Group for Research in Decision Analysis

Sharing R&D investments in breakthrough technologies to control climate change

Santiago Rubio University of Valencia, Spain

This paper examines international cooperation on technological development as an alternative to international cooperation on GHG emission reductions. In order to analyze the scope of cooperation, a three-stage technology agreement formation game is solved. First, countries decide whether or not to sign up to the agreement. In the second stage, the signatories (playing together) and the non-signatories (playing individually) select their investment in R&D. In this stage, it is assumed that the signatories not only coordinate their levels of R&D investment but also pool their R&D efforts to fully internalize the spillovers of their investment. Finally, in the third stage, each country decides non-cooperatively upon its level of energy production. For linear environmental damages and quadratic investment costs, the grand coalition is stable if marginal damages are large enough to justify the development of a breakthrough technology that eliminates emissions completely, and if technology spillovers are not very important.

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