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on Game Theory |
| By: | Enoch Hyunwook Kang |
| Abstract: | AI agents are increasingly deployed in interactive economic environments characterized by repeated AI-AI interactions. Despite AI agents' advanced capabilities, empirical studies reveal that such interactions often fail to stably induce a strategic equilibrium, such as a Nash equilibrium. Post-training methods have been proposed to induce a strategic equilibrium; however, it remains impractical to uniformly apply an alignment method across diverse, independently developed AI models in strategic settings. In this paper, we provide theoretical and empirical evidence that off-the-shelf reasoning AI agents can achieve Nash-like play zero-shot, without explicit post-training. Specifically, we prove that `reasonably reasoning' agents, i.e., agents capable of forming beliefs about others' strategies from previous observation and learning to best respond to these beliefs, eventually behave along almost every realized play path in a way that is weakly close to a Nash equilibrium of the continuation game. In addition, we relax the common-knowledge payoff assumption by allowing stage payoffs to be unknown and by having each agent observe only its own privately realized stochastic payoffs, and we show that we can still achieve the same on-path Nash convergence guarantee. We then empirically validate the proposed theories by simulating five game scenarios, ranging from a repeated prisoner's dilemma game to stylized repeated marketing promotion games. Our findings suggest that AI agents naturally exhibit such reasoning patterns and therefore attain stable equilibrium behaviors intrinsically, obviating the need for universal alignment procedures in many real-world strategic interactions. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.18563 |
| By: | Łukasz Balbus; Michael Greinecker; Kevin Reffett; Łukasz Woźny |
| Abstract: | We provide general theoretical foundations for modeling strategic uncertainty in large distributional Bayesian games with general type spaces, using a version of interim correlated rationalizability. We then focus on the case in which payoff functions are supermodular in actions, as is common in the literature on global games. This structure allows us to identify extremal interim correlated rationalizable solutions with extremal interim Bayes-Nash equilibria. Notably, no order structure on types is assumed. We illustrate our framework and results using the large versions of the electronic mail game and a global game. |
| Keywords: | large games, interim correlated rationalizability, global games, electronic mail game, universal type space, supermodular games, Bayes-Nash equilibrium |
| JEL: | C72 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:sgh:kaewps:2025113 |
| By: | Nandini Maroo; Kavita Vemuri |
| Abstract: | Social relationships are known to shape human behavior, yet when and how social ties influence strategic cognition remains unclear. We adopt a dual-measure approach that combines observed gameplay behavior with elicitation of partner-specific beliefs at each decision point, allowing us to examine how social ties shape both decisions and predictions across interaction structures. Dyads classified as having no ties, weak ties, or strong ties played three canonical economic games: the Dictator Game, Ultimatum Game, and Centipede Game, while also making predictions about their partner's actions. Using a mixed design that held partners constant across games while varying social distance between dyads, we examined how relational proximity affected the alignment between behavior and partner-specific beliefs. Across two norm-saturated games (Dictator and Ultimatum), neither offers nor belief calibration differed reliably by social distance. In contrast, in the sequential Centipede Game, where outcomes depend on anticipating a specific partner's future actions, strong-tie dyads both cooperated longer and expected later termination than no-tie dyads, with beliefs and behavior shifting in parallel. These results indicate that social ties become strategically relevant when the interaction structure makes partner-specific accountability cognitively necessary, but not when behavior is governed primarily by shared norms or institutional constraints. The findings provide a structural account of when relational knowledge enters strategic cognition and help reconcile mixed results in prior work on social distance in economic games. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.15700 |
| By: | Michael Finus (University of Graz, Austria); Francesco Furini (University of Hamburg, Germany) |
