Sharing R&D investments in international environmental agreements with asymmetric countries

Abstract

This paper studies the coalition formation and the stability of the International Environmental Agreements (IEAs) in a pollution abatement dynamic model. We point out two meaningful aspects of this topic. Firstly, we consider asymmetry among countries, dividing them into two types: developed countries with a considerable environmental awareness and developing ones that pay less attention to environmental preservation. In addition, the former have a high-technology industry that allows for a unit abatement cost lower than the latter, and that are characterized by a labour-intensive industrial structure. Secondly, we introduce a positive externality in the cooperation by considering the R&D investment as two costs, namely the research investment and the developing cost. We assume that countries can coordinate their R&D activities by sharing their fixed research investments in order to avoid duplication of green activities. Moreover, by collaborating developing efforts, cooperators benefit from a reduction of a unit abatement cost higher than defectors. On the other hand, although non-cooperators completely support R&D investments for clean technologies, they realize lower abatements and benefits of a spillover effect due to development investments realized by cooperators. These two aspects could encourage the formation of stable coalitions.