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Luring Others into Climate Action: Coalition Formation Games with Threshold and Spillover Effects

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  • Bosetti, Valentina
  • Heugues, Melanie
  • Tavoni, Alessandro

Abstract

We study the effect of leadership in an experimental threshold public ‘bad’ game, where we manipulate both the relative returns of two investments (the more productive of which causes a negative externality) and the extent to which the gains from leadership diffuse to the group. The game tradeoffs mimic those faced by countries choosing to what degree and when to transition from incumbent polluting technologies to cleaner alternatives, with the overall commitment dictating whether they manage to avert dangerous environmental thresholds. Leading countries, by agreeing on a shared effort, may be pivotal in triggering emission reductions in non-signatories countries. In addition, the leaders’ coalition might also work as innovation and technology adoption catalyzer, thus producing a public good (knowledge) that benefits all countries. In our game, players can choose to tie their hands to a cooperative strategy by signing up to a coalition of first movers. The game is setup such that as long as the leading group reaches a pivotal size, its early investment in the externality-free project may catalyze cooperation by non-signatories. We find that the likelihood of reaching the pivotal size is higher when the benefits of early cooperation are completely appropriated by the coalition members, less so when these benefits spillover to the non-signatories. On the other hand, spillovers have the potential to entice second movers into adopting the ‘clean’ technology.

Suggested Citation

  • Bosetti, Valentina & Heugues, Melanie & Tavoni, Alessandro, 2015. "Luring Others into Climate Action: Coalition Formation Games with Threshold and Spillover Effects," Climate Change and Sustainable Development 199338, Fondazione Eni Enrico Mattei (FEEM).
  • Handle: RePEc:ags:feemcl:199338
    DOI: 10.22004/ag.econ.199338
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    File URL: http://ageconsearch.umn.edu/record/199338/files/NDL2015-021.pdf
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    References listed on IDEAS

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    Cited by:

    1. Doruk Iris & Alessandro Tavoni, 2016. "Tipping Points and Loss Aversion in International Environmental Agreements," Working Papers 1603, Research Institute for Market Economy, Sogang University.
    2. Calzolari, Giacomo & Casari, Marco & Ghidoni, Riccardo, 2018. "Carbon is forever: A climate change experiment on cooperation," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 169-184.

    More about this item

    Keywords

    Environmental Economics and Policy; Institutional and Behavioral Economics;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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