| Abstract: | We study the voluntary provision of two pure global public goods with a summation technology in a two-stage coalition formation game. Signatories may cooperate on only one public good (a partial agreement) or on both public goods (a full agreement). In the single-public-good case, provision levels across countries are strategic substitutes and stable agreements tend to be small, yielding only limited improvements over the non-cooperative outcome. One reason is that outsiders benefit from coalition expansion: as signatories increase their provision levels, non-signatories reduce their contributions. Another reason is that superadditivity may fail, particularly for small coalitions, because many outsiders offset the efforts of signatories. With multiple public goods, the strategic interaction may change fundamentally. Provision levels across countries may become strategic complements, and large, stable, and effective agreements may emerge when the cross derivative of the benefit function with respect to the two public goods is sufficiently large and positive. If the cross derivative is negative, however, the global provision level of one public good may decline as the coalition expands. Moreover, under a partial agreement, the game may become a negative-externality game in which also global welfare declines with coalition size and reaches its minimum in the grand coalition. This may occur when countries cooperate on the public good with lower marginal returns. |
| Keywords: | Coalition Formation, Multiple Global Public Goods, Strategic Substitutes vs Complements |
| JEL: | C72 D71 H41 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:grz:wpaper:2026-02 |
| By: | Dehez, Pierre (Université catholique de Louvain, LIDAM/CORE, Belgium); Pacini, Pier Mario (University of Pisa) |
| Abstract: | We reconsider the formulas defining the nucleolus of a 3-player transferable utility game proposed by Legros (1981) and study its relation to the Shapley value. |
| Keywords: | Core ; Shapley value ; Nucleolus |
| JEL: | C71 |
| Date: | 2025–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:cor:louvco:2025001 |
| By: | Minoru Osawa |
| Abstract: | We introduce the sampling logit equilibrium (SLE), a stationary concept for population games in which agents evaluate actions using a finite sample of opponents' plays and respond according to a logit choice rule. This framework combines informational frictions from finite sampling with stochastic choice. When the sample size is large, SLE is well approximated by a logit equilibrium of a virtual game whose payoffs incorporate explicit distortion terms generated by sampling noise. Examples illustrate how finite sampling can systematically shift equilibrium behavior and generate equilibrium selection effects. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.09539 |
| By: | Lucas Pahl |
| Abstract: | We present a new method for computation of the index of completely mixed equilibria in finite games, based on the work of Eisenbud et al.(1977). We apply this method to solving two questions about the relation of the index of equilibria and the index of fixed points, and the index of equilibria and payoff-robustness: any integer can be the index of an isolated completely mixed equilibrium of a finite game. In a particular class of isolated completely mixed equilibria, called monogenic, the index can be $0$, $+1$ or $-1$ only. In this class non-zero index is equivalent to payoff-robustness. We also discuss extensions of the method of computation to extensive-form games, and cases where the equilibria might be located on the boundary of the strategy set. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.04298 |
| By: | Leonardo Baggiani; Martin Herdegen; Leandro Sanchez-Betancourt |
| Abstract: | We find an approximate Nash equilibrium in a game between decentralized exchanges (DEXs) that compete for order flow by setting dynamic trading fees. We characterize the equilibrium via a coupled system of partial differential equations and derive tractable approximate closed-form expressions for the equilibrium fees. Our analysis shows that the two-regime structure found in monopoly models persists under competition: pools alternate between raising fees to deter arbitrage and lowering fees to attract noise trading and increase volatility. Under competition, however, the switching boundary shifts from the oracle price to a weighted average of the oracle and competitors' exchange rates. Our numerical experiments show that, holding total liquidity fixed, an increase in the number of competing DEXs reduces execution slippage for strategic liquidity takers and lowers fee revenue per DEX. Finally, the effect on noise traders' slippage depends on market activity: they are worse off in low-activity markets but better off in high-activity ones. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.09669 |
| By: | Kfir Eliaz; Ran Spiegler |
| Abstract: | We propose a model of whataboutism -- a rhetorical strategy that deflects criticism by citing similar misconduct that goes uncriticized on the critic's side -- and study its implications for social norms governing offensive speech. In an infinite-horizon psychological game with two rival camps, agents weigh the intrinsic benefit of offensive speech against the risk of condemnation. External criticism can be deflected via an equilibrium-based whataboutism rebuttal. We characterize the unique dynamically stable Psychological Subgame Perfect Equilibrium and show that the availability of whataboutism exacerbates offensive speech, to the extent that civility norms can break down entirely, especially in polarized societies. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.08098 |
