The Core of an Economy with Multilateral Environmental Externalities

Abstract

When environmental externalities are international-i..e. transfrontier-they most often are multilateral and embody public good characteristics. Improving upon inefficient laissez-faire equilibria requires voluntary cooperation for which the game-theoretic core concept provides optimal outcomes that have interesting properties against free riding.To define the core, however, the characteristic function of the game associated with the economy (which specifies the payoff achievable by each possible coalition of playershere, the countries) must also specify in each case the behavior of the players which are not members of the coalition. This has been for a long time a major unsolved problem in the theory of the core of economies with many producers of a public good.Among the several assumptions that can be made in this respect, a plausible one is defined in this paper, for which it is then shown that the core is nonempty. The proof is constructive in the sense that it exhibits a solution (i.e., an explicit coordinated abatement policy) that has the desired property of nondomination by any proper coalition of countries, given the assumed behavior of the other countries.

Equity, Development, and Climate Change Control

“…This would increase the number of strongly profitable coalitions and hence the probabilities to identify a stable (i.e., self-enforcing) coalition structure. Transfer schemes designed to make a climate agreement profitable to all countries have been proposed for example in Chander and Tulkens (1997) and applied to climate models in Weyant (1999) or Eyckmans (2001). Second, policy strategies could be designed to redistribute the surplus achieved by internally stable coalitions with the goal to induce other countries to enter the coalition.…”

Regulation via the Polluter‐pays Principle

“…fromKolstad (2000, p. 177).8 SeeAmbec and Sprumont (2002) andAmbec and Ehlers (2008) for a rigorous analysis of the river water sharing problem Demange (2004). considers stability in hierarchies given by trees.9 Seminal papers on international agreements for greenhouse emission reduction are Carraro and Siniscalco (1993),Barrett (1994) andChander and Tulkens (1997).© 2014 Royal Economic Society.…”

Climate change and game theory

“…35 Another possible method is to threaten to dissolve the treaty altogether. 9,36 The problem with these punishments in the context of greenhouse gas emissions is that they hurt signatories as much as nonsignatories. Threats to substantially increase greenhouse gas emissions are unlikely to be credible and involve impacts that are experienced decades into the future.…”

“…We discuss an interesting result from cooperative game theory that if a grand coalition for reducing emissions was to dissolve into singletons when any coalition breaks away, then full cooperation is possible. 9 We also discuss noncooperative mechanisms for coalition formation, and apply this to the question of whether cooperation is more likely among a grand coalition, or among several smaller coalitions. One mechanism for coalition formation relates to the issue of international carbon market linkage.…”