Working Paper: CEPR ID: DP8821
Authors: Valentina Bosetti; Carlo Carraro; Enrica De Cian; Emanuele Massetti; Massimo Tavoni
Abstract: This paper analyses the incentives to participate in and the stability of international climate coalitions. Using the integrated assessment model WITCH, the analysis of coalitions? profitability and stability is performed under alternative assumptions concerning the pure rate of time preference, the social welfare aggregator and the extent of climate damages. We focus on the profitability, stability, and 'potential stability' of a number of coalitions which are 'potentially effective' in reducing emissions. We find that only the grand coalition under a specific sets of assumptions finds it optimal to stabilise GHG concentration below 550 ppm CO2-eq. However, the grand coalition is found not to be stable, not even 'potentially stable' even through an adequate set of transfers. However, there exist potentially stable coalitions, but of smaller size, which are also potentially environmentally effective. Depending on the assumptions made, they could achieve up to 600 ppm CO2-eq. More ambitious targets lead to the collapse of the coalition.
Keywords: climate coalitions; climate policy; free riding; game theory
JEL Codes: C68; C72; D58; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| profitability of coalitions (C71) | welfare of members (I30) |
| coalitions are profitable (C71) | welfare of members > welfare of free-riding alternatives (D69) |
| specific conditions (C62) | grand coalition stabilizes GHG concentrations below 550 ppm CO2eq (D74) |
| freeriding incentives (H40) | grand coalition not stable (D74) |
| assumptions regarding climate damages and discount rates (H43) | stability of smaller coalitions (D79) |
| higher discount rates (E43) | larger emissions (Q52) |
| choice of social welfare aggregator (D71) | coalition stability (D74) |
| population-based weights (C83) | environmental effectiveness of coalitions (P28) |
| no set of transfers (F16) | grand coalition remains unprofitable and not internally stable (D74) |
| cooperation is possible (C71) | moderate environmental targets and effective internalization of climate externalities (F64) |