Motivation of Climate Change Investment and Risk Exposure New Perspective from Game Model

Transcription

1 Inernaonal Journal of Energy Scence (IJES Volume 3 Issue 3, June 3 Movaon of Clmae Change Invesmen and Rsk Exposure New Perspecve from Game Model Can Wang *, Zhugang Jn, Wena Ca 3 Mnsry of Educaon Key Laboraory for Earh Sysem Modelng, and Cener for Earh Sysem Scence, snghua Unversy; Sae Key Jon Laboraory of Envronmen Smulaon and Polluon Conrol (SKLESPC, and School of Envronmen, snghua Unversy Room 4, Sno Ialy Envronmen and Energy Buldng, snghua Unversy, Beng, Chna, 84 * canwang@snghua.edu.cn (Correspondng Auhor; xshs777@6.com; 3 wca@mal.snghua.edu.cn Absrac he common and ndvdual unceranes are he man facors nfluencng he movaon of clmae change nvesmen for each counry. By dsngushng and nvolvng he hree effecs of clmae change nvesmen on uly, sraegc game model wh raonaly hypohess s proposed and smulaed o evaluae he relaonshp beween he nvesmen movaon and ndvdual rsk exposure due o ndvdual unceranes. he posve correlaon beween he rsk exposure and nvesmen movaons s confrmed. he negave nfluences of rsk exposure on ules of game equlbrums whaever he dynamc sraeges are also esed. Upgrade of he srucure of economy and enhancemen of he an flucuaon capacy for he economy shock of global warmng deserve o be he focus and prory. Keywords Invesmen; Rsk Exposure; Clmae Change; Game Model Inroducon Over he pas several decades, global warmng and clmae negoaon have become more and more severe n spe of he progress on he scenfc and socologcal researches. here s sll a huge gap beween he audes owards he responsbly and schedule of mplemenaon. Apar from polcal and economc concerns, he unceranes of global warmng ogeher wh s mpac are he maor obsacles on he way o reachng a wdely accepable and bndng consensus for all counres. EU nsss ha acons should be aken mmedaely due o rreversble rsk of emperaure ncremen on human beng s lvng envronmen, whle he Uned Saes beleves ha s economcal and feasble o make use of fuure echnology progress o cope wh he ssue. Dfferen perspecves on he reacon o unceranes are he essenal facors desablzng he drecon of clmae negoaon. Generally, he unceranes as menoned above can be classfed no wo caegores: common unceranes and ndvdual unceranes. he global greenhouse gas (GHG concenraon and he emperaure ncremen ogeher wh s raecory under BAU (busness as usual scenaro n he fuure belong o he former ype as s confroned n each counry farly. Alhough he emperaure ncremen due o he GHG concenraon s rggered by he combned effecs of ndvdual mgaon fundamenally, he exernaly of GHG resuls n he lack of movaon o conduc carbon abaemen for each counry alone. Chander and ulkens (6, Wood ( and oher researchers (Desombre, 4; Hov, Sprnz and Bang, ; Kroll and Shogren, 8 have already revealed he falure of cooperaon from perspecve of heorecal game heory. he oher ype of uncerany s based on ndvdual properes ncludng nal GDP growh, he olerance of emperaure ncremen on ndvdual GDP e al. he dverses of ndusry srucures and choces of compeve ndusres may affec he sables and rsk ressance capaces for each counry under dfferen emperaure ncremen scenaros. Compared wh developed counres, he developng counres, especally he Afrcan and Souheas Asan naons may suffer more sever loss wh hgher uncerany for her nadequae precauon and hgh dependence on he ender agrculure ndusry (Hope, 6; Maddson, 3; Nordhaus and Boyer, ; ol,. Such rsk exposures conneced wh ndvdual properes may arac more aenon for her own neress and rgger her subecve naves. hen he way how he rsk exposure wll nfluence he negoaon sraeges s nroduced. Such relaonshp s nvesgaed n hs arcle wh heorecal model and 56

