Social equity in international environmental agreements

Abstract

The aim of this paper is to investigate the problem of designing and building International Environmental Agreements (IEAs) taking into account some normative properties. We consider n asymmetric countries of the world, each one generating a quantity of pollutant emissions from the production of goods and services. We assume that individual emissions yield private benefits and negative externalities affecting all countries. To determine its own level of pollution, each state conducts a cost-benefit analysis. The absence of a supranational entity imposing emissions reduction makes IEAs based on voluntary participation. Examining the standard static non-cooperative game-theoretical model of coalition formation, we discover that the resulting emissions allocations might not be equitable à la Foley. It means that there might exist at least one player preferring to implement some other agent’s strategic plan instead of to play her own strategy. With the goal of studying whether equity, at least among coalesced countries, may be a criterion leading to social improvement, we introduce a new optimization rule. We require that members of an environmental coalition have to solve the maximization problem subject to the constraint imposing that they do not envy each other. Analyzing the particular case of two-player games, we get that, when countries are, in a sense, not too different from each other, our new mechanism endogenously induces social equity. By imposing a suitable total emission cap, the same results extend to all those games where our and standard solutions coexist and are different.