Bargaining Theory Application in Climate Change

In 2005, he and Oman jointly won the Nobel Prize in Economics in recognition of their contributions to the field of game theory. At that time, the Nobel jury evaluated Schelling as 'using game theory to help us better understand conflict and cooperation.' This sentence is a good summary of Schelling's main academic achievements. He is not only satisfied with the theoretical research of game theory, but also applies game theory to public affairs, especially international relations. If 'war and peace' is the two main themes that exist forever in the world, then 'cooperation and conflict' is the eternal theme of the country. In the early years of 'An essay on Bargaining' and 'Bargaining, Communication and Limited War', Schelling made a wonderful exposition of the relationship between the two. At that time, game theory has not really become a subject of concern. In his later research topics, in addition to the topics common in economics such as “development” and “income”, there are also a large number of topics such as “nuclear strategy”, “weapons”, “military”, “national security”, International public affairs such as “climate change” and “terrorism”. Bargaining theory is an important theory in game theory economics, also known as negotiation. The bargaining theory is the main contribution of Thomas Schelling in the early days.

By analyzing the phenomenon of bargaining, Schelling came to an astonishing conclusion: 'In the process of bargaining, the weaker side will usually become a strong.' It is also understandable that it is advantageous to fix itself in a special negotiating position. When either party thinks that the other party will not make further concessions, the agreement is reached. The reason why one party will give in is because he knows that the other party will not give in. Therefore, it can be argued that the strength of the negotiations is to let the other party believe that you will not give in again. To this end, Schelling further described three strategies that can lock themselves in a favorable position, namely irreversible constraints, threats and commitments. Schelling began research on the next steps toward global warming and climate change, which he believes is related to his awards. (Schelling)

Climate change may have a dual impact on the economy. In some places, climate change will benefit, climate change will bring a more humid climate, more comfortable weather, increased food production, and more will be damaged by climate change. More importantly, carbon dioxide emission reduction in response to climate change has different impacts on developing countries and developed countries, and has different effects on the welfare of present and future generations. And he believes that the greenhouse effect and climate change have a more significant impact on developing countries, because these countries account for 1/3 of GDP. The impact of climate change on food production in developing countries is reflected in the fact that climate change has an adverse direct impact on food crops and reduces food production; on the other hand, climate change affects health, which causes disease epidemics and reduces labor. On the contrary, the ratio of agricultural output to GDP in developed countries is less than 3%, and the impact of climate change is negligible. Schelling's analysis of the causes of the greenhouse effect, climate change uncertainty, the economic consequences of climate change, and global governance measures to reduce carbon emissions has become an important component of the climate change economics literature.