Groupe d’études et de recherche en analyse des décisions

G-2006-08

Incentive Equilibrium in an Overlapping-Generations Environmental Game

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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