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International Environmental Agreements - Stability with Transfers among Countries

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  • Diamantoudi, Effrosyni
  • Sartzetakis, Eftichios
  • Strantza, Stefania

Abstract

The paper examines the stability of self-enforcing International Environmental Agreements (IEAs) among heterogeneous countries, allowing for transfers. We employ a two-stage, non-cooperative model of coalition formation. In the first stage each country decides whether or not to join the agreement, while in the second stage countries choose their emissions simultaneously. Coalition members agree also to share the gains from cooperation in the first stage. We use quadratic benefit and environmental damage functions and assume two types of countries differing in their sensitivity to the global pollutant. In examining the impact of transfers on the coalition size, we apply the notion of Potential Internal Stability (PIS). Results show that transfers can increase cooperation among heterogeneous countries. However, the increase in the coalition size, relative to the case without transfers, comes only from countries belonging to the type with the lower environmental damages, which are drawn into the coalition by the transfers offered. Furthermore, the level of cooperation increases with the degree of heterogeneity. However, the reduction in aggregate emissions achieved by the enlarged coalition is very small leading to dismal improvement in welfare, which confirms the "paradox of cooperation".

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  • Diamantoudi, Effrosyni & Sartzetakis, Eftichios & Strantza, Stefania, 2018. "International Environmental Agreements - Stability with Transfers among Countries," CSI: Climate and Sustainable Innovation 273370, Fondazione Eni Enrico Mattei (FEEM).
  • Handle: RePEc:ags:feemci:273370
    DOI: 10.22004/ag.econ.273370
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    1. Matthew McGinty, 2020. "Leadership and Free-Riding: Decomposing and Explaining the Paradox of Cooperation in International Environmental Agreements," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 77(2), pages 449-474, October.

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    More about this item

    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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