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Climate Coalition Formation When Players are Heterogeneous and Inequality Averse

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  • Carsten Vogt

    (Bochum University of Applied Sciences)

Abstract

In this paper, we study the formation of international climate coalitions in the case players are perfectly heterogeneous and inequality averse. The paper provides an analytical solution for the optimal contribution of an arbitrary coalition member to a linear and pure public good. Based on empirical estimates for the parameters the model is then applied to the problem of climate mitigation policies. We provide a full stability analysis of all coalitions that can be formed by the twelve world regions from Nordhaus’ RICE model. As it turns out, only four two-player coalitions are internally stable. For a wealthy country leaving a coalition, its absolute payoff increases more than its disutility from additional advantageous inequality. A poor country improves its welfare by dropping out since its absolute payoff increases and, at the same time, disutility from disadvantageous inequality is reduced. Introducing suitable transfer schemes, however, large coalitions consisting of economically divergent countries turn out to be internally stable.

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  • Carsten Vogt, 2016. "Climate Coalition Formation When Players are Heterogeneous and Inequality Averse," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 33-59, September.
  • Handle: RePEc:kap:enreec:v:65:y:2016:i:1:d:10.1007_s10640-016-0016-4
    DOI: 10.1007/s10640-016-0016-4
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    2. Thomas Eichner & Rüdiger Pethig, 2024. "How Important Are IEAs for Mitigation If Countries Are of the Homo Moralis Type?," CESifo Working Paper Series 11040, CESifo.
    3. Anna A. Klis, 2019. "Identity and equal treatment in negative externality agreements," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 19(6), pages 615-630, December.
    4. Rogna, Marco & Vogt, Carla, 2020. "Coalition formation with optimal transfers when players are heterogeneous and inequality averse," Ruhr Economic Papers 865, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    5. Thomas Eichner & Rüdiger Pethig, 2022. "International Environmental Agreements When Countries Behave Morally," CESifo Working Paper Series 10090, CESifo.
    6. Acocella, Nicola & Di Giovanni, Tomasz, 2019. "Natural Resources and Environment Preservation: Strategic Substitutability vs. Complementarity in Global and Local Public Good Provision," International Review of Environmental and Resource Economics, now publishers, vol. 13(3-4), pages 203-227, September.
    7. Francois Bareille & Matteo Zavalloni & Meri Raggi & Davide Viaggi, 2021. "Cooperative Management of Ecosystem Services: Coalition Formation, Landscape Structure and Policies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 79(2), pages 323-356, June.
    8. Tobias Börger & Nick Hanley & Robert J. Johnston & Keila Meginnis & Tom Ndebele & Ghamz E. Ali Siyal & Frans de Vries, 2024. "Equity preferences and abatement cost sharing in international environmental agreements," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(1), pages 416-441, January.
    9. Alistair Ulph & David Ulph, 2023. "International Cooperation and Kantian Moral Behaviour – Complements or Substitutes?," Economics Discussion Paper Series 2302, Economics, The University of Manchester.
    10. Rogna, Marco & Vogt, Carla J., 2021. "Accounting for inequality aversion can justify the 2° C goal," Ruhr Economic Papers 925, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    11. Mark A. Andor & Manuel Frondel & Stephan Sommer, 2018. "Equity and the willingness to pay for green electricity in Germany," Nature Energy, Nature, vol. 3(10), pages 876-881, October.
    12. Tiziano Distefano & Simone D'Alessandro, 2017. "An Evolutionary approach to International Environmental Agreements," SEEDS Working Papers 0517, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Sep 2017.
    13. Salvatore Nunnari & Massimiliano Pozzi, 2022. "Meta-Analysis of Inequality Aversion Estimates," CESifo Working Paper Series 9851, CESifo.
    14. Gavard, Claire & Schoch, Niklas, 2021. "Climate finance and emission reductions: What do the last twenty years tell us?," ZEW Discussion Papers 21-014, ZEW - Leibniz Centre for European Economic Research.
    15. Rafat Beigpoor Shahrivar & Duesterhoeft, Ilka & Rogna, Marco & Vogt, Carla, 2023. "A mechanism of proportional contributions for public good games," Ruhr Economic Papers 990, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    16. Eichner, Thomas & Pethig, Rüdiger, 2024. "International environmental agreements when countries behave morally," Journal of Environmental Economics and Management, Elsevier, vol. 125(C).
    17. Jing Wu & Jean-Claude Thill, 2018. "Climate change coalition formation and equilibrium strategies in mitigation games in the post-Kyoto Era," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 18(4), pages 573-598, August.
    18. Yu Hsuan LIN, 2018. "How Does Altruism Enlarge A Climate Coalition," Journal of Advanced Research in Management, ASERS Publishing, vol. 9(3), pages 553-563.
    19. Marco Rogna & Carla J. Vogt, 2022. "Optimal climate policies under fairness preferences," Climatic Change, Springer, vol. 174(3), pages 1-20, October.

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    More about this item

    Keywords

    Climate policy; Coalition game; Heterogeneity; Inequality aversion; Voluntary cooperation; Transfers;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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