Controlling Global Warming by Christoph Böhringer, Michael Finus, Carsten Vogt

By Christoph Böhringer, Michael Finus, Carsten Vogt

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The best reply of the punishment player is e i ( e y ) , which leads to the minimax payoff nynmm(ei(e2m), e y m ). Inserting 6,= 1 and replacing n ! 7], we derive the condition nI*2 All payoff vectors which satisfy nI*2 n p m mfor all participants are called individual rational payoff vectors. There are four things to note about the minimax payoff. "=, the lower will be the minimax payoff. Second, as long as e y > e y V j as we assumed, it is evident that nFnmm

In the second case, the equilibrium number of signatories depends on the choice of emission levels of the coalition. It may well be the case if countries are heterogeneous, that the emission vector which maximizes aggregate payoffs to the coalition leads to a smaller number of signatories than if some other emission vector had been chosen. In fact, it cannot be ruled out that some other emission vector may be more beneficial to potential signatories and may lead to a higher global welfare and lower global emissions.

Conditions C1 and C3 are the typical conditions which deter free riding via the threat of punishment. Conditions C2 and C4 restrict possible sanctions. In the light of the possibility that a signatory can leave an IEA (which is possible under most contracts after a government has given notice some time in advance of its decision), only moderate punishments are feasible. Though violations must be punished (otherwise violations pay and stability is jeopardized; see C1 and C3), the violator should have an incentive to remain in the IEA despite the (necessary) punishment (Q.

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