Expectation-driven climate treaties with breakthrough technologies

Daiju Narita and Ulrich Wagner

No 1732, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: Recent research has shown that agreements centered on the adoption of breakthrough technologies can break the deadlock in international climate negotiations if the mitigation technology exhibits a network externality that transforms full cooperation into a self-enforcing outcome. This paper shows that the same externality also increases strategic uncertainty about future technology adoption, which makes coordination on the cooperative outcome more demanding. We analyze this coordination problem in a dynamic game of technology adoption with convex switching costs. We find that the adoption dynamics for some technologies depend exclusively on countries' expectations about future adoption. This possibility calls for a more prominent role of expectation management in climate policy. Another implication is that the choice of breakthrough technologies should be guided not only by economic efficiency and strategic adoption incentives but also by the amount of strategic uncertainty they engender.

Keywords: International environmental agreements (IEAs); climate policy; technology choice; expectations; multiple equilibria (search for similar items in EconPapers)
JEL-codes: H87 O33 Q54 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1732

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