Economics, Game Theory and International Environmental Agreements

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RePEc: Research Papers in Economics

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RePEc: Research Papers in Economics

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Journal of Public Economic Theory

The stability of International Environmental Agreements (IEA) is analyzed by using game theory. The integrated assessment model FUND provides the cost-benefit payoff functions of pollution abatement for sixteen different world regions. The farsighted stability concept of Chwe (1994) is used and solved by combinatorial algorithms. Farsighted stability assumes perfect foresight of the players and predicts which coalitions can be formed when players are farsighted. All farsightedly stable coalitions are found, and their improvement to environment and welfare is considerable. The farsightedly stable coalitions are refined further to preferred farsightedly stable coalitions, which are coalitions where the majority of coalition members reach higher profits in comparison with any other farsightedly stable coalitions. Farsightedly stable coalitions contribute more to the improvement of environment and welfare in comparison to D'Aspremont et al.'s (1983) stable ones. Considering multiple farsighted stable coalitions, participation in coalitions for environmental protection is significantly increased, which is an optimistic result of our game theoretical model.

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