A strategy-proof and budget-balanced mechanism for carbon footprint reduction by global companies

Narahari, Y and Bagchi, D and Suresh, P and Subrahmanya, SV and Biswas, S and Viswanadham, N and Lakshmi, Udaya U (2012) A strategy-proof and budget-balanced mechanism for carbon footprint reduction by global companies. In: 2012 IEEE International Conference on Automation Science and Engineering (CASE), 20-24 Aug. 2012, Seoul .

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Abstract

The problem addressed in this paper is concerned with an important issue faced by any green aware global company to keep its emissions within a prescribed cap. The specific problem is to allocate carbon reductions to its different divisions and supply chain partners in achieving a required target of reductions in its carbon reduction program. The problem becomes a challenging one since the divisions and supply chain partners, being autonomous, may exhibit strategic behavior. We use a standard mechanism design approach to solve this problem. While designing a mechanism for the emission reduction allocation problem, the key properties that need to be satisfied are dominant strategy incentive compatibility (DSIC) (also called strategy-proofness), strict budget balance (SBB), and allocative efficiency (AE). Mechanism design theory has shown that it is not possible to achieve the above three properties simultaneously. In the literature, a mechanism that satisfies DSIC and AE has recently been proposed in this context, keeping the budget imbalance minimal. Motivated by the observation that SBB is an important requirement, in this paper, we propose a mechanism that satisfies DSIC and SBB with slight compromise in allocative efficiency. Our experimentation with a stylized case study shows that the proposed mechanism performs satisfactorily and provides an attractive alternative mechanism for carbon footprint reduction by global companies.

Item Type:	Conference Paper
Publisher:	IEEE
Additional Information:	Copyright of this article belongs to IEEE.
Keywords:	Carbon emission reduction, emission cap, Emission Reduction Allocation; Mechanism Design; Incentive Ccompatibility; Budget Balance; Allocative Efficiency; Vickrey-Clarke-Groves Mechanism
Department/Centre:	Division of Electrical Sciences > Computer Science & Automation
Date Deposited:	06 Nov 2013 06:11
Last Modified:	06 Nov 2013 06:11
URI:	http://eprints.iisc.ac.in/id/eprint/47713

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