On the farsightedly and myopically stable international environmental agreements

Abstract

AbstractWe investigate the stability of International Environmental Agreements. The analysis of Chwe is extended by investigating the question how to find farsightedly stable coalitions. The myopic stability concept of d'Aspremont, Jacquemin, Gabszeweiz, and Weymark and the farsighted stability concept of Chwe are compared. Farsighted stability, direct and indirect domination are discussed. Considering of the direct domination, we check for the single‐step stability by comparing the profits of every coalition member after one‐step deviation has occurred, while considering the indirect domination (farsightedness) we check for the multistep stability by comparing the profits of every coalition member after a series of deviations have come to an end. On the contrary, myopic stability assumes that players look only one step ahead. The improvement of farsightedly and myopically stable coalitions to the environment quality and welfare are compared. Only the farsightedly stable coalition improves the welfare and abatement by 20% and 79% in comparison to all three myopically stable coalitions together. Algorithms are developed, which can find all farsightedly stable coalitions structures.Considerations for ManagementTaking into account findings, management considerations may include: Myopically stable coalitions are typically subsets of farsightedly stable coalitions. Farsightedly stable coalitions are the largest stable coalitions without side payments, and bring the biggest improvement in environmental quality and welfare. We predict the formation of coalitions that are bigger than myopically stable but smaller than farsightedly stable coalitions. This conclusion is valid under the assumption that transfers are not allowed.