Cartel Stability under an Optimal Sharing Rule

Abstract

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Sticks and carrots for the design of international climate agreements with renegotiations

“…Barrett 1994;Finus and Rundshagen 2003). These results have been obtained for models with identical players and do not generalise when players differ (Weikard 2009). Our results in this paper are likewise in contrast to the earlier findings.…”

“…Weikard (2009) shows that every coalition that is internally stable under some arbitrary sharing rule will also 1 We skip the time-superscript where it is not essential. 2 The latter requirement has been labelled 'Claim Rights Condition' by Weikard (2009). be internally stable under the family of sharing rules characterised by (1). The underlying standard notion of stability is as follows (d 'Aspremont et al 1983…”

“…it achieves at least the sum of what its members can achieve without cooperation. Recently a class of sharing rules has been proposed that divides the difference between the coalition payoff and the sum of the outside option payoffs of coalition members (Carraro et al 2006;McGinty 2007;Weikard 2009;Fuentes-Albero and Rubio 2010). The outside option payoff is the payoff a player would receive when leaving the coalition.…”

Club-in-the-club: Reform under unanimity

“…The idea of an inner club and its impact on the members of the initial organization can also be found in the literature on cartel formation and its applications to the public goods and the formation of international environmental agreements (see e.g., d 'Aspremont et al, 1983; Thoron, 1998;Diamantoudi and Sartzetakis, 2006;Weikard, 2009). This literature analyses cartel stability based on the incentives of the cartel members to leave and of the outsiders to join.…”

Nash bargaining solutions for international climate agreements under different sets of bargaining weights

“…The distribution of coalitional gains across countries can be organised through transfer schemes which are effective instruments to offset free-riding incentives and improve the stability of international climate agreements (ICAs) (Carraro and Siniscalco 1993;Barrett 1995;Botteon and Carraro 1997;Weikard et al 2006;Carraro et al 2006;Weikard 2009;Nagashima et al 2009). Sharing the gains of cooperation is solving a bargaining problem (Nash 1950;Powell 2002); hence, the Nash bargaining solution (NBS) can be used to determine transfer schemes for ICAs.…”