Forming coalitions to negotiate North–South climate agreements

This paper analyzes North-South negotiations over climate change abatement. We consider that northern countries have an incentive to negotiate over a transfer to the southern countries in exchange for their abatement efforts rather than reducing their emissions at home. We study the incentives for northern and southern countries to form negotiation-coalitions at each side of the bargaining table and the impact of these negotiation-coalitions on the final outcome. We show that the incentives can be separated into direct efficiency gains, as fixed costs savings, and indirect bargaining power gains. Depending on the relative values of these gains, we determine the equilibrium of the game. We also show that bargaining power gains encourage southern countries to negotiate separately while they encourage northern countries to unite, and that this hinders the formation of the grand coalition.