How Cooperation and Competition Arise in Regional Climate Policies: RICE as a Dynamic Game

One of the most widely used models for geographical economics of climate change is the regional integrated model of climate and the economy (RICE). In this article, we investigate how cooperation and competition arise in regional climate policies under the RICE framework from the standpoints of game theory and optimal control. Our primary discovery is that the RICE model is inherently a dynamic game, where both cooperative and noncooperative solutions may emerge. In cooperative settings, we investigate the global social welfare equilibrium that maximizes the weighted and cumulative social welfare across regions, present the Pareto social welfare trade-offs between developed and developing clusters of regions, and apply receding horizon approach to approximate the global social welfare equilibrium. For noncooperative settings, we first present a recursive best-response algorithm for dynamic games (RBA-DG) to describe the sequences of best-response regional climate decisions, which indicates convergence to an open-loop Nash equilibrium (NE) when applied to the RICE game by numerical studies. We also present a receding horizon feedback algorithm for dynamic games (RHFA-DG), to describe a region’s feedback actions after observing the real-time climate and economic states and other regions’ climate mitigation decisions. All these proposed solution concepts are implemented and open-sourced using up-to-date data. The results reveal how the combination of game theory and control theory may be used to facilitate international negotiations toward consensus on regional climate-change mitigation policies, and reveal how cooperative and competitive regional relations shape climate change for our future.