2 Inernaonal Journal of Energy Scence (IJES Volume 3 Issue 3, June 3 smulaons. Based on raonaly hypohess, he hree effecs of clmae change nvesmen on uly are dsngushed and nvolved n our dynamc game model. Smulaon ogeher wh comparson s carred ou. More nformaon abou he model s nroduced n Secon. Smulaons ogeher wh evaluaon are presened n Secon 3, followed by dscussons and conclusons n Secon 4. heorecal Model Uly and Unceranes We pos a consan relave rsk averson (CRRA socal uly funcon for each raonal counry:, Uly e U, d e d. where Uly, U,, and refer o he ne presen uly, uly a me, ndex of rsk averson and dscounng rae for counry respecvely. C, means he dsposable consumpon a me whch can be conneced wh GDP growh rae g: C exp( g ds. s In he absence of global warmng, real GDP and consumpon can keep a consan growh g, bu he emperaure ncremen would have a smplfed lnear effec on real GDP growh as Dell, Jones and Olken(9 esmaed: g g (3. he margnal effec of emperaure ncremen a me ( on GDP growh s. As us dscussed, he emperaure ncremen and he margnal effec parameer belong o he wo caegores of unceranes respecvely. Alhough los of researches have calbraed hese parameers, he resuls are no always conssen or precse due o varous resrcons of each model. One of he wdely acceped soluons s o nvolve probably heory and o esmae he expeced uly. For he common uncerany,.e., he emperaure ncremen a horzon year (H= has been fed by Pndyck(, Newbold and Dagneaul(9 wh assumpons ha he mean, 5% and % pons emperaure ncremens are 3, 7 and respecvely. hree parameer (.e. r,, Gamma funcon fs he uncerany dsrbuon well C ( ( wh he followng PDF (probably densy funcon: f x r x e x r r ( x (;,, (,. ( r For he ndvdual uncerany,.e, he margnal effec of emperaure ncremen on GDP growh can be calbraed based on he ndvdual exponenal loss funcon nformaon obaned from IAMs researches as here s a lnear relaonshp beween and heorecally. Gven he raecory of emperaure ncremen proposed by Wezman(9 and appled by Pndyck(, Fgure shows he change of loss funcon value due o he emperaure ncremen a horzon year, parameer and me. ( Loss( e. (5 Loss H / H [ ( ] H Bea=.8 Bea=.69 FIG. HE RELAIONSHIPS OF LOSS(,, H AND Β Effecs of Clmae Change Invesmen and Movaons he hree effecs of clmae change nvesmen on uly are dsngushed: he posve, negave and spllover effecs. If nv represens he percenage of clmae change nvesmen o GDP for counry, hen he amoun of dsposable consumpon wll be reduced whch s defned as he negave effec of nv on uly. On he oher hand, clmae change nvesmen wll boos he orgnal GDP growh wh margnal parameer as s mplemened as exra nvesmen. Wh Eq. ( o (6, he heorecal relaon beween and can be solved ou: H H [ ] ln(.5 (4 (6 57

3 Inernaonal Journal of Energy Scence (IJES Volume 3 Issue 3, June 3 herefore he modfed GDP growh and dsposable consumpon due o he posve and negave effecs are adused as: g, g, ( nv. * * *,, s, C C ( nv ( nv exp( g ds. On he oher hand, he exernaly of global warmng deermnes he spllover effec of clmae change nvesmen. Supposng ha he relaonshp beween he upper boundary of emperaure ncremen Up and global clmae change nvesmen can be quanfed as funcon, hen each counry s nvesmen decson nv wll parally nfluence he Up wh s GDP relaed weghng facor w ndrecly. Compared o he emperaure ncremen uncerany under no nvesmen scenaro, Up should promoe each counry s presen ne uly as he orgnal dsrbuon of common uncerany wll be updaed wh Bayesan heorem. In oher words, he orgnal PDF for he emperaure ncremen n he fuure f ( x; r,, s Bayesan updaed o f ( x; r,, (7 (8 as Eq. ( shows: Up = ( nvworld = ( w nv. (9 f ( x; r,, f( xr ;,,, xup. Up f ( x; r,, dx ( Up * ( C, Uly = ( nv, f ; nv = e f ( f dd d. If he hree effecs of clmae change nvesmen are combned, every raonal negoaor has ncenves o choose he opmal