A dynamic climate negotiation game achieving full cooperation

Abstract

We present a repeated participation game where countries form a coalition for international environmental agreements over infinitely many periods. Countries may leave and re-enter coalitions. Payoff transfers are possible. In contrast to the literature on stable coalitions in a static model, we show that there exists a state-dependent subgame perfect equilibrium where the grand coalition forms in every period if countries are sufficiently patient. The grand coalition forms under countries' self-fulfilling belief that small coalitions will dissolve or enlarge to the grand coalition with an unfavorable transfer to non-participants. We further show that if coalitions are irreversible, the grand coalition gradually forms in finitely many periods in every Markov perfect equilibrium. The results are independent of a particular solution for the bargaining problem of coalition benefits.