Self-Enforcing Environmental Federations: Unanimous Climate Coalitions in General Equilibrium

32 Pages Posted: 5 Sep 2020

See all articles by Achim Hagen

Achim Hagen

Humboldt University of Berlin

Christina Roolfs

Potsdam-Institut für Klimafolgenforschung (PIK); Technische Universität Berlin

Date Written: July 30, 2020

Abstract

We propose a novel mechanism for coalitional policies in a climate coalition. In our proposed setup, national (unilateral) and federal (multinational) emission policies coexist. A joint federal institution, appointed by all members, sets a joint emission policy for its members and must attain Pareto improvements relative to the noncooperative outcome. We compare this proposal to the well-established model of an international environmental agreement in which member countries cooperatively decide about a common policy that maximizes joint welfare. We relax the questionably strong assumption of cooperative joint maximization in established models of international environmental agreements and provide a framework that consistently assumes rational governments that maximize national welfare. We provide a microfounded model with asymmetric countries that leads to moderate coalitional climate policies. These weaker climate policies are in line with the rational self-interest of countries and can help to stabilize larger coalitions. We show that they can lead to lower global emissions and higher global welfare than previously proposed models of international environmental agreements with utilitarian joint welfare maximization.

Keywords: Environmental Regulation, Federalism, Intl. Environmental Agreements

JEL Classification: C72, H77, Q58, H23, D62, H87

Suggested Citation

Hagen, Achim and Roolfs, Christina, Self-Enforcing Environmental Federations: Unanimous Climate Coalitions in General Equilibrium (July 30, 2020). Available at SSRN: https://ssrn.com/abstract=3663860 or http://dx.doi.org/10.2139/ssrn.3663860

Achim Hagen (Contact Author)

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, Berlin 10999
Germany

Christina Roolfs

Potsdam-Institut für Klimafolgenforschung (PIK) ( email )

Telegrafenberg 31
Potsdam, Brandenburg 14473
Germany

Technische Universität Berlin

Straße des 17
Juni 135
Berlin, 10623
Germany

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