Coalition Formation in a Global Warming Game: How the Design of Protocols Affects the Success of Environmental Treaty-Making

CORE Discussion Paper No. 2003/88

34 Pages Posted: 23 Apr 2007

See all articles by Johan Eyckmans

Johan Eyckmans

Catholic University of Leuven (KUL) - Center for Economic Studies

Michael Finus

University of Stirling

Date Written: December 2003

Abstract

We combine the newest concepts o non-cooperative coalition theory with a computable general equilibrium model close to the seminal RICE-model of Nordhaus and Yang (1996) to determine stable coalition structures in a global warming game. We consider three coalition games that allow for the formation of multiple coalitions. The coalition games represent different designs of climate treaty protocols. Counterintuitively, it turns out that treaties based on a unanimous decision rule and exclusive membership lead to superior outcomes than treaties with open membership. We also demonstrate that if coalition formation is not restricted to a single coalition, as this has been done previously in the literature, coalition structures with multiple coalitions will emerge in equilibrium. Most of the regional agreements are superior to single agreements. Moreover, our findings confirmthose derived fromsim pler theoretical models that a cleverly designed transfer scheme can foster cooperation and that fromthe number of participants the success of a treaty cannot be inferred. They also support a conjecture of theory that in the case of greenhouse gases stable coalition structures (partial cooperation) can close the gap between the global optimum (full cooperation) and the Nash equilibrium(no cooperation) by a substantial amount

Keywords: design of climate treaty protocol, coalition formation, non-cooperative game theory

JEL Classification: C68, C72, H41, Q25

Suggested Citation

Eyckmans, Johan and Finus, Michael, Coalition Formation in a Global Warming Game: How the Design of Protocols Affects the Success of Environmental Treaty-Making (December 2003). Available at SSRN: https://ssrn.com/abstract=981409 or http://dx.doi.org/10.2139/ssrn.981409

Johan Eyckmans (Contact Author)

Catholic University of Leuven (KUL) - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Michael Finus

University of Stirling ( email )

Stirling, Scotland FK9 4LA
United Kingdom

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