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Financial transfers to sustain international cooperation in the climate change framework

Author

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  • GERMAIN, Marc

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

  • VAN YPERSELE, Jean-Pascal

    (Institut d'astronomie et de géophysique Georges Lemaître ( ASTR), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

Abstract

This paper deals with a a cooperative game theoretic analysis of the economics of international agreements on climate change. To cope with the question of the voluntary implementation of the international optimum, a financial transfer scheme is proposed under which no countries nor subgroup (coalition) of countries would have an interest not to join to the international agreement. The transfer scheme presents the originality to be designed in a closed-loop dynamic framework where cooperation is renegotiated at each period taking account of the current stock of pollutant. The transfer scheme is applied to the climate change problem, making use of a simple model inspired by Kverndokk (1994) and Nordhaus and Yang (1996). The results show that with the proposed sidepayments, international cooperation is indeed individually rational and rational in the sense of coalitions.

Suggested Citation

  • GERMAIN, Marc & VAN YPERSELE, Jean-Pascal, 1999. "Financial transfers to sustain international cooperation in the climate change framework," LIDAM Discussion Papers CORE 1999036, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:1999036
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp1999.html
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    References listed on IDEAS

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    Cited by:

    1. Marc Germain & Philippe Toint & Henry Tulkens & Aart Zeeuw, 2006. "Transfers to Sustain Dynamic Core-Theoretic Cooperation in International Stock Pollutant Control," Springer Books, in: Parkash Chander & Jacques Drèze & C. Knox Lovell & Jack Mintz (ed.), Public goods, environmental externalities and fiscal competition, chapter 0, pages 251-274, Springer.
    2. M. Germain & V. van Steenberghe, 2003. "Constraining Equitable Allocations of Tradable CO 2 Emission Quotas by Acceptability," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 26(3), pages 469-492, November.
    3. GERMAIN, Marc & VAN STEENBERGHE, Vincent, 2001. "Constraining equitable allocations of tradable greenhouse gases emission quotas by acceptability," LIDAM Discussion Papers CORE 2001005, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Porchiung Chou & Cheickna Sylla, 2008. "The formation of an international environmental agreement as a two-stage exclusive cartel formation game with transferable utilities," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 8(4), pages 317-341, December.

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    More about this item

    Keywords

    climate change; dynamic games; cooperative games; coalitions; sidepayments;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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