CLIMATE POLICY

The world’s nations have yet to reach a truly effective treaty to control the emis-sion of greenhouse gases. The importance of compatibility with private incentives of individual countries has been acknowledged (at least by game theorists) in design-ing climate policies for the post-Kyoto world. Individually incentive-compatible agreements, however, may still be spoilt if coalitional incentives to deviate as a group exist. As a first step toward understanding these incentives from a game-theoretic perspective, we propose a hybrid noncooperative–cooperative game theory model of coalition formation in technology collaboration. Serious coalitional insta-bilities inherent to the existing climate policy architectures are revealed. It turns out that coalitionally stable agreements are achieved via intermediate self-selecting subcoalitions. The sequence of coalitions forming and the size of the direct and spillover effects of R&D collaboration on countries ’ individual production tech-nologies determine the effectiveness of the agreements to reduce carbon emissions. These coalitional group motives are already becoming important in the practice of climate change negotiations