Microeconomics SeminarMarkovian values and their application to the formation of environmental agreementsMichel Grabisch (Université Paris 1), 17:15 -- 18:30, Room 0079 (VMP 5)

8 May 2025, 5:15 pm

Abstract: Cooperative games offer a suitable framework for modelling the formation of coalition and solving the problem of sharing the benefit of cooperation. The Shapley value is a famous solution concept for sharing benefits, however it is restricted to the situation where the final coalition is the "grand" coalition of all players, and moreover, it supposes that the grand coalition has been formed by gathering one by one players, in any order. Scenario values, and more generally Markovian process values, proposed by Faigle and Grabisch, give full flexibility to consider any kind of scenario for forming the grand coalition. Moreover, there is no need to terminate at the grand coalition. Players or groups of players can enter or leave the current coalition, according to a Markov chain, and the sharing of benefit (or cost) is computed from the expected marginal value of the players in all transitions. We apply this technique to the problem of sharing the cost of pollution caused by emissions of different countries, once they have agreed to cooperate in the aim of reducing their costs. The underlying cooperative game is a gamma-cooperative game (Chander and Tulkens) obtained by a strategic game where the actions are the level of emissions. The Markov chain ruling the formation of coalition is based on the incentives of countries to leave or to enter a given coalition. The Markovian process value is well-suited to this problem as there is no guarantee in general that the grand coalition of all countries forms.