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The impact of surplus sharing on the stability of international climate agreements

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  • Hans-Peter Weikard
  • Michael Finus
  • Juan-Carlos Altamirano-Cabrera

Abstract

This paper analyses stability of coalitions for greenhouse gas abatement under different sharing rules applied to the gains from cooperation. We use a 12-region model to examine internal and external stability of coalitions. We determine and compare stable coalitions under different surplus sharing rules; for example, grandfathering (sharing proportional to current emissions) and a number of equitable rules, i.e. sharing according to historical responsibilities for past emissions. Due to strong free-rider incentives we find only small stable coalitions for all sharing rules examined. We observe that stable coalitions consist of regions with low marginal abatement costs that are attractive partners in any coalition and regions receiving the highest shares of the surplus from cooperation under a particular sharing rule. We find that equitable rules may not be conducive to success: in fact, a grandfathering scheme leads to the most successful coalition in terms of global abatement and global welfare. Copyright 2006, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/oep/gpi047
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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 58 (2006)
Issue (Month): 2 (April)
Pages: 209-232

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Handle: RePEc:oup:oxecpp:v:58:y:2006:i:2:p:209-232

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  1. CHANDER, Parkash & TULKENS, Henry, 1994. "A Core-Theoretic Solution for the Design of Cooperative Agreements on Transfrontier Pollution," CORE Discussion Papers 1994048, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Francesco Bosello & Barbara Buchner & Carlo Carraro, 2003. "Equity, Development, and Climate Change Control," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 601-611, 04/05.
  3. Adam Rose & Brandt Stevens & Jae Edmonds & Marshall Wise, 1998. "International Equity and Differentiation in Global Warming Policy," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 12(1), pages 25-51, July.
  4. Na, Seong-lin & Shin, Hyun Song, 1998. "International Environmental Agreements under Uncertainty," Oxford Economic Papers, Oxford University Press, vol. 50(2), pages 173-85, April.
  5. Michael Finus & Ekko van Ierland, 2003. "Stability of Climate Coalitions in a Cartel Formation Game," Working Papers 2003.61, Fondazione Eni Enrico Mattei.
  6. Michael Finus & Juan-Carlos Altamirano-Cabrera & Ekko Ierland, 2005. "The effect of membership rules and voting schemes on the success of international climate agreements," Public Choice, Springer, vol. 125(1), pages 95-127, July.
  7. World Bank, 2002. "World Development Indicators 2002," World Bank Publications, The World Bank, number 13921, January.
  8. Pfingsten, Andreas, 1991. "Surplus-sharing methods," Mathematical Social Sciences, Elsevier, vol. 21(3), pages 287-301, June.
  9. Kverndokk, S., 1992. "Tradeable CO2 Emission Permits: Initial Distribution as a Justice Problem," Memorandum 23/1992, Oslo University, Department of Economics.
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