International Environmental Agreements with Asymmetric Countries

Abstract

The paper investigates the stability of International Environmental Agreements (IEAs) in a pollution abatement model with a quadratic cost function. We suppose a two stage game, in which in the first stage each country decides whether or not to join the agreement while, in the second stage, the quantity of pollution abatement is chosen. Agents may act cooperatively, building coalitions and acting according to the interest of the coalition, or they make their choices taking care of their individual interest only. We consider two kinds of countries: the first type are industrially advanced, namely developed countries, while the second type are the less developed, namely developing countries. About environmental preservation, the developed countries are characterized by a higher measure of the environmental awareness than developing ones. We provide a new graphic way to visualise results about stable coalitions of different sizes taking into account several environmental awareness values. Moreover, we present a handy Maple algorithm to determine both the optimal costs for each country and the coalitions' stability with an arbitrary number of developed and developing countries. Finally, we introduce an ex-post transfer scheme in order to expand a generic coalition to the grand coalition which reaches the greatest abatement level and the lowest aggregate costs.