The Fondazione Eni Enrico Mattei series on Economics, the Environment and Sustainable Development
Edited by Carlo Carraro and Vito Fragnelli
Chapter 3: Endogenous Strategic Issue Linkage in International Negotiations
Carlo Carraro and Carmen Marchiori 1. INTRODUCTION In recent years, the non-cooperative approach to coalition formation has been adopted to analyse various economic problems (cf. Bloch, 1997; Carraro and Marchiori, 2002; Konishi et al., 1997; Ray and Vohra, 1996, 1997; Yi, 1997). When applying theoretical results on coalition formation to the provision of public goods – and in particular to global environmental agreements – the conclusion is often that no coalition forms at the equilibrium and that, if a non-trivial equilibrium coalition emerges, it is formed by a small number of players (Hoel, 1991, 1992; Carraro and Siniscalco, 1993; Barrett, 1994, 1997; Heal, 1994). This result is the consequence of the presence of strong free-riding incentives that become even stronger in the presence of leakage (that is, when reaction functions are non-orthogonal; cf. Carraro and Siniscalco, 1993). Diﬀerent policy strategies have been proposed to increase the number of players who decide to join the equilibrium coalition. Transfers and issue linkage are probably the most popular proposed strategies, even though negotiation rules and treaty design can also be used to achieve equilibria in which large-sized coalitions form at the equilibrium (cf. Carraro, 2001). In this chapter, we focus on issue linkage. The basic idea of issue linkage is to design a negotiation framework in which countries do not negotiate only on one issue (for instance, the environmental issue), but force themselves to negotiate on two joint issues (for example, the environmental and another interrelated economic issue). Pioneering contributions on issue linkage are...
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