The w-value: Market Implementation and gamma-Core Stability in Pollution-Control Games
Juanjuan Fan, Ying Wang
This paper proposes a novel solution concept, called the w-value, for cooperative pollution-control games. The w-value is axiomatically founded on three principles: Pareto Optimality (PO), Market Equilibrium (ME), and Fiscal Balance (FB), which together yield an efficient and implementable welfare distribution. We establish its existence and uniqueness under standard concavity and convexity assumptions, and provide a market mechanism that implements it through price constraints and an initial permit allocation. A key theoretical advantage is its strong stability: the w-value belongs to the gamma-core, which makes it resistant to coalitional deviations. Moreover, the w-value can be obtained through a simple step-by-step procedure, which facilitates its application to complex real-world problems. A numerical illustration demonstrates the step-by-step calculation process and confirms the gamma-core membership numerically. Finally, we apply the concept to international climate negotiations, showing how it provides a theoretical rationale for the shift from rigid mandatory emission reduction systems toward the flexible structure of Nationally Determined Contributions.
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