Dynamic Regularization of Self-Enforcing International Environmental Agreement in the Game of Heterogeneous Players

Maria Dementieva ; Yulia Pavlova ; Victor Zakharov

Contributions to game theory and management, Tome 1 (2007), pp. 68-91.

Résumé

In the presented paper we consider a coalition formation game with heterogeneous players, where a central issue is a problem of international cooperation towards pollution control. The main concern is to provide a better insight into asymmetric pattern and characterize size and structure of a stable agreement when abatement target is succeeded over a fixed and finite period of time. For this purpose we suppose that all nations are allocated among $K$ groups with respect to their welfare function. To define a voluntary membership of an international environmental agreement (IEA), we apply the concept of a self-enforcing coalition from oligopoly literature and determine equilibrium abatement commitments for each nation. We have assumed that once a self-enforcing IEA emerges, signatories decide to perform the required emission reduction uniformly. As soon as the formed coalition initiates activities on emission decrease and the first results are observable, further agreement stability can be in danger. Withdrawal of some nations from the agreement and accessing of others would imply that the coalition will undergo structural change, which in its turn causes sequential switch to another abatement goal. Presented analyses and examples reveal the following results. Self-enforcing IEA, which performs pollution decrease according to uniform scheme, that has been myopically picked up at the initial moment, is stable only over a certain part of the path. Once abatement has reached a threshold level, external stability fails and free-riders have incentives to access the agreement. This occurs because the uniform pollution reduction scheme sets abatement targets, which differ from optimal ones both for IEA members and free-riders. To protect the coalition against free-riding, we shall continue with constructing a dynamic abatement scheme, which goes along with optimal choice and can depict agreement time-consistency.

Détail

Keywords: IEA, heterogeneous players, self-enforcing equilibrium, coalition formation, coalitional games, time-consistency, regularization mechanisms.

Bibliographie

[1] Barrett S., “Self-Enforcing International Environmental Agreements”, Oxford Economic Papers, 46 (1994), 878–894

[2] Barrett S., “Heterogeneous International Environmental Agreements”, International Environmental Negotiations, ed. C. Carraro, Edward Elgar, Cheltenha, 1997

[3] Barrett S., “International Cooperation for Sale”, European Economic Review, 45 (2001), 1835–1850 | DOI

[4] Breton M., Fredj K., Zaccour G., “International Cooperation, Coalition Stability and Free Riding in a Game of Pollution Control”, The Manchester School, 74:1 (2006), 103–122 | DOI | MR

[5] Carraro C., Marchiori C., “Stable coalitions”, The Endogenous Formation of Economic Coalitions, ed. C. Carraro, Edward Elgar, Cheltenham, UK, Northampton, MA, USA, 2003 | DOI

[6] Carraro C., Siniscalco D., “Strategies for the International Protection of the Environment”, Journal of Economics, 52:3 (1993), 309–328

[7] Carraro C., Siniscalco D., “International Environmental Agreements: Incentives and Political Economy”, European Economic Review, 42 (1998), 561–572 | DOI

[8] D'Aspremont C., Jacquemin A., Weymark J., “On the Stability of Collusive Price Leadership”, Canadian Journal of Economics, 16 (1983), 17–25 | DOI

[9] Diamantoudi E., Sartzetakis E., “Stable International Environmental Agreements: An Analytical Approach”, Journal of Public Economic Theory, 8:2 (2006), 247–263 | DOI

[10] Finus M., “Stability and Design of International Environmental Agreements: the Case of Transboundary Pollution”, The International Yearbook of Environmental and Resource Economics 2003/2004, eds. H. Folmer, T. Tietenberg, Edward Elgar, Cheltenham, 2003, 82–158

[11] Finus M., Rundshagen B., Endogenous Coalition Formation in Global Pollution Control: A Partition Function Approach, Nota Di Lavoro 43, FEEM, 2001

[12] McGinty M., “International Environmental agreements among Asymmetric Nations”, Oxford Economic Papers, 59:1 (2006), 45–62 | DOI

[13] Petrosjan L., “Stability of solutions in $n$-person differential games”, Bulletin of Leningrad University, 19 (1977), 46–52 | MR | Zbl

[14] Petrosjan L., “The time consistency (dynamic stability) in differential games with a discount factor”, Game theory and applications, 1 (1996), 47–53 | MR

[15] Petrosjan L., Zakharov V., Mathematical Models in Environmental Policy Analysis, Nova Science Publishers, New York, USA, 1997 | MR

[16] Strotz R., “Myopia and Inconsistency in Dynamic Utility Maximization”, The Review of Economic Studies, 23:3 (1955–1956), 165–180 | DOI