Endogenous Coalition Formation in Global Pollution Control

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Working paper
Michael Finus and Bianca Rundshagen
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Concern about transboundary and global pollution problems ranks prominently on the agenda of international politics and has led to the signature of several international environmental agreements (IEAs), as for instance the Oslo Protocol on sulfur reduction in Europe in 1994, the Montreal Protocol on the depletion of the ozone layer in 1987 and the Kyoto-Protocol on the reduction of greenhouse gases in 1997. This concern is also reflected in numerous recent papers on the formation of coalitions in international pollution control since the appearance of Barrett (1991), Bauer (1992) Black/Levi/de Meza (1992), Carraro/Siniscalco (1991), Chander/Tulkens (1991), Hoel (1992) and Tulkens (1979). The fundamental assumption of all models is that IEAs must be self-enforcingly designed since there is no international agency that can establish binding agreements (Endres 1996). The main problem analyzed by these models is free-riding in international pollution control. There are two types of free-riding which negatively affect the success of an IEA (Finus 2000, ch. 2). The first type of free-riding is the incentive of a country remaining a non-signatory (or to choose a low abatement level), benefiting from the (higher) abatement efforts of (other) signatories. The second type of free- riding relates to the incentive of a signatory to violate the spirit of an agreement. Through free-riding a country can reduce its abatement effort substantially, though environmental quality will only be affected marginally. Thus a country can (temporarily) net a free-rider gain.
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