Group dynamic game under bounded rationality in agreed transfer of China’s carbon trading secondary market

Abstract

Carbon emission allowance trading in the secondary market determines both the efficiency of carbon resource allocation and the effectiveness of carbon trading system. To reveal the mechanism of agreed transfer in China’s carbon emission allowance trading, this paper proposes a model of group dynamic game under bounded rationality, which integrates elements of both dynamic game and evolutionary game. It adopts the inverse induction method, using a nested payoff matrix, to recursively solve the game layer-by-layer from the inside out. Theoretical and experimental studies have shown that (1) The stable result is independent of the initial strategy of bounded rationality and depends on the comparative combinations of the profits of both parties in different stages; (2) When the agreed transfer concludes in the first stage, the total benefits of both parties are the largest, and the transaction efficiency is the highest; (3) The seller group achieves maximum gains when the initial bid is not excessively high, the buyer group’s discount factor is low, and the buyer group’s marginal return is substantial; (4) The buyer group can maximize its gains in first stage or second stage. Considering carbon market efficiency, it is advisable for the buyer group to choose the first stage when marginal return is high.