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

34 Pages Posted: 10 Mar 2015

See all articles by Valentina Bosetti

Valentina Bosetti

Bocconi University; CMCC - Euro Mediterranean Centre for Climate Change

Melanie Heugues

Basque Centre for Climate Change (BC3)

Alessandro Tavoni

London School of Economics & Political Science (LSE); Princeton University - Department of Ecology and Evolutionary Biology; Fondazione Eni Enrico Mattei (FEEM)

Date Written: March 9, 2015

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.

Keywords: Climate Change, International Cooperation, R&D Spillovers, Threshold Public Goods Game, Coalition Formation Game, Climate Experiment

JEL Classification: Q5, Q58

Suggested Citation

Bosetti, Valentina and Heugues, Melanie and Tavoni, Alessandro, Luring Others into Climate Action: Coalition Formation Games with Threshold and Spillover Effects (March 9, 2015). FEEM Working Paper No. 21.2015. Available at SSRN: https://ssrn.com/abstract=2575611 or http://dx.doi.org/10.2139/ssrn.2575611

Valentina Bosetti (Contact Author)

Bocconi University

Via Gobbi 5
Milan, 20136
Italy

CMCC - Euro Mediterranean Centre for Climate Change

via Augusto Imperatore, 16
Lecce, I-73100
Italy

Melanie Heugues

Basque Centre for Climate Change (BC3) ( email )

Gran Vía 35-2
Bilbao, Vizcaya 48009
Spain

HOME PAGE: http://www.bc3research.org/our_team/researchers/melanie_hegues.html

Alessandro Tavoni

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://www2.lse.ac.uk/GranthamInstitute/whosWho/Staff/AlessandroTavoni.aspx

Princeton University - Department of Ecology and Evolutionary Biology ( email )

Princeton, NJ 08544
United States

Fondazione Eni Enrico Mattei (FEEM) ( email )

C.so Magenta 63
Milano, 20123
Italy

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