COP21: Can game theory predict a global deal on climate change?

Climate change is a ‘wicked problem’, in the terms of game theorists. Collectively, all countries should act on climate change. But it may not always be in a country’s individual interest to act, especially if there is no guarantee other countries will act too.

Making a deal to tackle climate change involves conciliating individual and collective incentives. It also involves negotiating issues associated with inequality, uncertainty and tipping points.

We can use game theory – the study of strategic behaviour via mathematical models – to simulate the process of climate change negotiations. Of course, it is very hard to account for the vast range of factors that come into play, many of which are unpredictable. But the games can give an indication of how different interests can steer, and even derail, the negotiations.

The outcomes of the games can also give an indication of how we best stand a chance of meeting a global agreement on climate change, in theory at least.

Difficult circumstances

In designing a game to simulate the governance of public goods, such as the world’s climate, there are a number of factors to take into account.

Firstly, widespread cooperation is needed. Individual incentives to ‘free-ride’ on the effort of others must be overcome.

Secondly, you have to account for the fact that change is not gradual – there are tipping points at which catastrophic and irreversible regime shifts could be triggered. Plus the location of social and ecological thresholds is often subject to irreducible uncertainty. There will inevitably be disagreement about the scale of effort needed to reach the target.

Thirdly, just a small amount of investment will not guarantee avoidance of dangerous climate change. A large enough effort is needed to avoid the tipping point, and anything less could result in catastrophe.

Breaking the deadlock

Perhaps the greatest barrier to international climate negotiations is inequality. There often appears to be conflict between rich and poor countries, and between the major emitters and those that emit much less. Indeed, my previous work shows that inequality reduces the prospects of reaching a collective target, especially in the absence of communication, such as countries publically announcing pledges about thier future commitment to action.

So is inequality to the biggest challenge to a strong global deal on climate change?

As real world data on alternative mechanisms is not available, we must rely on theory and experimental economics.

The game

The games my colleagues and I have been using in my research involve scenarios in which individuals (or countries) work together to avoid a high probabilistic loss (such as those associated with extreme climate change). Individuals must invest to avert disaster, and failure to coordinate will result in loss for all.

Here’s how the game works:

• Groups of six players, endowed with some money (either distributed equally or unequally), have the option to contribute (with no chance of a refund) to avoid a collective loss.
• This process is repeated over multiple successive rounds. So players are asked many times to contribute to the effort. They don’t have to oblige, of course.
• The aggregate contributions over all rounds are then evaluated to see how they stack up against the required investment. A large fraction of the unspent endowment is taken away from players if the threshold has not been met.

The game was played with different groups of players and under different conditions. I manipulated two factors:

1. Inequality: In some games, we distributed funds evenly between players so that there was no inequality. In other games, we distributed them unevenly so that some players were rich and others poor.
2. Communication: In some games, players were not able to communicate. In other games, players were able to communicate by announcing pledges to each other before making decisions to invest – a bit like how countries made their Intended Nationally Determined Contributions (INDCs) known ahead of COP21.

The results

The game was played under four different scenarios, each with varying degrees of success:

1. Inequality but no communication = 20% of groups avoided disaster
2. Equality but no communication = 50% avoided disaster
3. Inequality with communication = 60% avoided disaster
4. Equality with communication = 70% avoided disaster

So it is clearly harder to reach agreement in an unequal world. It also proved vital that countries communicate with one another. The ability to make pledges, and see everyone else’s pledges, ahead of making a deal is certainly not fool proof. After all, countries can always bluff or renege on their pledges. But it certainly supports the case for countries submitting their INDCs ahead of a global deal on climate change.

Furthermore, leadership appears to be an important engine of collective action, as successful groups tended to eliminate inequality over the course of the game. Rich players signalling willingness to redistribute their funds early on in the game proved to be a precursor for success. Related experimental and theoretical studies confirm the importance of leadership (Bosetti et al., 2015; Dietz et al., 2012; İriş et al., 2015).

When it comes to the real world, the early redistribution of wealth, plus the actions of institutions that promote coordination between countries, could prove decisive for the avoidance of dangerous climate change.

Conclusions

Climate change games capture the trade-offs that are salient for the issue of climate change mitigation. Notwithstanding their necessary simplicity, I believe economic experiments are a promising tool for analysing the tensions that exist in the real world.

For instance, results of other games indicate that uncertainty can be detrimental to a global deal. When groups do not know the precise location of the threshold, the likelihood of reaching a deal is much lower. This raises important questions for the uncertainty associated with future climate change and the damages it will cause.

Given the lack of consensus on who should bear the costs of mitigation against climate change, countries would do well to remember that inequality need not be a barrier to a global deal on climate change.