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A Short Note on Joint Welfare Maximization Assumption


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Non-cooperative game theoretical models of International Environmental Agreements (lEAs) use the assumption that coalition of signatories maximizes their joint welfare. In this paper, the joint maximization assumption is compared to different welfare sharing schemes such as Shapley value, Nash bargaining solution and consensus value. The results show that the joint welfare maximization assumption is similar to the Nash bargaining solution.
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A short note on joint welfare maximization assumption
Dritan Osmani
a b
, Richard S.J. Tol
c d e
International Max Planck Research School on Earth System Modelling (IMPRS-ESM)
Research Unit Sustainability and Global Change, Hamburg University and Center for
Marine and Atmospheric Science, Hamburg, Germany
Economic and Social Research Institute, Dublin, Ireland
Institute for Environmental Studies, Vrije Universiteit, Amsterdam, The Netherlands
Department of Engineering and Public Policy, Carnegie Mellon University, Pittsburgh,
March 2008
Non-co operative game theoretical models of international environmental agreements (IEAs)
use the assumption that coalition of signatories maximizes their joint welfare. The joint maxi-
mization assumption is compared with different welfare sharing schemes such as Shapley value,
Nash bargaining solution and Consensus Value. The results show that the joint welfare max-
imization assumption is similar with Nash Bargaining solution.
Keywords: game theory, coalition formation, joint welfare maximization, Shapley value,
Nash bargaining solution, Consensus Value, international environmental agreements.
Corresponding author: Research Unit Sustainability and Global Change, Hamburg University and Center for
Atmospheric Science, Bundesstrasse 55 (Pavillion Room 31), 20146 Hamburg, Germany +49 40 42838 6597 (voice)
+49 40 42838 7009 (fax)
1 Introduction
The formation and implementation of International Environmental Agreements (IEA) is the topic
of a broad economic literature. A significant part of the literature uses game theory as a tool
to understand the formation mechanism of IEAs. There are two main directions of literature
on IEAs (for a review of current literature see Finus 2003; Carraro/Siniscalco 1998; Ioanni-
dis/Papandreou/Sartzetakis 2000; Carraro/Eyckmans/Finus 2005). The first direction utilizes
the concepts of cooperative game theory in order to model the formation of IEAs. This is a rather
optimistic view and it shows that an IEA signed by all countries is stable provided that utility is
transferable and side payments are adequate (Chander/Tulkens 1995, 1997). The second direction
uses the concepts of non-cooperative game theory to model the formation of IEAs. At the first
level, the link between the economic activity and the physical environment is established in order
to generate the economical-ecological model. This link is established through a social welfare func-
tion. The social welfare function captures the difference between the profit from pollution and the
environmental damage.
The Climate Framework for Uncertainty, Negotiation and Distribution (FUND) model provides
the social-welfare functions in our model.
Following this approach, countries play a two stage-game. In the first stage, each country decides
to join the IEA, or to stay as non-member. In the second stage, every country decides on emissions.
The main body of literature examining the formation of IEA within a two stage framework uses a
certain set of assumptions. We mention below only the essential ones:
Decisions are simultaneous in both stages.
Countries are presented with single agreements.
Stability of IEA’s is based on the ideas developed for cartel stability (d’Aspremont et al.
((1983)) and requires so-called internal and external stability. Internal stability means that
a country does not have an incentive to leave the coalition. External stability means that a
country does not have an incentive to join the coalition. When defecting from coalition, a
country assumes that all other countries remain in the coalition (this is a consequence of the
employed stability concept of d’Aspremont et al that allows only singleton movements and
Within the coalition, players players cooperatively and maximize their joint welfare, while
the coalition and single countries compete in a non cooperative way.
Non-cooperative game theory draws a pessimistic picture of the prospect of successful cooperation
between countries. It claims that a large coalition of signatories is hardly stable, and that the
free-rider incentive is strong. The model explains the problems of international cooperation in the
attendance of environmental spillovers, but cannot explain IEAs with high membership such as
the Montreal Protocol. This calls for a modification of the standard assumptions. We mention in
the following paragraphs some of the possible modifications.
Asheim et. al (2006), Carraro (2000) and Osmani & Tol (2006) allow more than one IEA to be
formed. They reach the conclusion that two IEA’s can perform better than one IEA in regional
environmental problems.
Diamantoudi & Sartzetakis (2002), Eyckmans (2003) and Osmani & Tol (2007a,b) use the far-
sighted stability concept instead of D’Aspremont myopic stability. The farsighted stability is
firstly introduced by Chwe (1994). The idea of farsightedness implies that one should check for
multi-step stability by comparing the profits of a coalition member after a series of deviations
has come to an end. Non-cooperative game theory predicts more optimistic results by employing
farsighted stability.
The main contribution of the paper is the discussion on the assumption of joint welfare maximiza-
tion. As the members of coalition play cooperatively we compare the joint welfare maximization
with classical cooperative game theory value such as Shapley Value and Nash bargaining solution.
We make use of farsightedly stable coalitions that comes form applying the Climate Framework
for Uncertainty, Negotiation and Distribution (FUND) model (see Osmani & Tol (2007a).
In section two, the FUND model is described. We continue with introducing our game-theoretic
model, farsighted stability and coalitions that are going to be considered. In the next section,
the different sharing schemes such as Shapley Value, Nash Bargaining and Consensus Value are
presented. In fifth section section, our results are discussed. Section six concludes. In Appendix
the results are introduced in eight different Tables.
2 FUND model
This paper uses version 2.8 of the Climate Framework for Uncertainty, Negotiation and Distri-
bution (FUND). Version 2.8 of FUND corresponds to version 1.6, described and applied by Tol
(1999a,b, 2001, 2002c), except for the impact module, which is described by Tol (2002a,b) and
updated by Link and Tol (2004). A further difference is that the current version of the model
distinguishes 16 instead of 9 regions. Finally, the model considers emission reduction of methane
and nitrous oxide as well as carbon dioxide, as described by Tol (forthcoming
Essentially, FUND consists of a set of exogenous scenarios and endogenous perturbations. The
model distinguishes 16 major regions of the world, viz. the United States of America (USA),
Canada (CAN), Western Europe (WEU), Japan and South Korea (JPK), Australia and New
Zealand (ANZ), Central and Eastern Europe (EEU), the former Soviet Union (FSU), the Middle
East (MDE), Central America (CAM), South America (LAM), South Asia (SAS), Southeast Asia
(SEA), China (CHI), North Africa (NAF), Sub-Saharan Africa (SSA), and Small Island States
(SIS). The model runs from 1950 to 2300 in time steps of one year. The prime reason for start-
ing in 1950 is to initialize the climate change impact module. In FUND, the impacts of climate
change are assumed to depend on the impact of the previous year, this way reflecting the process
of adjustment to climate change. Because the initial values to be used for the year 1950 cannot
be approximated very well, both physical and monetized impacts of climate change tend to be
misrepresented in the first few decades of the model runs. The period of 1950-1990 is used for
the calibration of the model, which is based on the IMAGE 100-year database (Batjes, Goldewijk,
1994). The period 1990-2000 is based on observations (WRI, 2000). The climate scenarios for the
period 2010-2100 are based on the EMF14 Standardized Scenario, which lies somewhere in between
IS92a and IS92f (Leggett et al., 1992). The 2000-2010 period is interpolated from the immediate
past, and the period 2100-2300 extrapolated.
The scenarios are defined by the rates of population growth, economic growth, autonomous en-
ergy efficiency improvements as well as the rate of decarbonization of the energy use (autonomous
carbon efficiency improvements), and emissions of carbon dioxide from land use change, methane
and nitrous oxide. The scenarios of economic and population growth are perturbed by the impact
of climatic change. Population decreases with increasing climate change related deaths that re-
sult from changes in heat stress, cold stress,malaria, and tropical cyclones. Heat and cold stress
are assumed to have an effect only on the elderly, non-reproductive population. In contrast, the
other sources of mortality also affect the number of births. Heat stress only affects the urban
population. The share of the urban population among the total population is based on the World
Resources Databases (WRI, 2000). It is extrapolated based on the statistical relationship between
urbanization and per-capita income, which are estimated from a cross-section of countries in 1995.
Climate-induced migration between the regions of the world also causes the population sizes to
change. Immigrants are assumed to assimilate immediately and completely with the respective
host p opulation.
The market impacts are dead-weight losses to the economy. Consumption and investment are
reduced without changing the savings rate. As a result, climate change reduces long-term eco-
nomic growth, although consumption is particularly affected in the short-term. Economic growth
is also reduced by carbon dioxide abatement measures. The energy intensity of the economy and
the carbon intensity of the energy supply autonomously decrease over time. This process can be
accelerated by abatement policies, an option not considered in this paper.
The endogenous parts of FUND consist of the atmospheric concentrations of carbon dioxide,
methane and nitrous oxide, the global mean temperature, the impact of carbon dioxide emis-
sion reductions on the economy and on emissions, and the impact of the damages to the economy
and the population caused by climate change. Methane and nitrous oxide are taken up in the
atmosphere, and then geometrically depleted. The atmospheric concentration of carbon dioxide,
measured in parts per million by volume, is represented by the five-box model of Maier-Reimer
and Hasselmann (1987). Its parameters are taken from Hammitt et al. (1992). The model also
contains sulphur emissions (Tol, forthcoming
The radiative forcing of carbon dioxide, methane, nitrous oxide and sulphur aerosols is determined
based on Shine et al. (1990). The global mean temperature T is governed by a geometric build-up
to its equilibrium (determined by the radiative forcing RF), with a half-life of 50 years. In the
base case, the global mean temperature rises in equilibrium by 2.5
C for a doubling of carbon
dioxide equivalents. Regional temperature follows from multiplying the global mean temperature
by a fixed factor, which corresponds to the spatial climate change pattern averaged over 14 GCMs
(Mendelsohn et al., 2000). The global mean sea level is also geometric, with its equilibrium level
determined by the temperature and a half-life of 50 years. Both temperature and sea level are
calibrated to correspond to the best guess temperature and sea level for the IS92a scenario of
Kattenberg et al. (1996).
The climate impact module, based on Tol (2002b,c) includes the following categories: agriculture,
forestry, sea level rise, cardiovascular and respiratory disorders related to cold and heat stress,
malaria, dengue fever, schistosomiasis, diarrhoea, energy consumption, water resources, and un-
managed ecosystems. Climate change related damages can be attributed to either the rate of
change (benchmarked at 0.04
C) or the level of change (benchmarked at 1.0
C). Damages from
the rate of temperature change slowly fade, reflecting adaptation (cf. Tol, 2002c). People can die
prematurely due to temperature stress or vector-borne diseases, or they can migrate b ecause of sea
level rise. Like all impacts of climate change, these effects are monetized. The value of a statistical
life is set to be 200 times the annual per capita income. The resulting value of a statistical life
lies in the middle of the observed range of values in the literature (cf. Cline, 1992). The value of
emigration is set to be 3 times the per capita income (Tol, 1995, 1996), the value of immigration
is 40 per cent of the per capita income in the host region (Cline, 1992). Losses of dryland and
wetlands due to sea level rise are modelled explicitly. The monetary value of a loss of one square
kilometre of dryland was on average $4 million in OECD countries in 1990 (cf. Fankhauser, 1994).
Dryland value is assumed to be proportional to GDP per square kilometre. Wetland losses are
valued at $2 million per square kilometre on average in the OECD in 1990 (cf. Fankhauser, 1994).
The wetland value is assumed to have logistic relation to per capita income. Coastal protection is
based on cost-benefit analysis, including the value of additional wetland lost due to the construc-
tion of dikes and subsequent coastal squeeze.
Other impact categories, such as agriculture, forestry, energy, water, and ecosystems, are directly
expressed in monetary values without an intermediate layer of impacts measured in their ’natural’
units (cf. Tol, 2002b). Impacts of climate change on energy consumption, agriculture, and car-
diovascular and respiratory diseases explicitly recognize that there is a climatic optimum, which
is determined by a variety of factors, including plant physiology and the behaviour of farmers.
Impacts are positive or negative depending on whether the actual climate conditions are moving
closer to or away from that optimum climate. Impacts are larger if the initial climate conditions
are further away from the optimum climate. The optimum climate is of importance with regard
to the potential impacts. The actual impacts lag behind the potential impacts, dep ending on the
speed of adaptation. The impacts of not being fully adapted to new climate conditions are always
negative (cf. Tol, 2002c). The impacts of climate change on coastal zones, forestry, unmanaged
ecosystems, water resources, diarrhoea malaria, dengue fever, and schistosomiasis are modelled as
simple power functions. Impacts are either negative or positive, and they do not change sign (cf.
Tol, 2002c). Vulnerability to climate change changes with population growth, economic growth,
and technological progress. Some systems are expected to become more vulnerable, such as water
resources (with population growth), heat-related disorders (with urbanization), and ecosystems
and health (with higher per capita incomes). Other systems are projected to become less vulnera-
ble, such as energy consumption (with technological progress), agriculture (with economic growth)
and vector- and water-borne diseases (with improved health care) (cf. Tol, 2002c).
Note that we make use of data only for the year 2005. This is sufficient as static game theory is
used but with a sophisticated stability concept.
2.1 Welfare function of FUND model
For the analysis of coalition formation, we approximate the FUND model with a linear quadratic
structure. Sp ecifically, the abatement cost function is represented as:
= α
where C denotes cost, R relative emission reduction, and Y gross domestic product; i indexes
regions; α is the cost parameter. The benefit function is approximated as:
= β
where B denotes benefit and E unabated emissions. Tables 1 gives the parameters of Equations
(1) and (2) as estimated by or specified in FUND. Moreover the profit P is given as:
= B
= β
Table 1: Our data from year 2005, α abatement cost parameter (unitless), β marginal damage
costs of carbon dioxide emissions (in dollars per tonne of carbon) E carbon dioxide emissions (in
billion metric tonnes of carbon) Y gross domestic product, in billion US dollar. Source: FUND
α β E Y
USA 0.01515466 2.19648488 1.647 10399
CAN 0.01516751 0.09315600 0.124 807
WEU 0.01568000 3.15719404 0.762 12575
JPK 0.01562780 -1.42089104 0.525 8528
ANZ 0.01510650 -0.05143806 0.079 446
EEU 0.01465218 0.10131831 0.177 407
FSU 0.01381774 1.27242378 0.811 629
MDE 0.01434659 0.04737632 0.424 614
CAM 0.01486421 0.06652486 0.115 388
LAM 0.01513700 0.26839935 0.223 1351
SAS 0.01436564 0.35566631 0.559 831
SEA 0.01484894 0.73159104 0.334 1094
CHI 0.01444354 4.35686225 1.431 2376
NAF 0.01459959 0.96627119 0.101 213
SSA 0.01459184 1.07375825 0.145 302
SIS 0.01434621 0.05549814 0.038 55
Non-cooperative optimal emission reduction is then:
/dR = β
= 0 R
= β
) (4)
If region i is in a coalition with region j, optimal emission reduction is:
= 0 E
+ β
) 2α
= 0 R
= (β
+ β
) (5)
The price for entering a coalition is therefore higher emission abatement at home. The return is
that the coalition partners also raise their abatement efforts.
Note that our welfare functions are orthogonal, this indicates that the emissions change of a country
do not affect the marginal benefits of other countries (independence assumption). In our game,
countries outside the coalition benefit from the reduction in emissions achieved by the cooperating
countries but they cannot affect the benefits derived by the members of the coalition. As our cost-
benefit function are orthogonal our approach does not capture the effects of emissions leakage.
But our cost benefit function are sufficiently realistic as they are approximation of complex model
FUND and our procedure of dealing with farsighted stability is general and appropriate for non-
orthogonal functions also.
3 Our model
There are 16 world regions (we name the set of all regions by N
) in our game theoretic model
of IEA’s (or coalitions), which are shown in first column of Table 1. At the first level, the link
between the economic activity and the physical environment is established in order to generate the
economical-ecological model. This link is established through a social welfare function of FUND
model, see 7. The social welfare function captures the difference between the profit from pollution
and the environmental damage. Following this approach, countries play a two stage-game. In the
first stage, each country decides to join the coalition C N
and become a signatory (or coalition
member) or stay singleton and non-signatory (membership game). These decisions lead to coalition
structure S with c coalition-members (c denotes the cardinality of C) and 16-c non-members. A
coalition structure simply fully describes how many coalitions (at the moment we assume that we
have one coalition) are formed, how many members each coalition has and how many singleton
players are. Given the simple coalition structure S is fully characterized by coalition C. In the
second stage, every country decides on emissions (strategic game). Within the coalition, players
play cooperatively (by maximizing their joint welfare) while the coalition and single countries
compete in a non cooperative way (by maximizing their own welfare). Every coalition C is assigned
a real number υ(C) (called characteristic function).
Definition 3.1 By the characteristic function of our 16-player game (played by c and 16 c
players, where c is cardinality of coalition C) we mean a real-valued function υ(C) : C R,
υ(C) = max(
) i C, C N
, c 16.
Characteristic function is simple the total profit that coalition-member reach by maximizing their
joint welfare. As π are strictly concave, their sum is strictly concave also, which simplifies the
maximization problem. The game satisfies the superadditivity property:
Definition 3.2 A game is superadditive if for any two coalitions, C
and C
) > υ(C
) + υ(C
) C
= .
The superadditivity property means that if C
and C
are disjoint coalitions (here C
and C
be single players too), it is clear that they should accomplish at least as much as by joining forces
as by remaining separate. But the game almost always (with some exceptions) exhibits positive
Definition 3.3 A game exhibits positive spillover property if and only if for any two coalitions
and C
such as C
* C
and C
* C
we have:
k / C
) > υ
) υ
) > υ
It indicates that there is an external gain (C
and C
can be single players too) or a positive
spillover from cooperation, making free-riding (i.e., not joining C
) attractive. It just implies
that every player k / C
has higher profit when two coalitions C
and C
cooperate compared
to the situation where two coalitions stay separated. It indicates that from a non-signatory’s point
of view (player k here), the most favorable situation is the one in which all other countries take
part in the coalition (except k). As we have already mentioned the positive spillover property is
almost always satisfied with the exception of some coalitions that contain as members Japan &
South Korea or Australia & New Zealand which have negative marginal benefits (negative β’s)
from pollution abatement.
As our game is formally defined, we concentrate the attention to farsighted stability. In our model
framework, the farsighted stability is mainly based in two arguments. The first one is the coalition
change process (sometimes we will call it coalition inducement
) which includes all possible was
that a coalition can change. Basically coalition change process solves the question: Can a part of
members of our coalition (or all) improve their welfare (by help of non-member coalition or not) by
forming a new coalition. The players are farsighted in the first sense that they check all possible
ways for forming a new coalition in order to improve their welfare. The second arguments is a
behavioral assumption for our farsighted players (or regions) in order to deter free-riding. Suppose
that there is no way to improve the welfare for a coalition, but a country can still free-ride and
improve his welfare alone! We assume that our players are farsighted in another sense namely
In our previous paper Osmani & Tol (2007a) in stead of concept coalition change process we use only the
notation of inducement process by introducing a strict definition of it.
they refuse to free-ride because they take into account that the other members of coalition can act
similarly, which will finally result in welfare decrease for everyone.
3.1 Farsightedly stable coalitions
Below a short introduction of farsighted stability is introduced, and then farsighted coalitions
,which we are going to consider, are presented.
As we will consider only profitable coalition. The situation in which each country maximizes its
own profit is referred to as the atom structure; it is a standard Nash equilibrium; the maximum
coalition size is unity. A coalition that performs better than atom-structure is a profitable coalition.
We limit our attention to coalitions, which are profitable and this is sufficient to find all farsightedly
stable coalitions
We concentrate in the different ways that a coalition can change. There are four ways
of a coalition
change (or coalition inducement); the coalition gets bigger; gets smaller; some coalition-member
leave coalition and some other join it; fourth way is a special one, namely the free-riding, one
country or more leave the coalition and increase their welfare.
If a coalition get bigger, it follows that the original members of coalitions see an increase in profits
and the new members see an increase too; we say that an external inducement is possible. This
can be easily checked by a combinatorial algorithm.
Definition 3.4 If no external inducement is possible than the coalition is external farsightedly
stable (EFS).
If a coalition gets smaller, its remaining members see an increase in profits; we say that an internal
inducement is possible.
Definition 3.5 If no internal inducement is possible than the coalition is internal farsightedly
stable (IFS).
The third way of coalition inducement is if a number of old coalition members leave and a number
of new members join the coalition. The new coalition may be larger or smaller than the original
See Observation 3.1 in Osmani & Tol (2007a).
We also introduce five ways of inducement process in Osmani & Tol (2007a), and here only four, as we present
a short introduction only.
one. One needs to check if countries in a final coalition increase their profits by forming a new
coalition. We call it sub-coalition inducement.
Definition 3.6 If no sub-coalition inducement is possible than the coalition is sub-coalition far-
sightedly stable (SFS).
It needs more combinatorial work to check if a sub-coalition inducement is possible.
As we noted one special coalitional change is caused by free-riding. In our model, free-riding is
deterred based on motivation that originates from experimental game theory (Fehr & achter
(2000), Ostrom (2000))
, which predicts that if a player free-rides, as the rest of players get this
information, a part of them (not all) is going to free-ride also. This results in worsening of the
welfare for every player. We assume that our players (countries in our approach) possess the
knowledge that if free-riding appears, it will be spread out and other players countries will start
to free-ride. This assumption deters free-riding and fits well to farsighted behavior as takes into
account the counter reaction of other countries. As free-riding is prevented based on behavioral
assumption, which implies that there is no free-riding for any coalitions then inducement caused
by free-riding can not be included in definition of farsighted stability.
Now we are able to present the definition of farsighted stability:
Definition 3.7 If no internal, external and sub-coalition improvement is possible than the coalition
is farsightedly stable.
Testing a coalition for farsighted stability means comparing the profit of his country members with
the profit of country members of all possible coalitions (that can be induced or not) and finding the
coalitions that can be induced. The farsightedly stable coalition that will be discussed are:
Further more we are going to discuss two sub-coalitions of above coalitions:
The mentioned papers consider behavior of the people not of countries as we would like. But we consider the
assumption (on spreading of free-riding behavior) relevant for our framework as it go well with the spirit of farsighted
behavior and takes into account the counter reaction of other players.
For a more detailed description how the farsightedly stable coalitions are found please see Os-
mani & Tol (2007a).
4 Different sharing schemes
The joint welfare maximization is compared with Shapley Value, Nash Bargaining solution and
Consensus Value. In the following subsection we will describe them shortly.
4.1 Shapley Value
Suppose we form a coalition C by entering the players into this coalition one at a time; υ(C) is the
characteristic function of coalition C, see definition 3.1; |C| is cardinality of coalition C, and n is
total number of players. As each player enters the coalition, he receives the amount by which his
entry increases the value of the coalition he enters. The Shapley value is just the average payoff
to the players if the players are entered in completely random order.
Definition 4.1 The Shapley value is given by, φ = (φ
, ..., φ
) where for i = 1, ..., n:
(υ) =
CN,i C
(|C| 1)!(n |C|)!
(υ(C) υ(C {i})) (6)
The interpretation of this formula is as follows. Suppose we choose a random order of the players
with all n! orders (permutations) of the players equally likely. Then we enter the players according
to this order. If, when player i enters, he forms coalition C (that is, if he finds C {i} there
already), he receives the amount (υ(C) υ(C {i})). The probability that when i enters he
will find coalition S {i} there already is
. The denominator is the total number of
permutations of the n players. The numerator is number of these permutations in which the |S|1
members of C {i} come first ((|C| 1)! ways), then player i, and then the remaining n |C|
players ((n |C|)! ways). So this formula shows that φ
(υ) is just the average amount player i
contributes to the coalition if the players sequentially form this coalition in a random order.
4.2 Nash Bargaining solution
The axiomatic theory of bargaining originated in a fundamental paper by Nash (1950), we simply
adapt it to our problem. If a part (or all) of countries (we suppose that we have six countries without
loss of generality) agree to form a coalition and behave cooperatively and the rest of countries
optimize their own welfare function. We concentrate to 6 countries that form the coalition. The
scenario is that 6 world regions have access to any of the alternatives in some set <
, called the
feasible utility set. Their preferences over the alternatives in the utility set are given by welfare
function P :
= B
= β
where C denotes cost, R relative emission reduction, and Y gross domestic product; i indexes re-
gions; α is the cost parameter; B denotes benefit and E unabated emissions.
If no coalition is formed, they end up at a pre-specified alternative in the feasible set called the
disagreement point, which is denoted by vector d. In our model d is profit vector of atom structure
with 6 elements where every country optimize his own profits. More formally, a bargaining problem
is defined by the tuple (<
; d) where the utility set (<
) has to be (and is) a non-empty, convex,
and compact subset. We further assume that there exists an p <
, such that p À d. In our case,
Nash bargaining solution, denoted f
; d) is given by
; d) = arg max
) where P
= B
= β
This means simply we need to find the abatement level R of 6 coalition members that maxi-
mize f
(as P
is function of R). Note than the abatement level R of ten remaining countries are
known as they simply maximize their own welfare function (we need them in order to calculate
the benefit function B
= β
4.3 Consensus Value
Let us consider an arbitrary 2-person cooperative TU game with player set N = {1, 2} and char-
acteristic function v determined by the values: v({1}), v({2}) and v({1, 2}). A reasonable solution
is that player 1 gets:
v({1}) + [v({1, 2}) v({1}) v({2})]/2
and player 2 gets:
v({2}) + [v({1, 2}) v({2}) v({1})]/2
That is, the (net) surplus generated by the cooperation between player 1 and 2, v({1, 2})v({2})
v({1}), is equally shared between the two players. This solution is called the standard solution
for 2-person cooperative games. Ju, Y., Borm, P., Ruys, P. (2004) provide a generalization of the
standard solution for 2-person games into n-person cases. Consider a n-person game (N, v) while
the grand coalition C
= {1, 2, .., n} is formed than the player (n + 1) (let call the new player
just player (n+1)) joins the coalition and the coalition C
= {1, 2, .., n, n + 1} is formed. The
generalization of player (n + 1) share is:
v({n + 1})
| {z }
v of the single player (n+1)
+ [v({1, ..., n + 1}) v({n + 1}) v({1, .., n})]
| {z }
the surpl us from cooperation of C
and player (n+1)
The interpretation of above formula is as follows. We can see the above situation as 2-person
game. The coalition C
= {1, 2, .., n} is considered as one player and the next player is the new
player (n + 1) that joins the coalition. The (net) surplus generated by the cooperation b etween
coalition C
and the new player is v({1, ..., n + 1}) v({n + 1}) v({1, .., n}). The equation above
says that the new player take the amount he gets alone v({n + 1}) plus the half of the surplus.
v({i | i C
| {z }
v of a member of C
+ [v({1, ..., n + 1}) v({n + 1}) v({1, .., n})]
| {z }
the surpl us from cooperation of C
and player (n+1)
·1/2 · 1/n
Each of n-players that was already in coalition C
gets his payoff as memb er of coalition C
plus half of the surplus divided by n.
5 Results
Before presenting results, we define:
, P
, P
, P
: the sharing profit according to joint welfare maximization, Shapley
Value, Nash Bargaining solution and Consensus Value.
· 100: relative difference in percentage between joint welfare maximization and Shap-
ley value.
· 100: relative difference in percentage between joint welfare maximization and Nash
Bargaining Solution.
· 100: relative difference in percentage between joint welfare maximization and Con-
sensus Value.
Our numerical computations are programmed in Matlab
programming language, and results are
introduced in Appendix. Table (2) presents the results for the first coalition
(USA, LAM, SEA, CHI, NAF, SSA), Table (3) for the second coalition (CAN, EEU, CAM, SAS, SIS),
Table (4) for the third coalition (USA, SEA, CHI, NAF, SSA) and Table (5) for the forth coali-
tion (CAN, EEU, CAM, SAS). The Tables are similar, in the first column are coalition members,
and in the second, third and fourth column the relative differences of joint welfare maximization
compared to Shapley Value, Nash Bargaining Solution and Consensus Value.
The results show that joint welfare maximization is very similar to Nash Bargaining solution. Their
relative differences are almost always less than 1% for four coalitions (in only one case more than
1%). The Shapley Value and Consensus Value differ significantly to joint welfare maximization for
the first and third coalition, but they are similar for the second and fourth coalition.
In order to have a more complete picture of results, the absolute value of joint welfare maxi-
mization, Shapley Value, Nash Bargaining Solution and Consensus Value for every coalition
Programs can be provided to the reader on request.
The absolute values ca be also used to check the validity of conclusions.
provided in Table (6), Table (7), Table (8) and Table (9). The Tables are identical, in the first
column are coalition members, and in the second, third, fourth and fifth column are values of joint
welfare maximization, Shapley Value, Nash Bargaining Solution and Consensus Value. The last
row presents the sum of all coalitions members value for every welfare sharing scheme used. It is
clear that the sum has to be equal for every welfare sharing scheme used (for the same coalition),
but due to round errors they are only approximately the same. The errors are less than 0.01 for
the first coalition (USA, LAM, SEA, CHI, NAF, SSA), and less than 0.001 for all three other
. . .
One way to see the numerical comparisons, is that Shapley and Consensus Value take into
account the possible ways of coalition formation. The Shapley Value considers all the ways of
coalition formation while the Consensus Value assumes a specific way of coalition formation. On
the opposite the joint welfare maximization and Nash Bargaining Solution are ways of maximizing
the total profit of coalition without considering how the coalition is formed.
6 Conclusions
The literature in international environmental agreements supposes that countries within a coalition
maximize their joint welfare while the single countries play non-cooperatively against the coalition
and against each-other. We investigate if joint welfare maximization shares the welfare level fairly
among coalition members. The joint welfare maximization is compared to classical cooperative
game value like Shapley Value, Nash bargaining solution and Consensus Value for four different
coalitions. The Nash bargaining solution gives similar solution compared to joint welfare maxi-
mization. The Shapley Value and Consensus Value differ significantly compared to joint welfare
maximization. One can consider the joint welfare maximization as reasonable assumption as it is
similar also with another well-known scheme such as Nash Bargaining solution. Further work is
needed in considering more coalitions and approach that is more general.
7 Appendix
Table 2: The relative differences (in percentage) between the joint welfare maximization and
three other different sharing schemes, respectively Shapley value, Nash bargaining solution and
Consensus Value for coalition (USA, LAM, SEA, CHI, NAF, SSA).
Coalition members Shapley Value Nash Bargaining Consensus Value
USA 3.7 % 0.022 % 9.4 %
LAM -27.2 % -0.69 % -49.9 %
SEA -26.0 % -0.18 % -51.7 %
CHI -15.4 % 0.27 % -0.82 %
NAF 24.1 % -0.78 % 13.3 %
SSA 18.6 % 0.43 % 8.0 %
Table 3: The relative differences (in percentage) between the joint welfare maximization and
three other different sharing schemes, respectively Shapley value, Nash bargaining solution and
Consensus Value for coalition (CAN, EEU, CAM, SAS, SIS).
Coalition members Shapley Value Nash Bargaining Consensus Value
CAN 1.25 % 0.27 % 1.25 %
EEU -0.92 % 0.46 % -0.46 %
CAM -0.15 % 0.55 % -0.15 %
SAS -0.13 % 0.0013 % 0.0013 %
SIS 0.04 % -0.79 % -0.79 %
Table 4: The relative differences (in percentage) between the joint welfare maximization and
three other different sharing schemes, respectively Shapley value, Nash bargaining solution and
Consensus Value for coalition (USA, SEA, CHI, NAF, SSA).
Coalition members Shapley Value Nash Bargaining Consensus Value
USA 2.47 % 0.49 % 7.29 %
SEA -27.27 % -3.26 % -51.82 %
CHI -15.07 % 0.28 % -2.62 %
NAF 22.71 % 0.1 % 12.42 %
SSA 17.2 % 0.12 % 6.76 %
Table 5: The relative differences (in percentage) between the joint welfare maximization and
three other different sharing schemes, respectively Shapley value, Nash bargaining solution and
Consensus Value for coalition (CAN, EEU, CAM, SAS).
Coalition members Shapley Value Nash Bargaining Consensus Value
CAN 0.99 % 0 % 0.49 %
EEU -0.92 % -0.46 % -0.92 %
CAM 0 % -0.7 % -0.7 %
SAS 0 % 0.13 % 0 %
Table 6: The absolute value of Joint Welfare Maximization and three other different sharing
schemes, respectively Shapley value, Nash bargaining solution and Consensus Value for coalition
Coalition members Joint Welfare Max. Shapley Value Nash Bargaining Consensus Value
USA 0.7218 0.6953 0.7216 0.6539
LAM 0.0806 0.1026 0.0812 0.1209
SEA 0.2143 0.27 0.2147 0.3251
CHI 0.8443 0.9747 0.842 0.8512
NAF 0.4163 0.316 0.4195 0.3609
SSA 0.4367 0.3554 0.4348 0.4019
2.714 2.714 2.7138 2.7139
Table 7: The absolute value of Joint Welfare Maximization and three other different sharing
schemes, respectively Shapley value, Nash bargaining solution and Consensus Value for coalition
Coalition members Joint Welfare Max. Shapley Value Nash Bargaining Consensus Value
CAN 0.0204 0.0201 0.0203 0.0201
EEU 0.0217 0.0219 0.0216 0.0218
CAM 0.0144 0.0144 0.0143 0.0144
SAS 0.0753 0.0754 0.0753 0.0753
SIS 0.012 0.012 0.0121 0.0121
0.1438 0.1438 0.1436 0.1437
Table 8: The absolute value of Joint Welfare Maximization and three other different sharing
schemes, respectively Shapley value, Nash bargaining solution and Consensus Value for coalition
Coalition members Joint Welfare Max. Shapley Value Nash Bargaining Consensus Value
USA 0.6916 0.6745 0.6882 0.6412
SEA 0.2057 0.2618 0.2124 0.8384
CHI 0.817 0.9401 0.8147 0.3123
NAF 0.3976 0.3073 0.3972 0.3891
SSA 0.4173 0.3455 0.4168 0.3482
2.5292 2.5292 2.5293 2.5292
Table 9: The absolute value of Joint Welfare Maximization and three other different sharing
schemes, respectively Shapley value, Nash bargaining solution and Consensus Value for coalition
Coalition members Joint Welfare Max. Shapley Value Nash Bargaining Consensus Value
CAN 0.0202 0.02 0.0202 0.0201
EEU 0.0216 0.0218 0.0217 0.0218
CAM 0.0143 0.0143 0.0144 0.0144
SAS 0.0752 0.0752 0.0751 0.0752
0.1313 0.1313 0.1314 0.1315
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Research Unit Sustainability and Global Change
Hamburg University and Centre for Marine and Atmospheric Science
Osmani, D. and R.S.J. Tol (2007), A short note on joint welfare maximization assumption,
FNU-150 (submitted).
Osmani, D. and R.S.J. Tol (2007), Towards Farsightedly Stable International Environmental
Agreements: Part Two, Hamburg University and Centre for Atmospheric Science, Hamburg, FNU-
149 (submitted).
Ruane, F.P. and R.S.J. Tol (2007), Academic Quality, Power and Stability: An Application to
Economics in the Republic of Ireland, FNU-148 (submitted).
Tol, R.S.J. (2007), A Rational, Successive g-Index Applied to Economics Departments in Ire-
land, FNU-147 (submitted).
Tol, R.S.J. (2007), Of the h-Index and its Alternatives: An Application to the 100 Most Prolific
Economists, FNU-146 (submitted).
Yohe, G.W. and R.S.J. Tol (2007), Precaution and a Dismal Theorem: Implications for Climate
Policy and Climate Research, FNU- 145 (submitted).
Tol, R.S.J. (2007), The Social Cost of Carbon: Trends, Outliers and Catastrophes, FNU-144
Tol, R.S.J. (2007), The Matthew Effect Defined and Tested for the 100 Most Prolific Economists,
FNU-143 (submitted).
Berrittella, M., K. Rehdanz, R.S.J. Tol and J. Zhang (2007), The Impact of Trade Lib eralisation
on Water Use: A Computable General Equilibrium Analysis, FNU-142 (submitted).
Lyons, S., K. Mayor and R.S.J. Tol (2007), Convergence of Consumption Patterns during
Macroeconomic Transition: A Model of Demand in Ireland and the OECD, FNU-141 (submitted).
Osmani, D. and R.S.J. Tol (2007), Towards Farsightedly Stable International Environmental
Agreements: Part one , FNU-140 (submitted)
Rehdanz, K. and S. Stwhase (2007), Cost Liability and Residential Space Heating Expenditures
of Welfare Recipients in Germany, FNU-139 (submitted)
Schleupner, C. and P.M. Link (2007), Potential impacts on bird habitats in Eiderstedt (Schleswig-
Holstein) caused by agricultural land use changes, FNU-138 (submitted)
Link, P.M. and C. Schleupner (2007), Agricultural land use changes in Eiderstedt: historic
developments and future plans, FNU- 137 (submitted)
Anthoff, D., R.J. Nicholls and R.S.J. Tol (2007), Global Sea Level Rise and Equity Weighting,
FNU-136 (submitted)
Schleupner, C. (2007), Wetland Distribution Modelling for Optimal Land Use Options in Eu-
rope, FNU-135 (submitted)
Mayor, K. and R.S.J. Tol (2007), The Impact of the EU-US Open Skies Agreement on Inter-
national Travel and Carbon Dioxide Emissions, FNU-134 (forthcoming, Journal of Air Transport
Schneider, U.A., M. Obersteiner, and E. Schmid (2007), Agricultural adaptation to climate
policies and technical change, FNU-133 (submitted)
Lychnaras, V. and U.A. Schneider (2007), Dynamic Economic Analysis of Perennial Energy
Crops - Effects of the CAP Reform on Biomass Supply in Greece, FNU-132 (submitted)
Mayor, K. and R.S.J. Tol (2007), The Impact of the UK Aviation Tax on Carbon Dioxide
Emissions and Visitor Numbers, FNU- 131 (forthcoming, Transp ort Policy)
Ruane, F. and R.S.J. Tol (2007), Refined (Successive) h-indices: An Application to Economics
in the Republic of Ireland, FNU-130 (forthcoming, Scientometrics)
Yohe, G.W., R.S.J. Tol and D. Murphy (2007), On Setting Near-Term Climate Policy as the
Dust Begins the Settle: The Legacy of the Stern Review, FNU-129 (Energy & Environment, 18
(5), 621-633)
Maddison, D.J. and K. Rehdanz (2007), Happiness over Space and Time, FNU-128 (submitted).
Anthoff, D. and R.S.J. Tol (2007), On International Equity Weights and National Decision
Making on Climate Change, FNU-127 (submitted).
de Bruin, K.C., R.B. Dellink and R.S.J. Tol (2007), AD-DICE: An Implementation of Adapta-
tion in the DICE Model, FNU-126 (submitted, Climatic Change).
Tol, R.S.J. and G.W. Yohe (2007), The Stern Review: A Deconstruction, FNU-125 (submitted).
Keller, K., L.I. Miltich, A. Robinson and R.S.J. Tol (2007), How Overconfident Are Current
Projections of Anthropogenic Carbon Dioxide Emissions?, FNU-124 (submitted, Energy Journal).
Cowie, A., U.A. Schneider and L. Montanarella (2006), Potential synergies between existing
multilateral environmental agreements in the implementation of Land Use, Land Use Change and
Forestry activities, FNU-123 (submitted)
Kuik, O.J., B. Buchner, M. Catenacci, A. Goria, E. Karakaya and R.S.J. Tol (2006), Method-
ological Aspects of Recent Climate Change Damage Cost Studies, FNU-122 (submitted, Climate
Anthoff, D., C. Hepburn and R.S.J. Tol (2006), Equity Weighting and the Marginal Damage
Costs of Climate Change, FNU-121 (submitted)
Tol, R.S.J. (2006), The Impact of a Carbon Tax on International Tourism, FNU-120 (Trans-
portation Research D: Transport and the Environment, 12 (2), 129-142).
Rehdanz, K. and D.J. Maddison (2006), Local Environmental Quality and Life Satisfaction in
Germany, FNU-119 (forthcoming, Ecological Economics)
Tanaka, K., R.S.J. Tol, D. Rokityanskiy, B.C. ONeill and M. Obersteiner (2006), Evaluating
Global Warming Potentials as Historical Temperature Proxies: An Application of ACC2 Inverse
Calculation, FNU-118 (submitted, Climatic Change)
Berrittella, M., K. Rehdanz and R.S.J. Tol (2006), The Economic Impact of the South-North
Water Transfer Project in China: A Computable General Equilibrium Analysis, FNU-117 (sub-
Tol, R.S.J. (2006), Why Worry about Climate Change? A Research Agenda, FNU-116 (sub-
Hamilton, J.M. and R.S.J. Tol (2006), The Impact of Climate Change on Tourism in Germany,
the UK and Ireland: A Simulation Study, FNU-115 (Regional Environmental Change, 7 (3), 161-
Schwoon, M., F. Alkemade, K. Frenken and M.P. Hekkert (2006), Flexible transition strategies
towards future well-to-wheel chains: an evolutionary modelling approach, FNU-114 (submitted).
Ronneberger, K., L. Criscuolo, W. Knorr and R.S.J. Tol (2006), KLUM@LPJ: Integrating
dynamic land-use decisions into a dynamic global vegetation and crop growth model to assess the
impacts of a changing climate. A feasibility study for Europe, FNU- 113 (submitted)
Schwoon, M. (2006), Learning-by-doing, Learning Spillovers and the Diffusion of Fuel Cell
Vehicles, FNU-112 (submitted). Strzepek, K.M., G.W. Yohe, R.S.J. Tol and M. Rosegrant (2006),
The Value of the High Aswan Dam to the Egyptian Economy, FNU-111 (submitted, Ecological
Schwoon, M. (2006), A Tool to Optimize the Initial Distribution of Hydrogen Filling Stations,
FNU-110 (Transportation Research D: Transport and the Environment, 12 (2), 70-82).
Tol, R.S.J., K.L. Ebi and G.W. Yohe (2006), Infectious Disease, Development, and Climate
Change: A Scenario Analysis, FNU-109 (forthcoming, Environment and Development Economics).
Lau, M.A. (2006), An analysis of the travel motivation of tourists from the Peoples Republic
of China, FNU-108 (submitted). Lau, M.A. and R.S.J. Tol (2006), The Chinese are coming An
analysis of the preferences of Chinese holiday makers at home and abroad, FNU-107 (submitted,
Tourism Management).
Rckmann, C., R.S.J. Tol, U.A. Schneider, and M.A. St.John (2006), Rebuilding the Eastern
Baltic cod stock under environmental change - Part II: The economic viability of a marine protected
area. FNU-106 (submitted)
Ronneberger, K., M. Berrittella, F. Bosello and R.S.J. Tol (2006), KLUM@GTAP: Introducing
biophysical aspects of land-use decisions into a general equilibrium model. A coupling experiment,
FNU-105 (submitted).
Link, P.M. and Tol, R.S.J. (2006), Economic impacts on key Barents Sea fisheries arising from
changes in the strength of the Atlantic thermohaline circulation, FNU-104 (submitted).
Link, P.M. and Tol, R.S.J. (2006), The Economic Impact of a Shutdown of the Thermohaline
Circulation: An Application of FUND, FNU-103 (submitted).
Tol, R.S.J. (2006), Integrated Assessment Modelling, FNU-102 (submitted).
Tol, R.S.J. (2006), Carbon Dioxide Emission Scenarios for the USA, FNU-101 (forthcoming,
Energy Policy).
Tol, R.S.J., S.W. Pacala and R.H. Socolow (2006), Understanding Long-Term Energy Use and
Carbon Dioxide Emissions in the USA, FNU-100 (submitted).
Sesabo, J.K, H. Lang and R.S.J. Tol (2006), Perceived Attitude and Marine Protected Areas
(MPAs) establishment: Why households characteristics matters in Coastal resources conservation
initiatives in Tanzania, FNU-99 (submitted).
Tol, R.S.J. (2006), The Polluter Pays Principle and Cost-Benefit Analysis of Climate Change:
An Application of FUND, FNU-98 (submitted)
Tol, R.S.J. and G.W. Yohe (2006), The Weakest Link Hypothesis for Adaptive Capacity: An
Empirical Test, FNU-97 (Global Environmental Change, 17, 218-227)
Berrittella, M., K. Rehdanz, R.Roson and R.S.J. Tol (2005), The Economic Impact of Water
Pricing: A Computable General Equilibrium Analysis, FNU-96 (submitted, Water Policy)
Sesabo, J.K. and R. S. J. Tol (2005), Technical Efficiency and Small-scale Fishing Households
in Tanzanian coastal Villages: An Empirical Analysis, FNU-95 (submitted)
Lau, M.A. (2005), Adaptation to Sea-level Rise in the Peoples Republic of China Assessing
the Institutional Dimension of Alternative Organisational Frameworks, FNU-94 (submitted)
Berrittella, M., A.Y. Hoekstra, K. Rehdanz, R. Roson and R.S.J. Tol (2005), The Economic
Impact of Restricted Water Supply: A Computable General Equilibrium Analysis, FNU-93 (Water
Research, 42, 1799-1813)
Tol, R.S.J. (2005), Europes Long Term Climate Target: A Critical Evaluation, FNU-92 (Energy
Policy, 35 (1), 424-434)
Hamilton, J.M. (2005), Coastal Landscape and the Hedonic Price of Accommodation, FNU-91
(Ecological Economics, 62 (3-4), 594-602)
Hamilton, J.M., D.J. Maddison and R.S.J. Tol (2005), Climate Preferences and Destination
Choice: A Segmentation Approach, FNU-90 (submitted)
Zhou, Y. and R.S.J. Tol (2005), Valuing the Health Impacts from Particulate Air Pollution
in Tianjin, FNU-89 (submitted) Rckmann, C. (2005), International Cooperation for Sustainable
Fisheries in the Baltic Sea, FNU-88 (forthcoming, in Ehlers,P./Lagoni,R. (Eds.): International
Maritime Organisations and their Contribution towards a Sustainable Marine Development.)
Ceronsky, M., D. Anthoff, C. Hepburn and R.S.J. Tol (2005), Checking the price tag on catas-
trophe: The social cost of carbon under non-linear climate response FNU-87 (submitted, Climatic
Zandersen, M. and R.S.J. Tol (2005), A Meta-analysis of Forest Recreation Values in Europe,
FNU-86 (submitted) Heinzow, T., R.S.J. Tol and B. Brmmer (2005), Offshore-Windstromerzeugung
in der Nordsee -eine konomische und kologische Sackgasse? FNU-85 (Energiewirtschaftliche Tages-
fragen, 56 (3), 68-73)
Rckmann, C., U.A. Schneider, M.A. St.John, and R.S.J. Tol (2005), Rebuilding the Eastern
Baltic cod stock under environmental change - a preliminary approach using stock, environmental,
and management constraints, FNU-84 (Natural Resources Modelling, 20 (2), 223-262)
Tol, R.S.J. and G.W. Yohe (2005), Infinite uncertainty, forgotten feedbacks, and cost-benefit
analysis of climate policy, FNU-83 (Climatic Change, 83, 429-442)
Osmani, D. and R.S.J. Tol (2005), The case of two self-enforcing international agreements for
environmental protection, FNU-82 (submitted)
Schneider, U.A. and B.A. McCarl, (2005), Appraising Agricultural Greenhouse Gas Mitigation
Potentials: Effects of Alternative Assumptions, FNU-81 (submitted)
Zandersen, M., M. Termansen, and F.S. Jensen, (2005), Valuing new forest sites over time: the
case of afforestation and recreation in Denmark, FNU-80 (submitted)
Guillerminet, M.-L. and R.S.J. Tol (2005), Decision making under catastrophic risk and learn-
ing: the case of the possible collapse of the West Antarctic Ice Sheet, FNU-79 (submitted, Climatic
Nicholls, R.J., R.S.J. Tol and A.T. Vafeidis (2005), Global estimates of the impact of a collapse
of the West Antarctic Ice Sheet: An application of FUND, FNU-78 (submitted, Climatic Change)
Lonsdale, K., T.E. Downing, R.J. Nicholls, D. Parker, A.T. Vafeidis, R. Dawson and J.W. Hall
(2005), Plausible responses to the threat of rapid sea-level rise for the Thames Estuary, FNU-77
(submitted, Climatic Change)
Poumadre, M., C. Mays, G. Pfeifle with A.T. Vafeidis (2005), Worst Case Scenario and Stake-
holder Group Decision: A 5-6 Meter Sea Level Rise in the Rhone Delta, France, FNU-76 (submit-
ted, Climatic Change)
Olsthoorn, A.A., P.E. van der Werff, L.M. Bouwer and D. Huitema (2005), Neo-Atlantis: Dutch
Responses to Five Meter Sea Level Rise, FNU-75 (submitted, Climatic Change)
Toth, F.L. and E. Hizsnyik (2005), Managing the inconceivable: Participatory assessments of
impacts and responses to extreme climate change, FNU-74 (submitted, Climatic Change)
Kasperson, R.E. M.T. Bohn and R. Goble (2005), Assessing the risks of a future rapid large
sea level rise: A review, FNU-73 (submitted, Climatic Change)
Schleupner, C. (2005), Evaluation of coastal squeeze and beach reduction and its consequences
for the Caribbean island Martinique, FNU-72 (submitted)
Schleupner, C. (2005), Spatial Analysis As Tool for Sensitivity Assessment of Sea Level Rise
Impacts on Martinique, FNU-71 (submitted)
Sesabo, J.K. and R.S.J. Tol (2005), Factors affecting Income Strategies among households
in Tanzanian Coastal Villages: Implication for Development-Conservation Initiatives, FNU-70
Fisher, B.S., G. Jakeman, H.M. Pant, M. Schwoon. and R.S.J. Tol (2005), CHIMP: A Simple
Population Model for Use in Integrated Assessment of Global Environmental Change, FNU-69
(Integrated Assessment Journal, 6 (3), 1-33)
Rehdanz, K. and R.S.J. Tol (2005), A No Cap But Trade Proposal for Greenhouse Gas Emission
Reduction Targets for Brazil, China and India, FNU-68 (submitted, Climate Policy)
Zhou, Y. and R.S.J. Tol (2005), Water Use in Chinas Domestic, Industrial and Agricultural
Sectors: An Empirical Analysis, FNU- 67 (Water Science and Technoloy: Water Supply, 5 (6),
Rehdanz, K. (2005), Determinants of Residential Space Heating Expenditures in Germany,
FNU-66 (Energy Economics 29) Ronneberger, K., R.S.J. Tol and U.A. Schneider (2005), KLUM:
A Simple Model of Global Agricultural Land Use as a Coupling To ol of Economy and Vegetation,
FNU-65 (submitted, Climatic Change)
Tol, R.S.J. (2005), The Benefits of Greenhouse Gas Emission Reduction: An Application of
FUND, FNU-64 (submitted, Global Environmental Change)
Rckmann, C., M.A. St.John, U.A. Schneider, F.W. Kster, F.W. and R.S.J. Tol (2006), Testing
the implications of a permanent or seasonal marine reserve on the population dynamics of Eastern
Baltic cod under varying environmental conditions, FNU-63- revised (Fisheries Research, 85, 1-13)
Letsoalo, A., J. Blignaut, T. de Wet, M. de Wit, S. Hess, R.S.J. Tol and J. van Heerden (2005),
Triple Dividends of Water Consumption Charges in South Africa, FNU-62 (Water Resources Re-
search, 43, W05412)
Zandersen, M., Termansen, M., Jensen,F.S. (2005), Benefit Transfer over Time of Ecosystem
Values: the Case of Forest Recreation, FNU-61 (submitted)
Rehdanz, K., Jung, M., Tol, R.S.J. and Wetzel, P. (2005), Ocean Carbon Sinks and Interna-
tional Climate Policy, FNU-60 (Energy Policy, 34, 3516-3526)
Schwoon, M. (2005), Simulating the Adoption of Fuel Cell Vehicles, FNU-59 (submitted)
Bigano, A., J.M. Hamilton and R.S.J. Tol (2005), The Impact of Climate Change on Domestic
and International Tourism: A Simulation Study, FNU-58 (submitted)
Bosello, F., R. Roson and R.S.J. Tol (2004), Economy-wide estimates of the implications of
climate change: Human health, FNU-57 (Ecological Economics, 58, 579-591)
Hamilton, J.M. and M.A. Lau (2004) The role of climate information in tourist destination
choice decision-making, FNU-56 (forthcoming, Gssling, S. and C.M. Hall (eds.), Tourism and
Global Environmental Change. London: Routledge)
Bigano, A., J.M. Hamilton and R.S.J. Tol (2004), The impact of climate on holiday destination
choice, FNU-55 (Climatic Change, 76 (3-4), 389-406)
Bigano, A., J.M. Hamilton, M. Lau, R.S.J. Tol and Y. Zhou (2004), A global database of do-
mestic and international tourist numbers at national and subnational level, FNU-54 (International
Journal of Tourism Research, 9, 147-174)
Susandi, A. and R.S.J. Tol (2004), Impact of international emission reduction on energy and
forestry sector of Indonesia, FNU-53 (submitted)
Hamilton, J.M. and R.S.J. Tol (2004), The Impact of Climate Change on Tourism and Recre-
ation, FNU-52 (forthcoming, Schlesinger et al. (eds.), Cambridge University Press)
Schneider, U.A. (2004), Land Use Decision Modelling with Soil Status Dependent Emission
Rates, FNU-51 (submitted)
Link, P.M., U.A. Schneider and R.S.J. Tol (2004), Economic impacts of changes in fish popu-
lation dynamics: the role of the fishermens harvesting strategies, FNU-50 (submitted)
Berritella, M., A. Bigano, R. Roson and R.S.J. Tol (2004), A General Equilibrium Analysis of
Climate Change Impacts on Tourism, FNU-49 (Tourism Management, 27 (5), 913-924)
Tol, R.S.J. (2004), The Double Trade-Off between Adaptation and Mitigation for Sea Level
Rise: An Application of FUND, FNU-48 (Mitigation and Adaptation Strategies for Global Change,
12 (5), 741-753)
Erdil, E. and Yetkiner, I.H. (2004), A Panel Data Approach for Income-Health Causality,
Tol, R.S.J. (2004), Multi-Gas Emission Reduction for Climate Change Policy: An Application
of FUND, FNU-46 (Energy Journal (Multi-Greenhouse Gas Mitigation and Climate Policy Special
Issue), 235-250)
Tol, R.S.J. (2004), Exchange Rates and Climate Change: An Application of FUND, FNU-45
(Climatic Change, 75, 59-80)
Gaitan, B., Tol, R.S.J, and Yetkiner, I. Hakan (2004), The Hotellings Rule Revisited in a
Dynamic General Equilibrium Model, FNU-44 (submitted)
Rehdanz, K. and Tol, R.S.J (2004), On Multi-Period Allocation of Tradable Emission Permits,
FNU-43 (submitted)
Link, P.M. and Tol, R.S.J. (2004), Possible Economic Impacts of a Shutdown of the Thermo-
haline Circulation: An Application of FUND, FNU-42 (Portuguese Economic Journal, 3, 99-114)
Zhou, Y. and Tol, R.S.J. (2004), Evaluating the costs of desalination and water transport,
FNU-41 (Water Resources Research, 41 (3), W03003)
Lau, M. (2004), Kstenzonenmanagement in der Volksrepublik China und Anpassungsstrategien
an den Meeresspiegelanstieg,FNU-40 (Coastline Reports (1), 213-224.)
Rehdanz, K. and D.J. Maddison (2004), The Amenity Value of Climate to German Households,
FNU-39 (submitted)
Bosello, F., Lazzarin, M., Roson, R. and Tol, R.S.J. (2004), Economy-wide Estimates of the
Implications of Climate Change: Sea Level Rise, FNU-38 (Environmental and Resource Economics,
37, 549-571)
Schwoon, M. and Tol, R.S.J. (2004), Optimal CO2-abatement with socio-economic inertia and
induced technological change, FNU- 37 (Energy Journal, 27 (4), 25-60)
Hamilton, J.M., Maddison, D.J. and Tol, R.S.J. (2004), The Effects of Climate Change on
International Tourism, FNU-36 (Climate Research, 29, 255-268)
Hansen, O. and R.S.J. Tol (2003), A Refined Inglehart Index of Materialism and Postmateri-
alism, FNU-35 (submitted)
Heinzow, T. and R.S.J. Tol (2003), Prediction of Crop Yields across four Climate Zones in
Germany: An Artificial Neural Network Approach, FNU-34 (submitted, Climate Research)
Tol, R.S.J. (2003), Adaptation and Mitigation: Trade-offs in Substance and Methods, FNU-33
(Environmental Science and Policy, 8 (6), 572-578)
Tol, R.S.J. and T. Heinzow (2003), Estimates of the External and Sustainability Costs of
Climate Change, FNU-32 (submitted)
Hamilton, J.M., Maddison, D.J. and Tol, R.S.J. (2003), Climate change and international
tourism: a simulation study, FNU-31 (Global Environmental Change, 15 (3), 253-266)
Link, P.M. and R.S.J. Tol (2003), Economic impacts of changes in population dynamics of fish
on the fisheries in the Barents Sea, FNU-30 (ICES Journal of Marine Science, 63 (4), 611-625)
Link, P.M. (2003), Auswirkungen populationsdynamischer Vernderungen in Fischbestnden auf
die Fischereiwirtschaft in der Barentssee, FNU-29 (Essener Geographische Arbeiten, 35, 179-202)
Lau, M. (2003), Coastal Zone Management in the Peoples Republic of China An Assessment
of Structural Impacts on Decisionmaking Processes, FNU-28 (Ocean & Coastal Management, No.
48 (2005), pp. 115-159.)
Lau, M. (2003), Coastal Zone Management in the Peoples Republic of China A Unique Ap-
proach?, FNU-27 (China Environment Series, Issue 6, pp. 120-124;
commentaries.pdf )
Roson, R. and R.S.J. Tol (2003), An Integrated Assessment Model of Economy-Energy-Climate
The Model Wiagem: A Comment, FNU-26 (Integrated Assessment, 6 (1), 75-82)
Yetkiner, I.H. (2003), Is There An Indispensable Role For Government During Recovery From
An Earthquake? A Theoretical Elaboration, FNU-25
Yetkiner, I.H. (2003), A Short Note On The Solution Procedure Of Barro And Sala-i-Martin
for Restoring Constancy Conditions, FNU-24
Schneider, U.A. and B.A. McCarl (2003), Measuring Abatement Potentials When Multiple
Change is Present: The Case of Greenhouse Gas Mitigation in U.S. Agriculture and Forestry,
FNU-23 (submitted)
Zhou, Y. and Tol, R.S.J. (2003), The Implications of Desalination to Water Resources in China
- an Economic Perspective, FNU-22 (Desalination, 163 (4), 225-240)
Yetkiner, I.H., de Vaal, A., and van Zon, A. (2003), The Cyclical Advancement of Drastic
Technologies, FNU-21
Rehdanz, K. and Maddison, D. (2003) Climate and Happiness, FNU-20 (Ecological Economics,
52 111-125)
Tol, R.S.J., (2003), The Marginal Costs of Carbon Dioxide Emissions: An Assessment of the
Uncertainties, FNU-19 (Energy Policy, 33 (16), 2064-2074).
Lee, H.C., B.A. McCarl, U.A. Schneider, and C.C. Chen (2003), Leakage and Comparative
Advantage Implications of Agricultural Participation in Greenhouse Gas Emission Mitigation,
FNU-18 (submitted).
Schneider, U.A. and B.A. McCarl (2003), Implications of a Carbon Based Energy Tax for U.S.
Agriculture, FNU-17 (submitted).
Tol, R.S.J. (2002), Climate, Development, and Malaria: An Application of FUND, FNU-16
(forthcoming, Climatic Change). Hamilton, J.M. (2003), Climate and the Destination Choice of
German Tourists, FNU-15 (revised and submitted).
Tol, R.S.J. (2002), Technology Proto cols for Climate Change: An Application of FUND, FNU-
14 (Climate Policy, 4, 269-287).
Rehdanz, K (2002), Hedonic Pricing of Climate Change Impacts to Households in Great Britain,
FNU-13 (Climatic Change 74).
Tol, R.S.J. (2002), Emission Abatement Versus Development As Strategies To Reduce Vulner-
ability To Climate Change: An Application Of FUND, FNU-12 (Environment and Development
Economics, 10, 615-629).
Rehdanz, K. and Tol, R.S.J. (2002), On National and International Trade in Greenhouse Gas
Emission Permits, FNU-11 (Ecological Economics, 54, 397-416).
Fankhauser, S. and Tol, R.S.J. (2001), On Climate Change and Growth, FNU-10 (Resource
and Energy Economics, 27, 1-17).
Tol, R.S.J.and Verheyen, R. (2001), Liability and Compensation for Climate Change Damages
A Legal and Economic Assessment, FNU-9 (Energy Policy, 32 (9), 1109-1130).
Yohe, G. and R.S.J. Tol (2001), Indicators for Social and Economic Coping Capacity Moving
Toward a Working Definition of Adaptive Capacity, FNU-8 (Global Environmental Change, 12
(1), 25-40).
Kemfert, C., W. Lise and R.S.J. Tol (2001), Games of Climate Change with International
Trade, FNU-7 (Environmental and Resource Economics, 28, 209-232).
Tol, R.S.J., W. Lise, B. Morel and B.C.C. van der Zwaan (2001), Technology Development and
Diffusion and Incentives to Abate Greenhouse Gas Emissions, FNU-6 (submitted).
Kemfert, C. and R.S.J. Tol (2001), Equity, International Trade and Climate Policy, FNU-5
(International Environmental Agreements, 2, 23-48).
Tol, R.S.J., Downing T.E., Fankhauser S., Richels R.G. and Smith J.B. (2001), Progress in
Estimating the Marginal Costs of Greenhouse Gas Emissions, FNU-4. (Pollution Atmosphrique
Numro Spcial: Combien Vaut lAir Propre?, 155-179).
Tol, R.S.J. (2000), How Large is the Uncertainty about Climate Change?, FNU-3 (Climatic
Change, 56 (3), 265-289).
Tol, R.S.J., S. Fankhauser, R.G. Richels and J.B. Smith (2000), How Much Damage Will
Climate Change Do? Recent Estimates, FNU-2 (World Economics, 1 (4), 179-206)
Lise, W. and R.S.J. Tol (2000), Impact of Climate on Tourism Demand, FNU-1 (Climatic
Change, 55 (4), 429-449).
Full-text available
Land use is a key factor to social wellbeing and has become a major component in political negotiations. This paper describes the mathematical structure of the European Forest and Agricultural Sector Optimization Model. The model represents simultaneously observed resource and technological heterogeneity, global commodity markets, and multiple environmental qualities. Land scarcity and land competition between traditional agriculture, forests, nature reserves, pastures, and bioenergy plantations is explicitly captured. Environmental change, technological progress, and policies can be investigated in parallel. The model is well-suited to estimate competitive economic potentials of land based mitigation, leakage, and synergies and trade-offs between multiple environmental objectives.
Full-text available
Transfers play an important role in modeling International Environmental Agreements (IEA). We examine the implementation mechanism of Optimal Transfer Sharing Scheme (Car-raro et al., 2006) which try to enable the existence of stable coalitions for environmental protection by side transfers. There are many coalitions where the OPTS can possibly be im-plemented. However, the implementation mechanism is almost impossible as it requests the flow of welfare from a few countries to the rest of coalition members, which is unrealistic. If the joint welfare maximization assumption is replaced with the assumption that the emission levels of coalition members are uniformly deceased by a constant percentage in comparison to fully non-cooperative coalition structure, then the free riding incentives are significantly weak-ened. As a consequence there are possibilities to implement an OPTS and enable existence of stable coalitions.
Full-text available
I define the rate of inequity aversion, distinguishing between the pure rate and the consumption rate. I measure the rate of aversion to inequality in consumption as expressed in the development aid given by rich countries to poor ones between 1965 and 2005. There is an ambiguous relationship between the pure rate of inequity aversion and the consumption rate, driven by the rate of risk aversion. However, for a reasonable choice of the rate of risk aversion, rich countries are shown to be inequity averse, and increasingly so over time. The social cost of carbon is very sensitive to equity weighting and assumptions about the rate of risk and inequity aversion. Estimates of the consumption rate of inequity aversion for recent data suggest that the equity-weighted social cost of carbon is less than 50% larger than the unweighted estimate.
Full-text available
Using the FUND model, an impact assessment is conducted over the 21st century for rises in sea level of up to 2-m/century and a range of socio-economic scenarios downscaled to the national level, including the four SRES (IPCC Special Report on Emissions Scenarios) storylines. Unlike a traditional impact assessment, this analysis considers impacts after balancing the costs of retreat with the costs of protection, including the effects of coastal squeeze. While the costs of sea-level rise increase with greater rise due to growing damage and protection costs, the model suggests that an optimum response in a benefit-cost sense remains widespread protection of developed coastal areas, as identified in earlier analyses. The socio-economic scenarios are also important in terms of influencing these costs. In terms of the four components of costs considered in FUND, protection dominates, with substantial costs from wetland loss under some scenarios. The regional distribution of costs shows that a few regions experience most of the costs, especially East Asia, North America, Europe and South Asia. Importantly, this analysis suggests that protection is much more likely and rational than is widely assumed, even with a large rise in sea level. This is underpinned by the strong economic growth in all the SRES scenarios: without this growth, the benefits of protection are significantly reduced. It should also be noted that some important limitations to the analysis are discussed, which collectively suggest that protection may not be as widespread as suggested in the FUND results.
Agriculture is the largest consumer of freshwater resources – around 70 percent of all freshwater withdrawals are used for food production. These agricultural products are traded internationally. A full understanding of water use is, therefore, impossible without understanding the international market for food and related products, such as textiles. Based on the global general equilibrium model GTAP-W, we offer a method for investigating the role of green (rain) and blue (irrigation) water resources in agriculture and within the context of international trade. We use future projections of allowable water withdrawals for surface water and groundwater to define two alternative water management scenarios. The first scenario explores a deterioration of current trends and policies in the water sector (water crisis scenario). The second scenario assumes an improvement in policies and trends in the water sector and eliminates groundwater overdraft world-wide, increasing water allocation for the environment (sustainable water use scenario). In both scenarios, welfare gains or losses are not only associated with changes in agricultural water consumption. Under the water crisis scenario, welfare not only rises for regions where water consumption increases (China, South East Asia and the USA). Welfare gains are considerable for Japan and South Korea, Southeast Asia and Western Europe as well. These regions benefit from higher levels of irrigated production and lower food prices. Alternatively, under the sustainable water use scenario, welfare losses not only affect regions where overdrafting is occurring. Welfare decreases in other regions as well. These results indicate that, for water use, there is a clear trade-off between economic welfare and environmental sustainability.
Increasing water scarcity combined with an increasing demand for food and water for irrigation call for a careful revision of water use in agriculture. Currently, less than 60% of all the water used for irrigation is effectively used by crops. Based on the new version of the GTAP-W model we analyze the effect of potential water savings and the welfare implications of improvements in irrigation efficiency worldwide. The results show that a water policy directed to improve irrigation efficiency led to global and regional water savings, but it is not beneficial for all regions. The final effect on regional welfare will depend on the interaction of several different causes. For instance, higher irrigation efficiency changes opportunity costs and reverses comparative advantages, modifying regional trade patterns and welfare. For water-stressed regions the effects on welfare are mostly positive. For nonwater scarce regions the results are more mixed and mostly negative. The results show that exports of virtual water are not exclusive of water abundant regions. © 2010 International Association of Agricultural Economists.
Full-text available
We study the effects of carbon taxation and revenue recycling across the income distribution in Ireland. Price changes of fuels and all other final goods and services are taken into account. If applied only to the emissions not covered by the EU Emissions Trading Scheme, a carbon tax of €20/tCO2 would cost the poorest households around €3.5/week and the richest ones €5/week. The tax is regressive, therefore. However, if the revenue is used to increase social benefits and tax credits, households across the income distribution can be made better off without exhausting the total carbon tax revenue.
Full-text available
The approximated cost-benefit function of pollution abatement from two integrated assessment models are employed in constructing of social welfare functions (SWF). Following a normative approach and evaluating equally the environmental goods in rich and poor countries, furthermore using distributional weights, a relation between elasticity of marginal utility epsilon and inequality aversion parameter gamma is established. By maximizing the global social welfare, the optimal pollution abatement level are found. The relation between the income elasticity of marginal utility epsilon and the inequality aversion parameter gamma allow to narrow the variation of epsilon for a particular value of gamma. As a consequence, smaller variation for optimal abatement levels are obtained, which allows to inspect if the Kyoto abatement objectives respect the requirement of evaluating equally the environmental goods in rich and poor countries.
We use two rounds of surveys, taken in 2000 and 2008 in the Zhili Township children's garment cluster in Zhejiang Province, to examine in depth the evolution of this industrial cluster. Firm size has grown on average in terms of output and employment, and increasing divergence in firm sizes has been associated with a significant rise in specialization and outsourcing among firms in the cluster. Although the investment amount needed to start a business has more than tripled, this amount remains low enough that formal bank loans remain an insignificant source of finance. Because of low entry barriers, the number of firms in the cluster has risen, driving down profits and bidding up wages, particularly since the year 2000. Facing severe competition, more firms have begun to upgrade their product quality. By the year 2007, nearly half of the sampled firms had established registered trademarks and nearly 20 percent had become International Office of Standardization (ISO) certified.
Full-text available
Agricultural land on the Eiderstedt peninsula in Schleswig-Holstein (Germany) is traditionally dominated by extensively used grassland. These grassland areas are home to many (endangered) bird species, making Eiderstedt one of the prime bird habitats at the west coast of Schleswig-Holstein. During the last few years large shares of grassland have been converted to arable farm land to grow crops needed in an intensified dairy production and for biofuels. The possible impacts of such conversions on breeding bird populations of four key species are determined. The results indicate that the increase of arable farm land during the past six years has drastically reduced suitable bird habitat, which considerably diminishes the number of breeding pairs supported by the environment. Further land conversion is likely to have a less pronounced impact on bird populations compared to the consequences of the latest shift from grassland to arable farm land. Recent declarations of additional bird sanctuaries are supposed to alleviate the pressure on endangered bird species. Assessments using a combination of GIS and dynamic optimization models will be conducted to determine the expected efficiency of such management measures.
Full-text available
Cost-benefit analysis is only applicable if the variances of both costs and benefits are finite. In the case of climate change, the variances of the net present marginal costs and benefits of greenhouse gas emission reduction need to be finite. Finiteness is hard, if not impossible to prove. The opposite is easier to establish as one needs to shows that there is one, not impossible representation of the climate change with infinite variance. The paper shows that all relevant current variables of the FUND model have finite variances. However, there is a small chance that climate change reverses economic growth in some regions. In that case, the discount rate becomes negative and the net present marginal benefits of greenhouse gas emission reduction becomes very large. So large, that its variance is unbounded.
This chapter uses game theory to analyse the potential of developing global coalitions to lead the process of emission reduction. It argues that it is not wise for the EU to lead alone. A creative use of issue-linkages and transfer (side payments) may enhance, under certain conditions, the potential for forming EU-led coalitions. Further re-designing the rules of the regime and exploring the potential of regional coalitions may be other ways by which the EU can show leadership.
Estimates of the marginal damage costs of carbon dioxide emissions suggest that, although climate change is a problem and some emission reduction is justified, very stringent abatement does not pass the cost-benefit test. However, current estimates of the economic impact of climate change are incomplete. Some of the missing impacts are likely to be positive and others negative, but overall the uncertainty seems to concentrate on the downside risks and current estimates of the damage costs may have a negative bias. The research effort on the economic impacts of climate change is minute and lacks diversity. This field of study should be strengthened, with a particular focus on the quantification of uncertainties; estimating missing impacts, estimating impacts in developing countries; interactions between impacts and higher-order effects; the valuation of biodiversity loss; the implications of extreme climate scenarios and violent conflict; and climate change in the very long term. I discuss these particular gaps in research, and speculate on possible sign and size of the impacts of climate change.
The gains from cartel formation and the stability of a dominant cartel are investigated for the price-leadership model. We show that there is a general interest in the establishment of a cartel with the competitive fringe reaping a disproportionate share of the benefits. In contrast to results involving a continuum of firms, with a finite number of firms (each with the same cost curve) there is always a stable dominant cartel. /// A propos de la stabilité d'une structure de marché caractérisée par la collusion de firmes dominantes pour établir un leadership de prix. Le mémoire étudie les gains dérivés de la formation d'un cartel et la stabilité d'un cartel dominant dans le cadre d'un modèle de leadership de prix de la firme dominante. On montre qu'il y a un intérêt général à créer un cartel même si les firmes satellites à la périphérie du cartel ramassent une part plus que proportionnelle des bénéfices. Contrairement à ce que l'on observe quand on est en présence d'un continuum de firmes, quand leur nombre est fini -- chacune avec la même courbe de coûts -- il y a toujours un cartel dominant stable.
Global sea-levels are rising due to climate change. Latest estimates expect a rise of up to 88 cm within the next 100 years. In China the three main river deltas are considered most vulnerable to sea-level rise and a number of mega-cities, e.g. Shanghai, with high economic importance are per- ticularly at risk. The natural changes in sea-level are often accelerated by human induced phenom- ena, such as land subsidence due to over-exploitation of ground water or by sediment compression due to high rise building construction. Through a combination of natural events and artificial pres- sures on the coastal system a range of issues are developing, that can already have disastrous ef- fects, depending on scale, area and existence of countermeasures. The concept of integrated coastal zone management (ICZM) offers a framework for a coordination of economic develop- ment and environmental protection in a sustainable way. Still sea-level rise is not incorporated into (I)CZM in China. Instead mitigation and protection issues are covered by diverse institutions on various governmental levels. One reason is that sea-level rise poses a long-term threat whereas de- velopment in the coastal zone in China is still mostly short-term oriented. With current CZM the effects of sea-level rise, such as erosion, salination and inundation of coastal areas are not effec- tively addressed. Generally the perception of sea-level rise is predominantly academic, without specific policies being formulated and only hesitant steps being taken to inform the public.
CURRENT debate on policies for limiting climate change due to greenhouse-gas emissions focuses on whether to take action now or later, and on how stringent any emissions reductions should be in the near and long term. Any reductions policies implemented now will need to be revised later as scientific understanding of climate change improves. Here we consider the effects of a sequential-decision strategy (Fig. 1) consisting of a near-term period (1992–2002) during which either moderate emissions reductions (achieved by energy conservation only) or aggressive reductions (energy conservation coupled with switching to other fuel sources) are begun, and a subsequent long-term period during which a least-cost abatement policy is followed to limit global mean temperature change to an optimal target ΔT *. For each policy we calculate the global mean surface temperature change ΔT(t) using a simple climate/ocean model for climate sensitivities ΔT 2x. (the response to doubled CO2, concentrations) of 4.5,2.5,1.5 and 0.5 °C. The policy beginning with moderate reductions is less expensive than that with aggressive reductions if ΔT *>2.9, 2.1, 1.5 and 0.9 °C respectively; otherwise, the aggressive-reductions policy is cheaper. We suggest that this approach should assist in choosing realistic targets and in determining how best to implement emissions reductions in the short and long term.