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Oxford Economic Papers Advance Access originally published online on January 26, 2006
Oxford Economic Papers 2006 58(2):209-232; doi:10.1093/oep/gpi047
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© Oxford University Press 2006 All rights reserved

The impact of surplus sharing on the stability of international climate agreements

Hans-Peter Weikard*, Michael Finus{dagger}, and Juan-Carlos Altamirano-Cabrera{ddagger}

*Department of Social Sciences, Wageningen University, Hollandseweg 1 NL-6706 KN Wageningen, The Netherlands; {dagger}Department of Economics, University of Hagen, Germany {ddagger}Department of Social Sciences, Environmental Economics and Natural Resources Group, Wageningen University, The Netherlands

Correspondence: e-mail: Hans-Peter.Weikard{at}wur.nl

This paper analyses stability of coalitions for greenhouse gas abatement under different sharing rules applied to the gains from cooperation. We use a 12-region model to examine internal and external stability of coalitions. We determine and compare stable coalitions under different surplus sharing rules; for example, grandfathering (sharing proportional to current emissions) and a number of equitable rules, i.e. sharing according to historical responsibilities for past emissions. Due to strong free-rider incentives we find only small stable coalitions for all sharing rules examined. We observe that stable coalitions consist of regions with low marginal abatement costs that are attractive partners in any coalition and regions receiving the highest shares of the surplus from cooperation under a particular sharing rule. We find that equitable rules may not be conducive to success: in fact, a grandfathering scheme leads to the most successful coalition in terms of global abatement and global welfare.

Key Words: JEL classification: D62 • D63 • Q25


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