Sustainability and International Environmental Agreements

Abstract

This paper examines the perceptions of sustainability, which is conceptualised as cross-generational social preferences, on the formation of international environmental agreements (IEAs) in a two-stage game in two periods. There are two scenarios are considered: myopic and sustainable development scenarios. The myopic scenario assumes the decision makers only concern the present welfare. Whilst the scenario of sustainable development has two characters: cross-generational fairness and altruism. When both are taken into account, a coalition will be expanded. The numerical example indicates that the marginal cost of the total emissions is the crucial factor for the formation of IEAs. Only when the marginal cost is low, a sustainable system can be succeeded. While, the technological advancement may lead to a more efficient production per unit of emissions, it also encourages countries to emit more in total and have a lower level of welfare. The results confirm the importance of sustainability to IEAs. The lesson learnt from this study is: when decision makers are myopic, the system is unsustainable even if an IEA is formed. Only when the perception of sustainability is considered, the system could be sustainable. Regardless of the existence of IEAs, international environmental conventions shall not neglect the fundamental goal to pursue sustainable development.