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International Environmental Agreements - Stability with Transfers among Countries

Effrosyni Diamantoudi (), Eftichios Sartzetakis () and Stefania Strantza ()
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Effrosyni Diamantoudi: Department of Economics, Concordia University
Stefania Strantza: Department of Economics, Concordia University

Discussion Paper Series from Department of Economics, University of Macedonia

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 fi?rst stage. We use quadratic benefi?t 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 ordered. 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 con?firms the "paradox of cooperation".

Keywords: Enviromental; Economics. (search for similar items in EconPapers)
JEL-codes: Q5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm, nep-env and nep-gth
Date: 2018-05, Revised 2018-05
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Working Paper: International Environmental Agreements - Stability with Transfers among Countries (2018) Downloads
Working Paper: International Environmental Agreements - Stability with Transfers among Countries (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:mcd:mcddps:2018_06

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