| By: | Ohnishi, Kazuhiro |
| Abstract: | This paper considers a multi-stage game model with two partially cooperating firms whose objective functions include maximizing not only their own profits but also a portion of their rivals’ profits. In the first stage, each firm independently and simultaneously decides whether to incorporate consumer surplus into its objective function. In the second stage, any firm that chooses to do so selects its level of consumer orientation. In the third stage, after observing the rival’s choices in the first and second stages, each firm independently and simultaneously chooses its output level. The paper characterizes the equilibrium of this model. |
| Keywords: | Consumer surplus; Corporate social responsibility; Cournot duopoly model; Partially cooperating firms |
| JEL: | D21 L13 L20 |
| Date: | 2026–01–18 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127764 |
| By: | Moll, Ben; Ryzhik, Lenya |
| Abstract: | Mean Field Game (MFG) models implicitly assume “rational expectations”, meaning that the heterogeneous agents being modeled correctly know all relevant transition probabilities for the complex system they inhabit. When there is common noise, it becomes necessary to solve the “Master equation”, in which the infinite-dimensional density of agents is a state variable. The rational expectations assumption and the implication that agents solve Master equations are unrealistic in many applications. We show how to instead formulate MFGs with non-rational expectations. Departing from rational expectations is particularly relevant in “MFGs with a low-dimensional coupling”, i.e. MFGs in which agents’ running reward function depends on the density only through low-dimensional functionals of this density. This happens, for example, in most macroeconomics MFGs in which these low-dimensional functionals have the interpretation of “equilibrium prices”. In MFGs with a low-dimensional coupling, departing from rational expectations allows for completely sidestepping the Master equation and for instead solving much simpler finite-dimensional HJB equations. We introduce an adaptive learning model as a particular example of non-rational expectations and discuss its properties. |
| Keywords: | mean filed games; rational expectation; master equation; adaptive learning |
| JEL: | J1 |
| Date: | 2026–03–05 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:137192 |
| By: | Marilyn Pease; Mark Whitmeyer |
| Abstract: | We provide a unifying way to analyze how risk aversion changes bidding in auctions by asking which bids become more attractive as bidders become more risk averse. In first-price auctions, under two payoff conditions--winning is never worse than the outside option, and winning with a low bid is preferable to winning only with a high bid--greater risk aversion makes high bids more appealing. In second-price auctions with a known outside option, bidding more increases risk exposure conditional on winning, so greater risk aversion favors lower bids. We show these bid-level forces translate into corresponding equilibrium comparative statics. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.09683 |
| By: | Masashi Sekine |
| Abstract: | This thesis develops equilibrium asset pricing models in incomplete markets with a large number of heterogeneous agents using mean field game theory. The market equilibrium is characterized by a novel form of mean field backward stochastic differential equations (BSDEs). First, we propose a theoretical model that endogenously derives the equilibrium risk premium. Agents with exponential preferences are heterogeneous in initial wealth, risk aversion, and unspanned stochastic terminal liability. We solve the optimal investment problem using the optimal martingale principle. The equilibrium is characterized by a mean field BSDE whose driver has quadratic growth in both the stochastic integrands and their conditional expectations. We prove the existence of solutions and show that the risk premium clears the market in the large population limit. Second, we extend the model to include consumption and habit formation, relaxing the time-separability assumption of utility functions. A similar mean field BSDE is derived, and its well-posedness and asymptotic behavior are examined. We also introduce an exponential quadratic Gaussian (EQG) reformulation to obtain equilibrium solutions in semi-analytic form. Finally, the model is extended to partially observable markets where agents must infer the risk premium from stock price observations to determine trading strategies. We provide semi-analytic expressions for the equilibrium via the EQG framework, and the equilibrium risk-premium process is constructed endogenously using Kalman-Bucy filtering theory. Numerical simulations are included to visualize the resulting market dynamics. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.22058 |
| By: | Nicolas Eschenbaum; Nicolas Greber |
