An Evolutionary Game Approach in International Environmental Agreements with R&D Investments

Abstract

The paper proposes a dynamic game about the process of formation and stability of international environmental agreements (IEAs) in which abatement levels are associated with the stock pollutant evolution. The model assumes that both countries that ratify an agreement and the stock of accumulated pollution evolve over time. We propose an evolutionary mechanism, based on replicator dynamics, that describes how the population share of signatories countries updates over time. It postulates that players are boundedly rational and make their choices by adopting the more rewarding behavior that emerges from available observation of others’ behaviors. We show that the formation of an IEA cannot be sustained in general, but only if additional considerations are taken into account. In particular, we introduce a positive externality represented by RD otherwise, the non-cooperators support completely their R&D investments for clean technologies. This aspect encourages the formation of coalitions determining conditions such that the Grand Coalition is stable.