A note on optimal transfer schemes, stable coalition for environmental protection and joint maximization assumption

Abstract

Using the FUND model, an impact assessment is conducted over the 21st century for rises in sea level of up to 2-m/century and a range of socio-economic scenarios downscaled to the national level, including the four SRES storylines. This model balances the costs of retreat with the costs of protection, including the effects of coastal squeeze. While the costs of sea-level rise increase with greater rise due to greater damage and protection costs, the model suggests that an optimum response in a benefit-cost sense remains widespread protection of developed coastal areas, as identified in earlier analyses. The socio-economic scenarios are also important in terms of influencing these costs. In terms of the four components of costs considered in FUND, protection dominates, with substantial costs from wetland loss under some scenarios. The regional distribution of costs shows that a few regions experience most of the costs, especially East Asia, North America, Europe and South Asia. Importantly, this analysis suggests that protection is much more likely and rational than is widely assumed, even with a large rise in sea level. This is underpinned by the strong economic growth in all the SRES scenarios: without this growth, the benefits of protection are significantly reduced. It should also be noted that some important limitations to the analysis are discussed, which collectively suggest that protection may not be as widespread as suggested in the FUND results. Equity weighting allows the damages to be modified to reflect the wealth of those impacted by sea-level rise. Taking these distributional issues into account increases damage estimates by a factor of three, reflecting that the costs of sea-level rise fall disproportionately on poorer developing countries.Transfers play an important role in modeling International Environmental Agreements (IEA). We examine the implementation mechanism of Optimal Transfer Sharing Scheme (Carraro et al., 2006) which try to enable the existence of stable coalitions for environmental protection by side transfers. There are many coalitions where the OPTS can possibly be implemented. However, the implementation mechanism is almost impossible as it requests the ow of welfare from a few countries to the rest of coalition members, which is unrealistic. If the joint welfare maximization assumption is replaced with the assumption that the emission levels of coalition members are uniformly deceased by a constant percentage in comparison to fully non-cooperative coalition structure, then the free riding incentives are signicantly weakened. As a consequence there are possibilities to implement an OPTS and enable existence of stable coalitions.stable international environmental agreements; climate policy; coalition formation; transfers; integrated assessment modeling