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Coalition Formation in a Global Warming Game: How the Design of Protocols Affects the Success of Environmental Treaty-Making

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  • Johan Eyckmans

    () (K.U.Leuven-Center for Economic Studies and EHSAL Europese Hogeschool Brussel)

  • Michael Finus

    () (Department of Economics, University of Hagen,)

Abstract

We combine the newest concepts of non-cooperative coalition theory with a computable general equilibrium model close to the seminal RICE-model of Nordhaus and Yang (1996) to determine stable coalition structures in a global warming game. We consider three coalition games that allow for the formation of multiple coalitions. The coalition games represent different designs of climate treaty protocols. Counterintuitively, it turns out that treaties based on a unanimous decision rule and exclusive membership lead to superior outcomes than treaties with open membership. We also demonstrate that if coalition formation is not restricted to a single coalition, as this has been done previously in the literature, coalition structures with multiple coalitions will emerge in equilibrium. Most of the regional agreements are superior to single agreements. Moreover, our findings confirm those derived from simpler theoretical models that a cleverly designed transfer scheme can foster cooperation and that from the number of participants the success of a treaty cannot be inferred. They also support a conjecture of theory that in the case of greenhouse gases stable coalition structures (partial cooperation) can close the gap between the global optimum (full cooperation) and the Nash equilibrium (no cooperation) by a substantial amount.

Suggested Citation

  • Johan Eyckmans & Michael Finus, 2003. "Coalition Formation in a Global Warming Game: How the Design of Protocols Affects the Success of Environmental Treaty-Making," Energy, Transport and Environment Working Papers Series ete0317, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
  • Handle: RePEc:ete:etewps:ete0317
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Jonathan Colmer, 2011. "Asymmetry, optimal transfers and international environmental agreements," GRI Working Papers 66, Grantham Research Institute on Climate Change and the Environment.
    3. repec:eee:ecomod:v:235-236:y:2012:i::p:102-118 is not listed on IDEAS
    4. Michael Finus & Pedro Pintassilgo, 2012. "International environmental agreements under uncertainty: does the 'veil of uncertainty' help?," Oxford Economic Papers, Oxford University Press, vol. 64(4), pages 736-764, October.
    5. Alfred Endres, 2008. "Ein Unmöglichkeitstheorem für die Klimapolitik?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 9(3), pages 350-382, August.
    6. Moslener, Ulf & Sturm, Bodo, 2008. "A European Perspective on Recent Trends in U.S. Climate Policy," ZEW Discussion Papers 08-026, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    7. Carlo Carraro & Johan Eyckmans & Michael Finus, 2006. "Optimal transfers and participation decisions in international environmental agreements," The Review of International Organizations, Springer, vol. 1(4), pages 379-396, December.
    8. Johan Eyckmans & Michael Finus, 2004. "An Almost Ideal Sharing Scheme for Coalition Games with Externalities," Energy, Transport and Environment Working Papers Series ete0414, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    9. Glanemann, Nicole, 2012. "Can international environmental cooperation be bought: Comment," European Journal of Operational Research, Elsevier, vol. 216(3), pages 697-699.
    10. Kai Lessmann & Robert Marschinski & Michael Finus & Ulrike Kornek & Ottmar Edenhofer, 2014. "Emissions Trading with Non-signatories in a Climate Agreement—an Analysis of Coalition Stability," Manchester School, University of Manchester, vol. 82, pages 82-109, December.
    11. Juan-Carlos Altamirano-Cabrera & Michael Finus, 2006. "Permit trading and stability of international climate agreements," Journal of Applied Economics, Universidad del CEMA, vol. 9, pages 19-48, May.
    12. Eyckmans, Johan & Tulkens, Henry, 2003. "Simulating coalitionally stable burden sharing agreements for the climate change problem," Resource and Energy Economics, Elsevier, vol. 25(4), pages 299-327, October.
    13. Michael Finus & Bianca Rundshagen & Johan Eyckmans, 2014. "Simulating a sequential coalition formation process for the climate change problem: first come, but second served?," Annals of Operations Research, Springer, vol. 220(1), pages 5-23, September.
    14. Olieman, Niels J. & Hendrix, Eligius M.T., 2006. "Stability likelihood of coalitions in a two-stage cartel game: An estimation method," European Journal of Operational Research, Elsevier, vol. 174(1), pages 333-348, October.
    15. Marta Biancardi & Giovanni Villani, 2010. "International Environmental Agreements with Asymmetric Countries," Computational Economics, Springer;Society for Computational Economics, vol. 36(1), pages 69-92, June.
    16. Michael Finus & Bianca Rundshagen, 2003. "How the Rules of Coalition Formation Affect Stability of International Environmental Agreements," Working Papers 2003.62, Fondazione Eni Enrico Mattei.
    17. Vihang Patel, 2005. "Coalition Strategies and Reduction of GHG Emissions," Game Theory and Information 0501002, EconWPA.
    18. Rögnvaldur Hannesson, 2010. "The coalition of the willing: Effect of country diversity in an environmental treaty game," The Review of International Organizations, Springer, vol. 5(4), pages 461-474, December.
    19. M Sáiz & Eligius Hendrix & Niels Olieman, 2006. "On the Computation of Stability in Multiple Coalition Formation Games," Computational Economics, Springer;Society for Computational Economics, vol. 28(3), pages 251-275, October.

    More about this item

    Keywords

    design of climate treaty protocol; coalition formation; non-cooperative game theory;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • 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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