Essays on the Economics of International Environmental Agreements

This thesis consists of three essays on the economics of international environmental agreements (IEAs). The essays provide both theoretical models and experimental evidences for investigating individual incentives of participating in IEAs based on different assumptions about preferences. Chapter 1 and chapter 2 explore the incentives of participating in IEAs with social preferences (also known as other-regarding preferences) in a static model through experimental methods. Chapter 1 examines the effect of inequality-aversion. The theoretical prediction for the proposed experiment in this chapter expects that the players with a high degree of inequality-averse preference will violate the internal constraint and be absent in a membership game. As a consequence, the coalition formation will become unstable. The experimental outcome confirms that a stable coalition is indeed very rare. This is because the individual preferences on inequality-aversion play a role in shaping coalition formation. However, interestingly, highly inequality-averse subjects, while following their best strategies to participate, are less likely to be absent from the coalition. According to this study, the internal constraint is mostly broken by lowly inequality-averse subjects. Chapter 2 investigates the effect of altruistic preferences. The theoretical prediction of this experiment is that the subjects with a high level of altruism are more likely to resist the temptation of free-riding and thereby are more likely to participate in a coalition. The experimental evidence confirms that the coalition formation is affected by individual altruistic preferences. However, the incentive of participation seems to be negatively correlated with the altruistic attitude: the lower the degree of the altruistic preference is, the more likely the subjects would participate. Chapter 3 examines the impact of sustainability, which are considered as cross-generational social preferences, on the coalition formation in a two-stage game in two periods. This study confirms the importance of the awareness of sustainability to international environmental conventions. When the intergenerational fairness and altruism are taken into account, a coalition formation will be expanded. The numerical example indicates that the marginal cost of the total emissions is an important factor for the formation of IEAs. In contrast, the advanced level of technology development may lead a more efficient production per unit of emissions, but it also encourages countries to emit more in total and have a lower level of welfare. Only when the preference weighting attached by one generation to the welfare of the next generation is considered in international environmental conventions, a sustainable system could be succeed.