Environmental agreements, research and technological spillovers

This paper considers different contracts of international environmental agreements in a dynamic game in which countries choose emissions, R&D investments and investments in renewable energy generation capacity. R&D investments cause technological spillovers. For the different contracts the size of the stable coalition is analyzed. It turns out that both cooperation over R&D investments and technology transfers within the coalition may enhance the size of stable coalitions. In an empirical calibration, the stable coalition of the complete contract is quite small. An incomplete contract over emission leads to larger stable coalitions which can be further enlarged by a technology transfer within the coalition. An incomplete contract over emissions and R&D investments is the best performer and yields the largest stable coalition up to the grand coalition. The incomplete contract over emissions and R&D investments is pareto-superior to all other contracts and may even be first best.