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Stability of Climate Coalitions in a Cartel Formation Game

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  • Michael Finus
  • Ekko Ierland
  • Rob Dellink

Abstract

We empirically test stability of climate change coalitions with the STAbility of Coalitions model (STACO). The model comprises twelve world regions and captures important dynamic aspects of the climate change problem. We apply the stability concept of internal and external stability to a cartel formation game. It is shown that only if benefits from global abatement are sufficiently high, stable coalitions emerge, though they only marginally improve upon the Nash equilibrium. We explain this phenomenon by analyzing the individual incentive structure of all regions and relate our results to the predictions of theory.
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  • Michael Finus & Ekko Ierland & Rob Dellink, 2006. "Stability of Climate Coalitions in a Cartel Formation Game," Economics of Governance, Springer, vol. 7(3), pages 271-291, August.
    • Handle: RePEc:spr:ecogov:v:7:y:2006:i:3:p:271-291
    DOI: 10.1007/s10101-005-0009-1
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    More about this item

    Keywords

    International environmental agreements; Kyoto-Protocol; Cartel formation; Stability of coalitions; Non-cooperative game theory; C72; H41; Q25;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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