Altruistic behavior and international environmental agreements: a differential game approach

Abstract

AbstractIn the last three decades International Environmental Agreements (IEAs) have been widely analyzed. Classic models predict that only coalitions formed by a few countries can be stable, generating a rich literature devoted to solving the small coalition puzzle. The fundamental idea behind the great part of the literature is that players are selfish: to achieve a large stable coalition it is necessary to design an agreement that includes a credible system of incentives or punishments. The aim of this model is to study the effects, on equilibrium strategies and on the stability of an IEA, of players that do not look only at their own interests, but that take care of the wellness of the other players in coalition. Following the approach of the Paris Agreement in 2015, countries that join the coalition do not decide emissions collectively, but each of them sets their own emissions. The model is the usual two-step game: first the players have to choose whether they want to join the coalition or not, in the second step they solve a Nash differential game to find the optimal emissions. The stability of the coalition is studied in two cases: (i) with the classic internal and external stability, (ii) defining an altruistic stability condition.