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NBER WORKING PAPER SERIES PARTICIPATION AND DURATION OF ENVIRONMENTAL AGREEMENTS Marco Battaglini Bård Harstad Working Paper 18585 http://www.nber.org/papers/w18585 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 December 2012 We have benefitted from participants at the Climate and the Economy conference, IIES - Stockholm University, the conference Instruments to curb global warming: Recent developments, Paris, and a seminar at the University of Oslo. We are particularly grateful to the comments from Tore Ellingsen and Kjetil Storesletten. We thank Nemanja Antic for outstanding research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer- reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2012 by Marco Battaglini and Bård Harstad. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
Transcript of Participation and Duration of Environmental Agreements · University, the conference Instruments to...
NBER WORKING PAPER SERIES
PARTICIPATION AND DURATION OF ENVIRONMENTAL AGREEMENTS
Marco BattagliniBård Harstad
Working Paper 18585http://www.nber.org/papers/w18585
NATIONAL BUREAU OF ECONOMIC RESEARCH1050 Massachusetts Avenue
Cambridge, MA 02138December 2012
We have benefitted from participants at the Climate and the Economy conference, IIES - StockholmUniversity, the conference Instruments to curb global warming: Recent developments, Paris, and aseminar at the University of Oslo. We are particularly grateful to the comments from Tore Ellingsenand Kjetil Storesletten. We thank Nemanja Antic for outstanding research assistance. The views expressedherein are those of the authors and do not necessarily reflect the views of the National Bureau of EconomicResearch.
NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies officialNBER publications.
© 2012 by Marco Battaglini and Bård Harstad. All rights reserved. Short sections of text, not to exceedtwo paragraphs, may be quoted without explicit permission provided that full credit, including © notice,is given to the source.
Participation and Duration of Environmental AgreementsMarco Battaglini and Bård HarstadNBER Working Paper No. 18585December 2012JEL No. D86,F53,H87,Q54
ABSTRACT
We analyze participation in international environmental agreements (IEAs) in a dynamic game wherecountries pollute and invest in green technologies. If complete contracts are feasible, participants eliminatethe hold-up problem associated with their investments; however, most countries prefer to free-riderather than participate. If investments are non-contractible, countries face a hold-up problem everytime they negotiate; but the free-rider problem can be mitigated and significant participation is feasible.Participation becomes attractive because only large coalitions commit to long-term agreements thatcircumvent the hold-up problem. Under well-specified conditions even the first-best outcome is possiblewhen the contract is incomplete. Since real-world IEAs fit in the incomplete contracting environment,our theory may help explaining the rising importance of IEAs and how they should be designed.
Marco BattagliniDepartment of EconomicsFisher HallPrinceton UniversityPrinceton, NJ 08544and [email protected]
Bård HarstadKellogg School of ManagementNorthwestern University2001 Sheridan RoadEvanston, IL 60208and [email protected]
