TITLE:
Climate Coalitions and Punishments
AUTHORS:
Terry Eyland
KEYWORDS:
Environment, International Agreements, Non-Cooperative Game, Punishment Strategies
JOURNAL NAME:
Theoretical Economics Letters,
Vol.7 No.2,
February
10,
2017
ABSTRACT: Studies that demonstrate
that climate change is human induced are becoming more and more prevalent. Even
though most world leaders are aware of this urgency and know that we must work
at mitigating it quickly, little has been accomplished in terms of widespread
participation in an International Environmental Agreement (IEA). The purpose of
this paper is to create a link between studies on the use of border tax
adjustments (BTAs) and coalition formation. The main contribution is that the
punishment will be based on relative emissions between signatories and defectors.
It is a structure that is more likely be accepted by the World Trade
Organization (WTO) since it may be seen as
fair due to the fact that if signatories and defectors emit the
same amount of pollution then there will be no punishment. The main
results indicate that this form of punishment may lead to small, partial, or
full cooperation, depending on the parameter values. Additionally,
at any equilibrium level, the signatories have a punishment
structure that induces defectors to reduce their emissions by the
same amount. In the end, this punishment may be seen as a credible threat
because at equilibrium no punishment is imposed, yet if we remove the possibility of punishment it breaks down to a
situation wherein no large coalitions are feasible.