The Fatter the Tail, the Fatter the Climate Agreement. Simulating the Influence of Fat Tails in Climate Change Damages on the Success of International Climate Negotiations
Dellink, R.B. ; Dekker, T. ; Ketterer, J. - \ 2013
Environmental and Resource Economics 56 (2013)2. - ISSN 0924-6460 - p. 277 - 305.
international environmental agreements - stability likelihood - uncertainty - coalitions - strategies
International climate negotiations take place in a setting where uncertainties regarding the impacts of climate change are very large. In this paper, we examine the influence of increasing the probability and impact of large climate change damages, also known as the ‘fat tail’, on the formation of an international mitigation agreement. We systematically vary the shape and location of the distribution of climate change damages using the stochastic version of the applied game-theoretical STACO model. Our aim is to identify how changes to the distributional form affect the stability of coalitions and their performance. We find that fatter upper tails increase the likelihood that more ambitious coalitions are stable as well as the performance of these stable coalitions. Fatter tails thus imply more successful, or ‘fatter’, international climate agreements
Uncertainty and climate treaties: Does ignorance pay?
Dellink, R.B. ; Finus, M. - \ 2012
Resource and Energy Economics 34 (2012)4. - ISSN 0928-7655 - p. 565 - 584.
international environmental agreements - stability likelihood - irreversibility - strategies - coalitions - emissions - model
Uncertainty and learning play an important role in the management of many environmental and resource problems and in particular in climate change. In stylized game-theoretic models of international environmental treaty formation, which capture the strategic interactions between nations, learning usually has a negative impact on the success of cooperation. We use a richer climate model that captures the large heterogeneity between different world regions and considers uncertainty about the benefits and costs from climate mitigation. By explicitly exploiting differences between regions and allowing transfers to mitigate free-rider incentives, we derive much more positive conclusions about the role of learning.