Self-Enforcing Environmental Agreements with the Optimal Intensity of Cooperation

Abstract This paper analyzes international environmental agreements in three-stage games consisting of a membership subgame, the signatories’ decision on the intensity of cooperation, and an emissions subgame. Signatories may act as Stackelberg leaders or play Nash. In the Stackelberg game, the highest intensity of cooperation between signatories is optimal. In the Nash game, a moderate or the highest intensity of cooperation is optimal if emissions are strategic substitutes. In this case the equilibrium emissions and the stable coalition of the Nash game with optimal cooperation intensity are identical to the equilibrium emissions and the stable coalition of the Stackelberg game with the highest cooperation intensity. Finally, we apply our results to coalition formation games of the literature. In the applied Nash games, optimizing with respect to the cooperation intensity may enlarge the stable coalition up to the grand coalition which implements the first best.