| Abstract: | This paper studies how platform design shapes strategic behavior in decentralized electricity trading. We develop a finite-horizon dynamic game in which photovoltaic- and battery-equipped players ("prosumers") trade on a platform that maps aggregate imports and exports into internal buy and sell prices. We establish existence of a perfect conditional epsilon-equilibrium and characterize a Cournot-like market-power mechanism in an observable-types benchmark of the game: because the producer price is decreasing in aggregate exports, strategic prosumers withhold supply and underutilize storage relative to the price-taking benchmark. To quantify these effects, we use a multi-agent computational framework that exploits the differentiable structure of the platform's clearing rule to compare planner, price-taking, and strategic outcomes under alternative pricing mechanisms. In our baseline calibration, strategic play raises grid settlement cost by about 6 percent relative to price-taking. The magnitude of the distortion depends strongly on platform design: some designs can largely eliminate strategic incentives, while increased competition in storage ownership sharply reduces withholding, with most of the distortion disappearing once storage is split across more than three owners. We also find that information disclosure can improve competitive coordination but also increase the market power effects. Despite these distortions, the platform remains highly valuable overall, reducing a passive consumer's annual electricity bill by roughly 40 percent relative to exclusive grid settlement, with strategic behavior clawing back only about 8 percent of that saving. The results show that pricing rules, information disclosure, and ownership structure determine how much of the gains from decentralized electricity trading are realized. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.19988 |
| By: | Chowdhury Mohammad Sakib Anwar; Konstantinos Georgalos |
| Abstract: | This paper investigates how natural language communication with an AI agent affects human cooperative behaviour in indefinitely repeated Prisoner's Dilemma games. We conduct a laboratory experiment (n = 126) with two between-subjects treatments varying whether human participants chat with an AI chatbot (GPT-5.2) before every round or only before the first round of each supergame, and benchmark against human-human data from Dvorak and Fehrler (2024) (n = 108). We find four main results. First, cooperation against the AI is high and initially comparable to human-human levels, but unlike in the human-human setting, where cooperation converges to near-complete levels, cooperation against the AI plateaus and never reaches full cooperation. Second, repeated communication, which substantially increases cooperation in human-human interactions, has no detectable effect in the human-AI setting. Third, strategy estimation reveals that human-AI subjects favour Grim Trigger under pre-play communication and remain dispersed under repeated communication, whereas human-human subjects converge to Tit-for-Tat and unconditional cooperation respectively. Fourth, human-AI conversations contain more explicit strategy commitments but fewer emotional and social messages. These results suggest that humans cooperate with AI at high rates but do not develop the trust observed in human-human interactions. Cooperation in the human-AI setting is sustained through conditional rules rather than through the social bonds and mutual understanding that characterise human-human cooperation. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.15852 |
| By: | Leonardo Becchetti; Franceso Salustri; Nazaria Solferino |
| Abstract: | Historical episodes such as the World War I "live-and-let-live" system and the Christmas Truce of 1914 demonstrate that opposing military units can establish spontaneous, local cooperation even in extreme conflict environments. Such cooperative behavior is typically fragile and temporary, while large-scale wars persist. We develop a hierarchical decision problem in which local units adopt contingent strategies that depend on interactions, accumulated payoffs, and signals from a central command. The command authority can impose enforcement that penalizes non-aggression to prolong hostilities. Our model features a continuous space of parametric strategies and formalizes replicator dynamics over the population. We analytically characterize the conditions under which local cooperation emerges as a stable evolutionary equilibrium and identify critical thresholds of central enforcement that destroy cooperative equilibria. We show that stable peace requires either alignment of command incentives with frontline welfare, external constraints on enforcement, or diminishing political returns to conflict. The framework provides a micro-founded explanation for the persistence of war despite locally beneficial cooperation. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.18609 |
| By: | Michalis Deligiannis; Marco Scarsini; Xavier Venel |
