An Empirical Test of New Developments in Coalition Theory for the Design of International Environmental Agreements

We consider new developments in coalition theory for the design of international environmental agreements (IEAs). Applying an empirical model on climate change that comprises benefit and cost estimates from abatement for 12 world regions, we analyze how the design of an agreement affects the success of self-enforcing IEAs. We analyze single versus multiple coalitions, open versus exclusive membership with majority and unanimity voting, and no transfers versus transfers with four different transfer schemes

Measures to enhance the effectiveness of international climate agreements: The case of border carbon adjustments

Actions on climate change which are not supported by all countries are not very effective. However, full participation in a global climate treaty with meaningful emission reductions is difficult to achieve. The non-excludability of the public good mitigation provides an incentive to abstain from global action. Moreover, carbon leakage renders it unattractive to join a treaty without full participation. We study whether and under which conditions border carbon adjustments (BCAs) can mitigate free-riding and reduce carbon leakage in a simple strategic trade model. We show that BCAs can lead to large stable climate agreements, including full participation, associated with large global welfare gains if treaties do not restrict membership (open membership), as this is typical for environmental agreements. We caution against restricting accession to treaties (exclusive membership), as this is typical for trade agreements, which may serve individual but not global interests

A Bargaining Game Analysis of International Climate Negotiations

Climate negotiations under the United Nations Framework Convention on Climate Change have so far failed to achieve a robust international agreement to reduce greenhouse gas emissions. Game theory has been used to investigate possible climate negotiation solutions and strategies for accomplishing them. Negotiations have been primarily modelled as public goods games such as the Prisoner’s Dilemma, though coordination games or games of conflict have also been used. Many of these models have solutions, in the form of equilibria, corresponding to possible positive outcomes—that is, agreements with the requisite emissions reduction commitments. Other work on large-scale social dilemmas suggests that it should be possible to resolve the climate problem. It therefore seems that equilibrium selection may be a barrier to successful negotiations. Here we use an N-player bargaining game in an agent-based model with learning dynamics to examine the past failures of and future prospects for a robust international climate agreement. The model suggests reasons why the desirable solutions identified in previous game-theoretic models have not yet been accomplished in practice and what mechanisms might be used to achieve these solutions

International Environmental Agreements with Uncertainty, Learning and Risk Aversion

This paper analyses the formation of international environmental agreements (IEAs) under uncertainty, focusing on the role of learning and risk aversion. It bridges two strands of literature: one focused on the role learning for the success of IEA formation when countries are risk neutral and another that explores the implications of uncertainty and risk aversion on IEA formation under no learning. Combining learning and risk aversion seems appropriate as the uncertainties surrounding many international environmental problems are still large, those uncertainties are often highly correlated as for instance in climate change and hence pooling risks may be limited, but those uncertainties are gradually reduced over time through learning. It is shown that the negative conclusion with respect to the role of learning derived for risk neutrality has to be qualified: below a threshold level of risk aversion learning can impact positively on the success of IEAs, above the threshold the opposite is true. Moreover, in a world without full learning (i.e. partial and no learning), risk aversion can lead to better outcomes, but only if risk aversion is sufficiently high

Evolutionary game of coalition building under external pressure

We study the fragmentation-coagulation (or merging and splitting) evolutionary control model as introduced recently by one of the authors, where $N$ small players can form coalitions to resist to the pressure exerted by the principal. It is a Markov chain in continuous time and the players have a common reward to optimize. We study the behavior as $N$ grows and show that the problem converges to a (one player) deterministic optimization problem in continuous time, in the infinite dimensional state space

Equity as a Prerequisite for Stability of Cooperation on Global Public Good Provision

Analysing cooperative provision of a global public good such as climate protection, we explore the relationship between equitable burden sharing on the one hand and core stability on the other. To assess the size of the burden which a public good contribution entails for a country, we make use of a specific measure based on Moulin (Econometrica 55:963-977, 1987). In particular, we show that a Pareto optimal allocation which is not in the core can always be blocked by a group of countries with the highest Moulin sacrifices. In this sense, it is the 'overburdening' and thus 'unfair' treatment of some countries that provides the reason for core instability. By contrast, a Pareto optimal allocation is in the core if the public good contributions are fairly equally distributed according to their Moulin sacrifices. The potential implications of our theoretical analysis for global climate policy are also discussed