The Impact of Surplus Sharing on the Stability of International Climate Agreements

Posted: 29 Feb 2008

See all articles by Hans-Peter Weikard

Hans-Peter Weikard

Wageningen UR - School of Social Sciences

Michael Finus

University of Stirling

Juan-Carlos Altamirano-Cabrera

Wageningen University - Social Sciences, Environmental Economics and Natural Resources Group

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Abstract

This paper analyses stability of coalitions for greenhouse gas abatement under different sharing rules applied to the gains from cooperation. We use a 12-region model to examine internal and external stability of coalitions. We determine and compare stable coalitions under different surplus sharing rules; for example, grandfathering (sharing proportional to current emissions) and a number of equitable rules, i.e. sharing according to historical responsibilities for past emissions. Due to strong free-rider incentives we find only small stable coalitions for all sharing rules examined. We observe that stable coalitions consist of regions with low marginal abatement costs that are attractive partners in any coalition and regions receiving the highest shares of the surplus from cooperation under a particular sharing rule. We find that equitable rules may not be conducive to success: in fact, a grandfathering scheme leads to the most successful coalition in terms of global abatement and global welfare.

JEL Classification: D62, D63, Q25

Suggested Citation

Weikard, Hans-Peter and Finus, Michael and Altamirano-Cabrera, Juan-Carlos, The Impact of Surplus Sharing on the Stability of International Climate Agreements. Oxford Economic Papers, Vol. 58, No. 2, pp. 209-232, 2006. Available at SSRN: https://ssrn.com/abstract=916859

Hans-Peter Weikard (Contact Author)

Wageningen UR - School of Social Sciences ( email )

De Leeuwenborch
Hollandseweg 1
6706 KN Wageningen
Netherlands
+31 317 48 24 94 (Phone)
+31 317 48 49 33 (Fax)

Michael Finus

University of Stirling ( email )

Stirling, Scotland FK9 4LA
United Kingdom

Juan-Carlos Altamirano-Cabrera

Wageningen University - Social Sciences, Environmental Economics and Natural Resources Group ( email )

De Leeuwenborch
Hollandseweg 1
6706 KN Wageningen
Netherlands

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