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Alex, Fabian

Green central banking and game theory: The Chicken Game-approach

Alex, Fabian (2024) Green central banking and game theory: The Chicken Game-approach. Economic Systems 48 (4), p. 101251.

Date of publication of this fulltext: 03 Dec 2024 09:25
Article
DOI to cite this document: 10.5283/epub.59730


Abstract

This paper investigates the determinants of the probability that a central bank chooses to make its financial sector green. We derive a mixed-strategy Nash equilibrium from a strategic setting of two monetary authorities choosing simultaneously between the alternatives of greening and conducting business as usual. Using a very general setup, we obtain a model that nests most of the usual 2 × ...

This paper investigates the determinants of the probability that a central bank chooses to make its financial sector green. We derive a mixed-strategy Nash equilibrium from a strategic setting of two monetary authorities choosing simultaneously between the alternatives of greening and conducting business as usual. Using a very general setup, we obtain a model that nests most of the usual 2 × 2-situations in game theory. “Green” avoids a country’s contribution to an externality experienced by both, but also encompasses a sacrifice of slowing down economic performance. The probability of greening is found to decrease whenever “greening” means a larger sacrifice for the other country, while it increases with the size of both countries, the rate of internalization applied to the externality as well as the severity of this externality. Unlike the typical (pure) free-riding approach to international coordination on environmental issues, we find some willingness of countries to sacrifice wealth for the sake of avoiding a worst case. In a repeated setting, cooperative solutions can be established. The influence of discounting on the stability of these solutions is ambiguous.



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Details

Item typeArticle
Journal or Publication TitleEconomic Systems
Publisher:Elsevier
Volume:48
Number of Issue or Book Chapter:4
Page Range:p. 101251
Date16 August 2024
InstitutionsBusiness, Economics and Information Systems > Institut für Volkswirtschaftslehre und Ökonometrie
Identification Number
ValueType
10.1016/j.ecosys.2024.101251DOI
Classification
NotationType
C72Journal of Economics Literature Classification
Q5Journal of Economics Literature Classification
KeywordsEnvironment, Environmental economics, Green economics, Game theoretic, Game theory, Games, Mixed strategy, Two player, Public goods game, Strategic game
Dewey Decimal Classification300 Social sciences > 330 Economics
StatusPublished
RefereedYes, this version has been refereed
Created at the University of RegensburgYes
URN of the UB Regensburgurn:nbn:de:bvb:355-epub-597300
Item ID59730

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