The Decision to Link Trade Agreements to the Supply of Global Public Goods

Scott Barrett and Astrid Dannenberg

Journal of the Association of Environmental and Resource Economists, 2022, vol. 9, issue 2, 273 - 305

Abstract: We use simple theory and an experiment to investigate the decision to link trade cooperation to the provision of a global public good like climate change mitigation. We examine and compare a unilateral approach, in which players decide independently and without commitment, and a multilateral approach, in which players decide by, and are committed through, an agreement. Our theory shows that, if players decide to link unilaterally, in a best case linkage is a coordination game in which equilibrium selection is unreliable. By contrast, if players decide to link multilaterally, selection in this best case is assured by specifying an appropriate participation threshold for the linked agreement to enter into force. Our experimental results confirm the superiority of the multilateral approach and reveal additionally that agreement by a majority coupled with commitment by this majority are required for its success.

Date: 2022
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