Stable International Agreements on Transfrontier Pollution with Ratification Constraints

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Working paper
Sergio Currariniand Henry Tulkens
International agreements on transfrontier pollution require approval by domestic political institutions. In this paper we employ a voting game theoretic model to characterize the stability of such agreements when each country’s participation is conditioned upon a domestic ratification vote. To describe the pre-treaty or no treaty international situation, we propose a concept of (non-cooperative) political equilibrium and prove its existence. We then move to the diplomatic level, and employ a coalition formation game to show that there exist cooperative joint policies, yielding a treaty, that are ratified by all countries and that can be considered stable at the international level. In particular we exhibit a unique stable agreement for the grand coalition, inducing a (computable) allocation that has a natural equilibrium interpretation for the international economy.
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