Likelihood of environmental coalitions and the number of coalition members: evidences from an IAM model

Abstract

To hold the grand coalition voluntarily in an economy with detrimental externalities, the allocations should be in the core. Identifying the scope or ‘size’ of the core allocations is of vital importance for understanding such a coalition. Furthermore, the relationship between the number of agents and the ‘size’ of the core reveals some crucial characteristics of coalition formation. In this paper, a cooperative game of stock externality provision is constructed to study its core properties of an economy with detrimental externality. Particularly, methods and algorithms for testing the shrinking core hypothesis are developed in the RICE model, an integrated assessment model of climate change. The calculation results show that the size of the core shrinks as the number of regions increases in RICE. The paper also evaluates the policy implications of the shrinking core phenomenon with respect to the environmental coalitions.