Designing Institutions to Cope with Global Warming : Theory and Experiments

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The Global Warming problem is one of most important issues we have to cope with. In this research project, we have studied how to design institutions to reduce greenhouse gases (GHGs) effectively and fairly by using various methods based on mico-economic theory, experimental economics, international relations, game theory, and social simulation.The Kyoto Protocol authorizes emissions trading as one of mechanisms in order to implement national emission targets for GHGs. The goal of the Protocol could be achieved efficiently if GHGs emissions permits were traded at the competitive equilibrium price. However, the Protocol specifies emissions trading must be supplement to domestic actions in reducing GHGs emissions. We have examined this supplementarity issue in emissions trading and showed that when both demanders and suppliers for emissions permits can set quantity restraints in trading, the situation in which no country uses emission trading is an equilibrium.By using the economic experimental method, we have also analyzed how uncertainty in investment for reducing GHGs affects market efficiency, the comparison between emissions trading and carbon taxes, buyer's liability and sellers liability in emissions trading, and the optimality of upstream GHGs emissions trading to achieve the goal of the Kyoto Protocol.Moreover, we have studied how to design mechanisms for the efficient provision of public goods such as reducing GHGs, taking account of participants' incentives. If it is optimal for each agent to behave honestly, not to tell a lie, regardless of how the other agents behave, then such a mechanism is called strategy-proof. We have re-examined strategy-proof mechanisms in both theoretical and experimental points of view