| Abstract: | We study a finite-horizon dynamic wholesale-price contract between a manufacturer and a retailer, both of whom observe only sales, rather than the true demand. When the retailer stocks out, unmet demand is unobserved, so both parties update a common posterior over the demand distribution from sales data. Each period, the manufacturer sets the wholesale price, the retailer chooses an order quantity, and the public belief state is updated. We characterize Markov perfect equilibria as functions of this public belief. Our main results are as follows: for Weibull demand, we extend the well-known scaling approach to this strategic learning setting, prove the existence of an equilibrium, and reduce computation to a standardized one-parameter recursion; for exponential demand, we show that the equilibrium is unique and computable via a simple backward recursion. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.13599 |
| By: | Ulrich Horst; Takashi Sato |
| Abstract: | We establish an existence of equilibrium result for a class of non-Markovian mean-field games with unbounded control space in weak formulation. Our result is based on new existence and stability results for quadratic-growth generalized McKean-Vlasov BSDEs. Unlike earlier approaches, our approach does not require boundedness assumptions on the model parameters or time horizons and allows for running costs that are quadratic in the control variable. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.05624 |
| By: | L. Flóra Drucker (Düsseldorf Institute for Competition Economics, Heinrich Heine University Düsseldorf); Dániel Horn (Corvinus University Budapest; ELTE Centre for Economic and Regional Studies); Sára Khayouti (University of Zürich); Hubert János Kiss (ELTE Centre for Economic and Regional Studies; Corvinus University Budapest) |
| Abstract: | We replicate the seminal three-games design introduced by Cox (2004) to disentangle trust and reciprocity from other-regarding preferences in the classic trust game. This study marks the first attempt to replicate these findings using a non-university sample. Our experiment was conducted online via Prolific, with participants based in the United States. In the original study, Cox (2004) found that senders in a treatment where receivers could not send back any money sent less than in the classical trust game, suggesting that sender behavior reflects a combination of other-regarding preferences and trust. This finding replicates in our experiment. However, the second finding does not replicate: receivers who automatically received money from senders did not send back significantly less than those in the classical trust game, where senders actively made the sending decision. Consequently, unlike Cox (2004), we find no clear distinction between other-regarding preferences and reciprocity. |
| Keywords: | trust game; reciprocity; trust; other-regarding preferences; experimental economics; replication |
| JEL: | C91 C93 D64 D03 Z13 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:has:discpr:2603 |
| By: | Julia Müller; Thorsten Upmann |
| Abstract: | This paper develops a dynamic model in which the productivity of joint research governs strategic investment timing in innovation races. Departing from the standard assumption that discovery rates scale proportionally with the number of active firms, we allow research to exhibit decreasing or increasing returns, thereby endogenizing the aggressiveness of innovation competition. We show that returns to joint research determine whether innovation races exhibit preemption or coordination. When research efforts are substitutes, follower entry is unattractive, generating a first-mover advantage and a preemption equilibrium. When complementarities are sufficiently strong, the gains from early investment vanish and firms invest simultaneously. The model thus identifies a regime shift in innovation races: competition accelerates investment under decreasing returns but promotes coordinated entry under increasing returns. These findings highlight the research technology as a central determinant of market dynamics and provide a unified perspective on heterogeneous patterns of innovation. |
| Keywords: | innovation races, R&D competition, strategic investment timing, preemption and coordination, research complementarities |
| JEL: | O31 D81 C73 L13 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12552 |
| By: | Martin Castillo-Quintana; Gianfranco Miranda-Romero |
| Abstract: | The war of attrition with two-sided asymmetric information is a foundational model in political economy, yet it generically admits a continuum of perfect Bayesian equilibria. This paper characterizes the sources of equilibrium multiplicity. We identify conditions on the type distribution that determine which form of multiplicity arises: when the lower limit of the hazard potential -- the integral of the hazard rate normalized by type -- diverges, the free parameter is the relative aggressiveness of strategies; when that limit is finite, the free parameter is the mass of types conceding immediately. We prove that the Amann-Leininger payoff perturbation and the introduction of behavioral types -- two seemingly distinct refinements -- are mathematically equivalent and succeed in selecting a unique equilibrium if and only if the type support is bounded. For unbounded supports, multiplicity persists. These results provide guidance for applied theorists: choosing distributions with bounded support ensures existing refinements deliver unique predictions. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.13634 |
