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STABILITY OF INTERNATIONAL ENVIRONMENTAL AGREEMENT

Increasing concerns about climate change have given rise to the formation of International Environmental Agreements (IEAs) as a possible solution to limit global pollution effects. In this research project, we study the stability of IEAs in a cooperative game framework in Partition Function Form (PFF). In this framework,two or more countries are considered to form a coalition if they sign a multilateral environmental agreement. In our model NTU game is appropriate for all international issues. We will defined a coalition structure to be a partition. This means that each individual writes agreements with the coalition to which he belongs. If he does not write any agreements, he forms a singleton coalition, which is certainly allowed for by the partitional restriction. We will assume superadditivity in coalition, that is once a coalition has formed, cooperation within that coalition is unrestricted. Moreover, we will introduce externalities. With externalities, the group must also attempt to predict he coalition structure that arises elsewhere. Externalities are present, if there is at least a merger of coalitions that changes the payoff of a player belonging to a coalition not involved in the merger. If the merger increases (decreases) the payoff of the player, the externality is considered as positive (negative).As pointed out by Barrett, an IEA needs also Collective Rationality (CR). With this assumption negotiation become a collective action and requires that it not be possible for agents to gain collectively by changing their treaty. The treat must be credible, countries can decide their strategy in order to construct the treaty incorporating different instruments, such as technology standards or emission limits, or minimum participation clause, financial transfer, etc. That is, no countries have an incentive to renegotiate the agreement. CR contracts the set of feasible outcomes that can be sustained by a selfenforcing treaty. The possibility of renegotiation makes cooperation harder to strengthen. CR is a property of a treaty implying not only efficiency for the group of signatories, but also free riding deterrence. In our framework, we define CR after introducing Externalities schemes, in order to capture the group effect.Our main contribution will be to characterize necessary and sufficient conditions for stability of an IEA as a Core allocation.The core allocations in our NTU game, will specify a profile emissions for each party, taking into account not only Pareto efficiency, but also Individuay and CR without any transfers. A key point in the analysis of partition function games rely on the understanding of expectations on complementary coalitions as a new group of players forms. Efficiency for a group of countries (S or N) is a joint policy of members of the group that maximizes the group’s aggregate welfare W, in such manner. In an economic sense, because the public good is global, as in Samuelson 1954, efficiency can be reached only if all countries are involved in the process of resource allocation required to manage the externality. In that sense, efficiency has the necessity of cooperation. Moreover, an IEA may be viewed as outcomes of voluntary negotiations between generators and recipients of externalities (Coase 1961), that determines at an efficient outcome under appropriate conditions.A game in Partition Function Form consider the entire world, N, splitting into non overlapping and collectively exhaustive subsets, wich define what is called a coalition structure. To each element of a coalition structure we will apply the internalexternal stability test. If for a given structure the test is passed by all its coalitions, the structure can be called I-E-stable or multi-coalitional equilibrium or fragmented-equilibrium. In this project, we will try to find conditions under which the core allocation can be I-E-stable.The generality of our approach allows for several applications, in particular the provision of public goods.