On the farsighted stability of the Kyoto Protocol

This paper investigates the coalitional stability of the 1997~Kyoto Protocol on the emissions of greenhouse gases. Unlike conventional coalition stability tests we assume that potential deviators are farsighted in the sense of Chwe~(1994) and take into account possible subsequent deviations by the remaining players. In the empirical part of the paper, a Partial Agreement Nash Equilibrium w.r.t. to the Kyoto coalition is computed with a stylized dynamic integrated assessment model that resembles closely the RICE model by Nordhaus and Yang~(1996). The simulations show that the Kyoto coalition is more stable than suggested by conventional myopic stability concepts but that the stability analysis is very sensitive to the coalitional surplus sharing rule.