From D’Aspremont to Farsightedly Stable International Environmental Agreements or what should we expect from Game Theory without Side Payments

We investigate the stability of International Environmental Agreements (IEA) by applying game theory. The paper extends further our previous research on farsightedly stable coalitions and preferred farsightedly stable coalitions (Osmani & Tol 2009). The integrated assessment model FUND provides the cost-benefit payoff functions of pollution abatement for sixteen different world regions. The stability concept of D’Aspremont et al. (1983) and farsighted sta-bility of Chwe (1994) are compared. D’Aspremont stability assumes that players are myopic while farsighted stability assumes perfect foresight of the players and predicts which coalitions can be formed when players are farsighted. The D’Aspremont stable coalitions are frequently subsets of farsightedly stable coalitions. Furthermore, farsightedly stable coalitions can be frequently the largest size stable coalition, that game theory without side payments can reach. Additionally, they bring always the biggest improvement in environmental and welfare. All farsightedly stable and D’Aspremont stable coalitions are found and their improvement to environment and welfare are computed