All real world games take place in a larger context, and that context can change the game. For example if the two players in the game above give a third party money worth 10 units of benefit and sign a treaty giving the third party instructions to pay that money to the one who abates if the other defects but return it equally if they cooperate, cooperation will be guaranteed. Posting this bond, changes the game.
Coordination games have many ways to achieve a good outcome, provide the players agree on a coordinated strategy. In such a game, if there is a focal strategy, e.g. “driving on the right,” then there may be no need for a treaty—all will make the right choice intuitively. But if there is no such focal point, then a treaty stating that all will drive on the right may be needed. Signing the treaty changes the outcome of the game. Introducing a way to write and sign a treaty changes the game from one that will likely result in chaos, to one in which everyone will likely cooperate and choose consistently.
In this section of this website we will analyze various possible treaties that may aid in attaining an agreement on a high global carbon price. For example, one treaty might state that each country will select a cap voluntarily, once a year. Another might state that all countries will name a price and then enforce the median price named in their country.
We will report here on both theoretical and empirical results. In fact two experiments comparing simple price and quantity treaties have already been conducted at the Cologne Laboratory for Economic Research, and will be reported on in April.Fo