The effect of a carbon permit market on the size of stable coalitions of an International Environmental Agreement on climate change: a differential game approach

• Ano de defesa: 2022
• Autor(a) principal: Ferreira, Thiago Corni
• Tipo de documento: Dissertação
• Tipo de acesso: Acesso aberto
• Idioma: eng
• Instituição de defesa: Universidade Federal de Viçosa; Economia Aplicada
• Palavras-chave em Português: Tratados comerciais; Mercado de emissão de carbono - Cooperação internacional - Modelos matemáticos; Jogos diferenciais; Economia Agrária
• Link de acesso: https://locus.ufv.br//handle/123456789/31761; https://doi.org/10.47328/ufvbbt.2022.241

In this study an International Environmental Agreement with the presence of a market for pollution permits is analyzed. A two-stage differential game is formulated, where in the first stage agents decide whether to joint or not the agreement and in the second stage agents negotiate over the level of emissions. The non-cooperative approach is adopted, termed the self-enforcing approach, which takes in to account the lack of supranational authority who can enforce the full cooperative outcome. The literature using this approach is usually pessimistic regarding the possibility of a large stable number of signatories to the agreement. The aim thus was to introduce the permit market system to investigate if the existence of such market creates any further incentive of agents to form a large coalition. Two such markets were introduced: the regulated market, where signatory of the agreements have access to and the voluntary market, which non-signatories have access to. Our results were positive in the sense that the presence of permit market, a larger number of signatories is achieved when compared with the baseline case without the permit market system. However, it is shown that if the cap set on signatories is too stringent then the incentive diminishes. This result have been corroborated with some robustness checks performed by varying relevant parameters, which also have highlighted some limitations in the model. It is also shown by calculating the steady-state of the stock of pollution that cooperation among agents is fundamental given that the larger the number of signatories the smaller is the steady-state of the stock of pollution. Keywords: International Environmental Agreements. Climate Change. Carbon Markets. Differential Games.