Leading the way: coalitional stability in technological cooperation & sequential climate policy

Working paper

The World's nations have yet to reach a truly effective treaty to control the emission of greenhouse gases. The importance of compatibility with private incentives of individual countries has been acknowledged (at least by game theorists) in designing climate policies for the post-Kyoto world. Individually incentive-compatible agreements, however, may still be spoilt if coalitional incentives to deviate as a group exist. As a first step toward understanding these incentives from a game-theoretic perspective, we propose a hybrid noncooperative-cooperative game theory model of coalition formation in technology collaboration. Serious coalitional instabilities inherent to the existing climate policy architectures are revealed. It turns out that coalitionally stable agreements are achieved via intermediate self-selecting subcoalitions. The sequence of coalitions forming and the size of the direct and spillover effects of R&D collaboration on countries' individual production technologies determine the effectiveness of the agreements to reduce carbon emissions. These coalitional group motives are already becoming important in the practice of climate change negotiations.

Authors: Norman, T; Nax, H

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Publication date: 2011-12-01
• Paper number: 585
• Keywords: R&D; externalities; coalitions; climate change policy; cooperative game theory; environmental agreements; mechanism design; noncooperative game theory