A game model of negotiations and market equilibria (Q1585386)

The article specifies a definition of market equilibrium for some particular \(n\)-person noncooperative game. The players are \(n\) countries polluting the atmosphere, each country having a utility function composed of the cost of reducing the harmful emission by itself and gains due to the reduction of pollution by all players. A country \(i\) is ready to reduce his emission by one, if the rest of the players reduce their total emission by \(p_i\), where this value depends on the actual emissions of all countries. The market equilibrium of the game is defined similar to the Nash equilibrium. The authors impose some conventional conditions on utility functions and functions \(p_i\) and correlate notions of market equilibrium and Pareto optimality. In the last section the game is transformed to a repeated auction. In every round some person proposes a fixed rate of exchange \(p_i\) for each country and the country reduces its emission by the most profitable units corresponding to \(p_i\). With conditions similar to the first model the solution of this game converges to Pareto optimality as well.