Game Theory and International Environmental Cooperation by Michael Finus

Since there is no supranational institution which can enforce international environmental agreements (IEAs), international cooperation proves difficult in practice. Global emissions exhibit negative externalities in countries other than that of their origin and hence there is a high interdependence between countries, and strategic considerations play an important role. Game theory analyzes the interaction between agents and formulates hypotheses about their behavior and the final outcomes in games. Hence, international environmental problems are particularly suited for analysis by this method.
The author investigates various strategies to provide countries with an incentive to accede, agree and comply to an international environmental agreement (IEA). He shows that by integrating real world restrictions into a model, game theory is a powerful tool for explaining the divergence between 'first-best' policy recommendations and 'second-best' designs of actual IEAs. For instance he explains why (inefficient) uniform emission reduction quotas have played such a prominent role in past IEAs despite economists' recommendations for the use of (efficient) market-based instruments, as for example emission targets and permits. Moreover, it is stated, that a single, global IEA on climate is not necessarily the best strategy and small coalitions may enjoy a higher stability and may achieve more. This book will be of great interest to scholars, researchers and lecturers in the fields of international environmental economics, game theory and international relations.