decision makers engage in a rational-emotional process of re-defining both the game and their “positions” in it until agreement on a satisfactory resolution is reached. Specifically, while this paper takes an operations research approach to structuring, analyzing, and modeling complex climate change problems, decision makers, options, and preferences are not assumed to be fixed:  players interact to design the game they eventually play (by communicating with each other prior to playing a game) while simultaneously selecting a focal equilibrium set in that game.