nvesmen o maxmze s own uly. Apar from common unceranes, ndvdual unceranes wll also affec her movaons. By means of negraon of he Eq. ( o (, he presen ne uly of counry can be furher expressed as ( nv, f ; nv. Gven he oher counres nvesmen nformaon nv and ndvdual uncerany f, he opmal amoun of clmae change nvesmen for couny should mee he arge of maxmum. Hence, OpInv= ( f ; nv s employed o represen he opmal reacon whch s deermned by nv and ndvdual uncerany f. By comparng he gap of OpInv under dfferen assumpon of f, he relaonshp of clmae change nvesmen movaon and rsk exposure hen can be evaluaed. Furhermore, he non cooperave game equlbrums can also be worked ou by nvolvng he dynamc decson seps for each counry under complee nformaon hypohess. he nfluence of ndvdual uncerany on he game equlbrums can be f examned as well. Wh he backward nducon mehod (Aumann, 995, he heorecal game equlbrums of dynamc game model for wo counres nvolve hree scenaros as able shows. Frs, and smul mean he hree sraeges, / / and frs smul frs / / smul OpInv, Uly represen clmae change nvesmen and uly of equlbrums respecvely. Smulaon and Comparsons For he ndvdual uncerany, hree groups wh dfferen hypoheses are smulaed and compared. he probably densy funcon f s fed by akng he mean loss for H=.5 o be 3% GDP, and he 7% pon and 83% pon o be % and 4.8% of GDP respecvely for Group. he rsk exposures are adused by means of ncreasng and decreasng he varance wh he same expecaon for Group and Group 3 respecvely. Fgure shows he dsrbuon of parameer. Generally, he rsk exposure mees he order: Group >Group >Group3. In comparson wh he opmal reacons of hree groups as Fgure 3 shows 3, he opmal reacon o hgh rsk exposure counry ends o be more han ha wh low rsk exposure. When nv=3%, he opmal reacon of Group s.48% GDP, hgher han.46% of Group 3 and lower han.5% of Group respecvely. he smulaon resuls are raonal and n accordance wh he realy because he opmal reacon refers o an opmal balance of he hree effecs of clmae For hree parameer Gamma dsrbuon, he mean, varance and skewness are Ex ( r/, Var( x r / and 3 Skew( x r / respecvely. 3 he oher common parameers nclude nal GDP growh g=4.5%, rsk averson, margnal promong effec of clmae change nvesmen on GDP growh, me preference and nal emperaure uncerany ( r,, 3.8,. 9,. 3 whch s n accordance wh Pndyck(. 58

4 Inernaonal Journal of Energy Scence (IJES Volume 3 Issue 3, June 3 ABLE HEOREICAL EQUILIBRIUMS FOR DYNAMIC GAME MODEL WIH WO COUNRIES Scenaros Counry I moves frsly Counry moves frsly Smulaneously Counry frs frs smul smul OpInv, Uly OpInv, Uly OpInv, Uly Counry frs frs smul smul OpInv, Uly OpInv, Uly OpInv, Uly Noes: hs able only smulaes wo counry scenaro whch can be adused o he mul counry suaon. ABLE HYPOHESES AND CALIBRAION RESULS FOR INDIVIDUAL UNCERAINY Hypoheses of ( Loss(.5 hree parameers for Mean 7% Pon 83% Pon r Group 3% % 4.8% E 4 Group 3%.5% 5.3% E 4 Group3 3%.5% 4.3% E 4 Noes: he parameer values for are n accordance wh he hypoheses respecvely. ABLE 3 NON COOPERAIVE DYNAMIC GAME MODEL EQUILIBRIUMS OF HREE SRAEGY SCENARIOS moves frsly moves frsly Smulaneously Group Group G3 G G G3 G G G3 OpInv.34%.343%.34%.337%.336%.334%.34%.339%.337% OpInv.455%.455%.455%.56%.56%.56%.455%.454%.454% Uly Uly Group Group Group 3 more aracve and sgnfcan, whch wll rgger he hgher nvesmen of clmae change. In oher words, hgh rsk exposure wll promoe he movaon of clmae change nvesmen. OpInv PDF Parameer r x -4 FIG. PROBABILIY DENSIY DISRIBUION OF PARAMEER FOR GROUP O Group Group Group 3 In addon, dynamc game equlbrums n able 3 also show he dfferences due o he rsk exposures 4. Alhough he equlbrums of nvesmen are no conssen n each dynamc sraegy scenaro, he uly dfferences are sgnfcan. Whaever he