Endogenous Coalition Formation in Global Pollution Control

Abstract:     
We extend the work on coalition formation in global pollution control by allowing for multiple coalitions. Equilibrium coalitions are derived under different "rules of the game" and compared with each other. We consider internal & external equilibria and equilibrium binding agreements in the cartel formation game, coalition-proof and strong Nash equilibria in the open-membership game and in the exclusive membership - and - games, subgame-perfect equilibria in the sequential move unanimity game and equilibria in the equilibrium binding agreement game. We show that farsightedness and exclusive membership leads to more concentrated coalition structure, implying lower global emissions and higher global welfare. Moreover, we evaluate the different coalition formation games with respect to their ability to explain existing international environmental agreements and with respect to their theoretical consistency.

Keywords: International environmental agreements, coalition formation games, global pollution

JEL Classifications: C72, Q20

Working Paper Series