Perfectly Coalition-Proof Overlapping Agreements: With an Appliation to International Environmental Agreements

36 Pages Posted: 6 Oct 2013

See all articles by Emilson Delfino Silva

Emilson Delfino Silva

University of Alberta - Department of Marketing, Business Economics & Law

Xie Zhu

Oakland University

Date Written: August 20, 2013

Abstract

The Perfectly Coalition-Proof Nash equilibrium (PCPN) concept is extended to allow for the emergence of overlapping coalitions in equilibrium. We apply the extended concept to study the efficiency and stability properties of environmental agreements to control emissions of correlated continental and global pollutants. We show that set of PCPN equilibria includes Perfectly Strong Nash (PSN) equilibria if the national damage from continental pollution is sufficiently large relative to the national damage from global pollution. We also show that: (i) continental agreements may be perfectly coalition-proof under much less restrictive circumstances; and (ii) perfect Nash equilibria for fully overlapped agreements may be superior to the Grand Coalition’s optimal allocation in the presence of coalitional operation costs.

Keywords: perfectly coalition-proof equilibrium, overlapping coalitions, climate change, correlated pollutants, international environmental agreements

JEL Classification: C72, D62, D78, H41, H77

Suggested Citation

Delfino Silva, Emilson and Zhu, Xie, Perfectly Coalition-Proof Overlapping Agreements: With an Appliation to International Environmental Agreements (August 20, 2013). University of Alberta School of Business Research Paper No. 2013-1314. Available at SSRN: https://ssrn.com/abstract=2336195 or http://dx.doi.org/10.2139/ssrn.2336195

Emilson Delfino Silva (Contact Author)

University of Alberta - Department of Marketing, Business Economics & Law ( email )

Edmonton, Alberta T6G 2R6
Canada

Xie Zhu

Oakland University ( email )

Rochester, MI 48309-4401
United States

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