dynamc sraegy scenaro s, he uly of counry mees he order consanly: Group 3>Group > Group. he smulaon resuls are also nsprng. I ndcaes ha he rsk exposure self has much more deermnng power han he game sraeges under non cooperave scenaros n nfluencng he ules of each counry, whch means ha we should gve he prory o he enhancemen of he an flucuaon capacy for he economy shock of global warmng. Dscussons and Concluson he effecs of rsk exposures on opmal reacons ogeher wh game equlbrums are evaluaed. By dsngushng he hree effecs of clmae change nvesmen on uly, he movaon of clmae change nvesmen are nvesgaed wh raonaly hypohess. Smulaons resuls reveal ha he hgher rsk exposure nv FIG. 3 OpInv = ( f ; nv FOR GROUP O 3 change nvesmen. Wh hgher rsk exposure, he room of mprovemen n spllover effec would be 4 he oher counry/secor mee he followng nal hypoheses whch s based on realy: g,=.5%,, and ( r,, 3.8,46,.745e 4. 59

5 Inernaonal Journal of Energy Scence (IJES Volume 3 Issue 3, June 3 s, he more nvesmen one naon s ncenve o make, whch means ha he fragly of economy may have a sgnfcan effec on he movaons. For counres wh hgh dependence on agrculure and oher ndusres suscepble o global warmng, s raonal and movaed o nves more. herefore, s advsable for developng counres, especally Afrcan and Souheas Asan naons o upgrade he ndusry srucure and o ake precauons o cope wh he flucuaon of clmae change, whch wll no only be conducve o he sably of fuure uly, bu also enhance her barganng power n clmae negoaon. Moreover, he resuls of game equlbrums under dfferen dynamc sraeges also sugges he benefs of reducon of he rsk exposure. Counres wh hgher rsk exposure may have o face more severe decrease of uly. Such decremen s sgnfcan whaever he adoped dynamc sraeges are, leadng o he cognon ha more aenon should be pad o he mprovemen of economy srucure and an flucuaon capacy compared o he negoaon sraeges hemselves. ACKNOWLEDGMEN hs research was funded by he Naonal Naural Scence Foundaon of Chna (No REFERENCES Aumann, R. J. ʺBackward nducon and common knowledge of raonaly.ʺ Games and Economc Behavor (995: 6 9. Chander, P. ulkens, H. ʺCooperaon, Sably and Self Enforcemen n Inernaonal Envronmenal Agreemens: A Concepual Dscusson.ʺ CORE, 6. Dell, MelssaJones, Benamn F. Olken, Benamn A. ʺemperaure and ncome: reconclng new cross seconal and panel esmaes.ʺ Naonal Bureau of Economc Research. 9. Desombre, E. R.ʺGlobal warmng: more common han ragc.ʺehcs and Inernaonal Affars (4: Hope, C.ʺhe margnal mpac of CO from PAGE: An negraed assessmen model ncorporang he IPCCʹs fve reasons for concern.ʺinegraed assessmen (6: 6(. Hov, J. Sprnz, D. F. Bang, G. ʺWhy he Uned Saes dd no become a pary o he Kyoo Proocol: German, Norwegan, and US perspecves.ʺeuropean Journal of Inernaonal Relaons (:9 5. Kroll, Sephan Shogren, Jason F.ʺDomesc polcs and clmae change: nernaonal publc goods n wo level games.ʺcambrdge Revew of Inernaonal Affars (8: Maddson, D. ʺhe ameny value of he clmae: he household producon funcon approach.ʺresource and Energy Economcs (3: Newbold, Sephen C. Dagneaul, Adam. ʺClmae response uncerany and he benefs of greenhouse gas emssons reducons.ʺ Envronmenal and Resource Economcs (9: Nordhaus, W. D. Boyer, J. G. ʺWarmng he world: he economcs of he greenhouse effec.ʺ Cambrdge, MA: MI Press,. Pndyck, R. S. ʺUnceran oucomes and clmae change polcy.ʺ Journal of Envronmenal Economcs and Managemen (: ol, R. ʺEsmaes of he damage coss of clmae change. Par : Benchmark esmaes.ʺ Envronmenal and Resource Economcs (: Wezman, M. L. ʺAddve damages, fa aled clmae dynamcs, and unceran dscounng.ʺ Economcs: he Open Access, Open Assessmen E Journal (9: Wood, P. J. ʺClmae change and game heoryʺ. Annals of he New York Academy of Scences (: