Time-Consistency and Environmental Efficiency of Closed International Agreements (IEA) Yulia Pavlova Researcher, MSc, Dept. of Mathematical Information Technology, University of Jyväskylä, Finland Supervisors:PhD Maria Dementieva (University of Jyväskylä) Prof. Victor Zakharov (St.Petersburg State University) Prof. Pekka Neittaanmäki (University of Jyväskylä)

Research Background Structure of Coalition Formation in Membership Models* (Chandler,Tulkens) 1 st Stage: participation SequenceSimultaneous (Yi ) (no revision of members) Sequential (Carraro ) (revision of members) AgreementsSingle (Carraro, Barrett, Yi) Multiple (Finus, Yi.) MembershipOpen (Carraro, Barrett, Yi ) exclusive (majority, unanimity) (Yi ) 2 nd Stage: abatement and transfers Sequence simultaneous (Cournot,Nash) (Yi ) sequential (Stackelberg) Abatementsjoint welfare maximization (efficient) (Carraro, Barrett, etc.) bargaining (majority, unanimity) (Tarasyev) Transfersnoyes (Tarasyev) Payoffssocial planner/ material/ certain ( Yi, Barrett, Pavlova, etc.) political/ non-material/ uncertain ( Tarasyev ) *free-riders – those who deviate from participation (other option – deviate from commitment) at the moment, plan to be contribute Agreement modeling as a coalition of players:  non-cooperative (Carraro, Barrett) or cooperative (Petrosjan, Zakharov),  static (Carraro, Barrett, Tarasyev) or dynamic (Zaccour, Kaitala, Zakharov, Ulph).

Model 2-level multistage coalitional game with perfect information (players are familiar with type of others, 2-level model means 1 st level (leader) – coalition, 2 nd level (follower) –free-riders where t=1,…m, N – heterogeneous players (nations), K groups, - players’ abatement targets, j=1,…,N, and E= Σ e j, - net benefit. Problem characterize initial (t=0) abatement commitments e j and propose optimal abatement scheme in dynamics e j ([t,m]), t=0,…,m ; specify coalition structure S of IEA at initial moment t=0 ; explore time-consistency of IEA during t=1,…,m. Key concepts 3,12 Self-enforcing coalition 1. internal stability 2. external stability Time-consistency of self-enforcing coalition 1.internal time-consistency 2.external time-consistency

Results 1. Analytical solution of abatement commitments (a,b,c i,n,N) - positive and finite (as Stackelberg equilibrium); 2. Optimal abatement scheme (Stackelberg solution coincides wish Nash equilibrium) for t=0,…,m-1 3.Specification of time-consistency conditions of coalition and abatement solution for the multistage model; * If one player leaves a self-enforcing IEA, total abatement can only reduce; **if at t=0 S is self-enforcing coalition, and at t=1,…m no new members are allowed in, old signatories are free-to leave a)A threshold level of size n' of coalition S to be environmental efficient*; b) Time-consistency of a closed coalition**, if coalition size > n' ; c) Time-consistency of abatement scheme (Stackelberg solution).

To continue game-theoretic analysis of existing and being under discussion agreements, it is necessary to address issue of time-consistency of an IEA during its life-cycle* and design such policy measures as financial transfers and delayed payoffs (to promote endogenous cooperation within IEA); to assess agreement life-cycle and players discounted payoffs; to explore time-inconsistent IEA evolution; to introduce uncertainty about payoffs (incomplete information). Further Plans *life-circle means length of period [0,m]

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