Asymmetric countries, global environmental problems, and endogenous coalition formation

The contribution of this dissertation is building and reinforcing the bridges between the literatures of the endogenous coalition formation and environmental economics, with the focus on global environmental problems, such as ozone depletion and global warming. This dissertation, with Chapters One and Two as the introduction, addresses the role of asymmetry of countries in Chapter Three, the role of utility transfers in non-cooperative games in Chapter Four, and the possibility of cheating due to unobservable actions of sovereign countries in Chapter Five. Chapter Six concludes.; In Chapter Three, by extending the framework of symmetric countries to the framework of asymmetric countries in the benefits of correcting the global environmental damages, Chapter Three shows if the developed countries value the public good sufficiently more than the developing countries, non-trivial coalition can only be formed by symmetric countries in the cartel forming game, open membership games, and exclusive membership game Δ. However, even under the asymmetry of environmental benefits, in the exclusive membership game Γ, sequential move unanimity game, equilibrium binding agreement game, and cartel formation games under equilibrium binding agreement, it is possible for both the developed and developing countries to collectively form non-trivial coalitions, including the grand coalition, especially when countries have farsightedness.; In Chapter Four, by assuming that unanimity agreement of the modified sharing rule, originally proposed by Chander and Tulkens (1995), is superseded by the rules of the games, Chapter Four shows that, with the exception of the exclusive membership game Γ, countries in static games under the modified sharing rule do not form the grand coalition. Also, when the original sharing rule is generalized to allow the pre-existence of non-trivial coalitions before the employment of the sharing rule, in sequential games the grand coalition is one possible equilibrium coalition structure, if not the only one. A policy implication is also discussed regarding why countries are likely to form small stable coalition first before employing the generalized sharing rule to form the grand coalition, which is consistent with the historical development.; While the actions of countries within a coalition are assumed to be perfectly observable in Chapter Three and Four, Chapter Five shows that when the actions of individual countries are perfectly unobservable, cheating is the dominant strategy. This means that each country should participate in the grand coalition and cheat. However, when every country cheats, all the countries are worse off than the situation when no country cheats. To resolve or alleviate such a multiple-player prisoners' dilemma, some, if not all, developed countries must be farsighted enough to engage in the non-Nash collective action to commit themselves to the cooperative strategy of no cheating. They can also reduce the number of cheating countries through possible punishment and/or side payments. However, the developed countries face the time inconsistency problem when too few developing countries are cheating. Therefore, from the perspective of the developed countries, the grand coalition of no cheating may not be the optimal coalition structure when the actions of all the countries are perfectly unobservable.