Reevaluation and renegotiation of climate change coalitions - A sequential closed-loop game approach

Major international environmental problems can be characterized as stock externality phenomena. Long-term international environmental coalitions are subject to unexpected shocks. Certain shocks might have strong impacts on regional environmental policies and their commitments to the coalition. The open-loop solutions in optimal control problems and differential games cannot capture regions' reactions to those shocks. In this paper, we develop a feasible modeling approach that uses the closed-loop strategies to study the issues of reevaluation and renegotiation of climate change coalitions. For the purpose, we design an algorithm that decomposes a closed-loop strategy into a sequence of open-loop equilibria and implement the algorithm in the RICE model (Am. Econ. Rev. 86 (1996) 741), an integrated assessment model of climate change and economies. We analyze policy and methodological implications of the closed-loop strategies through simulations of the RICE model.