Coordinating to avoid the catastrophe

Vitus Bühl and Robert C. Schmidt

Journal of Environmental Economics and Management, 2024, vol. 125, issue C

Abstract: “Tipping points” for dangerous climate damages can transform climate protection into a coordination problem. If the location of the threshold is known, Nash equilibria exist in which the catastrophe is averted even without a climate agreement. However, there usually exists also an equilibrium in which no country exerts effort to prevent it, and the catastrophe occurs. We model equilibrium selection among non-cooperative countries with the help of an external randomization device, and analyze how it affects coalition formation. We find that results are much more nuanced than in the case where non-cooperative countries always coordinate on preventing the catastrophe. In some cases, a “coalition of free-riders” forms that is detrimental to welfare. In other cases, a “threshold equilibrium” emerges in which coalition members commit to do more than the outsiders, and the coalition is just large enough to become active. The grand coalition is also an equilibrium outcome, but is often unstable towards deviations by groups of countries.

Keywords: Climate catastrophe; Tipping point; Climate cooperation; Coordination game; Free-riding (search for similar items in EconPapers)
JEL-codes: D62 F53 H23 Q54 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:125:y:2024:i:c:s0095069624000512

DOI: 10.1016/j.jeem.2024.102977

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