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Stability of Climate Coalitions in a Cartel Formation Game

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Abstract

This paper analyses the formation and stability of coalitions to form international environmental agreements. We present and apply the Stability of coalitions model to assess the internal and external stability of all possible coalition structures in a cartel formation game; first under the assumption that no transfers take place and second for a transfer scheme. One important novelty of this paper is the analysis of the incentive structure of twelve regions for all possible combinations of (cartel) coalitions in an empirical setting with asymmetric regions. We show that stable coalitions can emerge only if benefits from global abatement are sufficiently high or if an appropriate transfer scheme is introduced.

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Authors and Affiliations

  1. Department of Economics, Institute of Economic Theory, Hagen University, Profilstr. 8, 58084, Hagen, Germany

    Michael Finus

  2. Department of Social Sciences, Environmental Economics and Natural Resources Group, Wageningen University, 6700 HB, Wageningen, The Netherlands

    Ekko van Ierland & Rob Dellink

Authors
  1. Michael Finus
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  2. Ekko van Ierland
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Correspondence to Michael Finus.

Additional information

The authors acknowledge the support of Juan-Carlos Altamirano-Cabrera, Eligius Hendrix, Niels Olieman, Pepijn van Oort, Arjan Ruijs and Hans-Peter Weikard in the analysis. Furthermore, the comments by two anonymous referees are gratefully acknowledged. The usual disclaimer applies.

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Finus, M., Ierland, E.v. & Dellink, R. Stability of Climate Coalitions in a Cartel Formation Game. Economics of Governance 7, 271–291 (2006). https://doi.org/10.1007/s10101-005-0009-1

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  • DOI: https://doi.org/10.1007/s10101-005-0009-1

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