Coalition Formation And The Ancillary Benefits Of Climate Policy

Author : Weifeng Liu
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (144 download)

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Download or read book Global Public Goods and International Climate Policies written by Weifeng Liu and published by . This book was released on 2015 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Public goods are often underprovided in the context of voluntary contributions, and climate protection is the most relevant example illustrating the difficulty of international cooperation. This thesis focuses on Pareto-improving outcomes under matching mechanisms and applies these mechanisms to international climate policy. The mechanisms stick to the non-cooperative mode but subsidize individual contributions through matching. The contribution of this thesis is threefold. First, it explores incentive compatibility of matching mechanisms and links matching mechanisms with coalition theory. Second, it applies matching mechanisms to global public goods and introduces important factors into this framework. Third, it suggests three matching proposals for international climate policy. Chapter 2 reveals a paradoxical result that at interior equilibria players are better off when providing matching contributions while worse off when accepting matching contributions. It has been shown that two players can always implement matching schemes to make them better off at interior equilibria. This finding is useful for cooperation in the context without complete information or without a central government. Chapter 3 introduces productivity and population differentials. The more homogeneous the two countries, the more likely they can implement matching schemes to make them better off. If they are heterogeneous but the effects of different aspects are offset, it is likely to generate Pareto-improving equilibria. If one country reduces its production cost of public goods, it may be harmed at interior equilibria while benefiting at corner equilibria. In addition, a larger population may generate lower welfare at interior equilibria but higher welfare at corner equilibria. Chapter 4 considers a third party suggesting matching schemes given different information about players' preferences, and examines the probability of reaching Pareto-improving outcomes. The more the information, the higher the probability. Particularly, if the third party suggests small matching schemes with local information about players' preferences, players can be better off with a high probability. Moreover, the findings justify the importance of Pareto-improving cooperation due to asymmetric information. Chapter 5 takes an impure public good into matching mechanisms. With more ancillary benefits, players would provide larger contributions of the impure public good and it is more likely to generate Pareto-improving equilibria. The ancillary benefits of climate policy may be substantial, and thus the existence of Pareto-improving equilibria is universal even if the income distribution is large. Chapter 6 investigates coalition formation under matching mechanisms. If all players participate in the coalition, there exist small matching schemes making all better off. However, players have incentives to free ride until the coalition collapses. This result can be overcome if players value their reputation. They would stay in the coalition when the gain of free riding is lower than the reputation loss. The matching scheme can be flexibly set to compromise between matching depth and breadth, and it may achieve Pareto-improving outcomes while avoiding side payments. Chapter 7 proposes three matching policies for international climate cooperation. Two of them introduce commitment devices and the third is matching in carbon taxes. They are potentially useful in climate negotiations for their simplicity and incentive compatibility.