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Leading the Way: Coalitional Stability in Technological Cooperation & Sequential Climate Policy

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  • Thomas Norman
  • Heinrich H. Nax

Abstract

The World's nations have yet to reach a truly effective treaty to control the emission of greenhouse gases. The importance of compatibility with private incentives of individual countries has been acknowledged (at least by game theorists) in designing climate policies for the post-Kyoto world. Individually incentive-compatible agreements, however, may still be spoilt if coalitional incentives to deviate as a group exist. As a first step toward understanding these incentives from a game-theoretic perspective, we propose a hybrid noncooperative-cooperative game theory model of coalition formation in technology collaboration. Serious coalitional instabilities inherent to the existing climate policy architectures are revealed. It turns out that coalitionally stable agreements are achieved via intermediate self-selecting subcoalitions. The sequence of coalitions forming and the size of the direct and spillover effects of R&D collaboration on countries' individual production technologies determine the effectiveness of the agreements to reduce carbon emissions. These coalitional group motives are already becoming important in the practice of climate change negotiations.

Suggested Citation

  • Thomas Norman & Heinrich H. Nax, 2011. "Leading the Way: Coalitional Stability in Technological Cooperation & Sequential Climate Policy," Economics Series Working Papers 585, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:585
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    File URL: http://www.economics.ox.ac.uk/materials/papers/5528/paper585.pdf
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    References listed on IDEAS

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    1. 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.
    2. Bard Harstad, 2012. "Climate Contracts: A Game of Emissions, Investments, Negotiations, and Renegotiations," Review of Economic Studies, Oxford University Press, vol. 79(4), pages 1527-1557.
    3. Levy, Philip I & Srinivasan, T N, 1996. "Regionalism and the (Dis)advantage of Dispute-Settlement Access," American Economic Review, American Economic Association, vol. 86(2), pages 93-98, May.
    4. 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.
    5. Barrett, Scott, 2005. "The theory of international environmental agreements," Handbook of Environmental Economics,in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 28, pages 1457-1516 Elsevier.
    6. Bård Harstad, 2016. "The Dynamics Of Climate Agreements," Journal of the European Economic Association, European Economic Association, vol. 14(3), pages 719-752, June.
    7. Hafalir, Isa E., 2007. "Efficiency in coalition games with externalities," Games and Economic Behavior, Elsevier, vol. 61(2), pages 242-258, November.
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    More about this item

    Keywords

    Climate change policy; Coalitions; Cooperative game theory; Environmental agreements; Externalities; Mechanism design; Noncooperative game theory; R&D;

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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