Group for Research in Decision Analysis


Incentive Equilibrium in an Overlapping-Generations Environmental Game


We consider two overlapping generations that want to coordinate their strategies of working, consuming and controlling pollution. As the cooperative solution is not an equilibrium, and hence is not a self-enforcing contract, a mechanism is required to sustain it. We show how incentive strategies, and the resulting incentive equilibrium, could provide such a mechanism. We also derive the conditions that ensure the credibility of these strategies.

, 22 pages