Groupe d’études et de recherche en analyse des décisions

G-2005-43

Equilibrium Investment Strategies in Foreign Environmental Projects

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This paper proposes a two-player, finite-horizon differential game model to analyze joint implementation in environmental projects, one of the flexible mechanisms considered in the Kyoto Protocol. Using a non-linear specification for the damage costs, we show that if Joint Implementation is available, both players will invest in environmental projects in their own location, and one of the players will invest abroad, the identity of that player changing at most once during the planning horizon.

, 31 pages