| By: | Zhiming Feng; Qingmin Liu |
| Abstract: | This paper studies mechanism design environments in which the designer does not know the distribution of agents' private information a priori and instead learns from agents' behavior induced by the mechanism itself. We formalize a notion of self-confirming mechanisms and a refinement thereof, capturing the idea that an equilibrium mechanism is optimal given the designer's belief and that this belief is consistent with the information produced by the mechanism. We establish a fictitious revelation principle, showing that any incentive-compatible mechanism can be represented as a direct mechanism with filtered type reports that preserve the original mechanism's informational content. Applying the framework to a monopoly problem, we show that, subject to an equilibrium refinement, dominant-strategy self-confirming mechanisms are exactly posted-price mechanisms with locally revenue-maximizing prices. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.12532 |
| By: | Marek Dietl; Łukasz Skrok; Bartłomiej Wiśnicki |
| Abstract: | We employ a duopoly model with horizontal differentiation of a product to analyse impact of imperfect patent rights in the form of a patent thicket on market entry and outcomes in a market when a single unit of a good is to be provided, reflecting a competition of two potential suppliers within a tender procedure of a complex product. We show that even under price competition, a treat of litigation coming from the overlap in the patent protection leads to pricing decisions above marginal costs level. Such a situation, on the one hand, is socially costly due to costs linked to fixed costs of market entry of both competitors, but on the other hand, it is not necessarily the most beneficial from the point of view of a buyer. The paper resolves Bertrand paradox in a novel way. |
| Keywords: | patent thickets, horizontal differentiation, Bertrand paradox |
| JEL: | D23 K11 L13 O34 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:sgh:kaewps:2025112 |
| By: | Hindriks, Jean (Université catholique de Louvain, LIDAM/CORE, Belgium); Nishimura, Yukihiro (Osaka University) |
| Abstract: | To tackle profit shifting, the OECD/G20 Inclusive Framework proposes a Global Minimum Tax. The general presumption is that high-tax countries will gain and low-tax countries will lose because the minimum tax will reduce their inward profit shifting. Recent papers have shown that the minimum tax can be welfare improving for all countries even if the welfare of the firm owners are taken into account (Johannesen 2022, Hebous and Keen 2023). The purpose of this paper is to extent that analysis to endogenous enforcement choices. By means of a formal model of international tax competition with heterogeneous countries, we study explicitely how the minimum tax will change the dynamics of tax competition, profit allocation and enforcement incentives. We show that in this broader framework, there exists a critical threshold for the minimum tax beyond which the low-tax country will defect from international enforcement cooperation, making the high-tax country worse off. We also show that our analysis is robust to the presence of tax haven. |
| Keywords: | Profit shifting ; Tax competition ; Tax enforcement |
| JEL: | C72 F23 F68 H25 H87 |
| Date: | 2025–01–20 |
| URL: | https://d.repec.org/n?u=RePEc:cor:louvco:2025003 |
| By: | Pablo Garcia Sanchez (Banque centrale du Luxembourg, Département Economie et Recherche); Olivier Pierrard (Banque centrale du Luxembourg, Département Economie et Recherche) |
| Abstract: | Recent empirical evidence reveals an income gradient in support for climate action: individuals in wealthier countries are less willing to pay than those in poorer ones. What explains this gradient, and what does it imply for international cooperation to protect the Earth’s climate? We answer these questions using a heterogeneous-country integrated assessment model formulated as a mean field game and calibrated to historical economic and climate data. Poorer countries, facing higher marginal utility of consumption, cut consumption less to cushion the decline in capital accumulation caused by climate damages. As a result, they suffer larger relative losses from climate change and gain more from mitigation, making them more inclined to accept a global carbon tax. This gradient has stark implications for cooperation: even when a carbon tax large enough to contain temperature increases benefits most countries, the richest might oppose. Redistributing global carbon tax proceeds uniformly across countries or recycling them as green investment subsidies need not overcome this reluctance. |
| Keywords: | Neoclassical Growth Model; Mean Field Game; Climate Policy |
| JEL: | C61 H23 Q50 |
| Date: | 2026–02–27 |
| URL: | https://d.repec.org/n?u=RePEc:ctl:louvir:2026006 |