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A Paradox of Coalition Building in Public Good Provision

Wolfgang Buchholz and Keisuke Hattori

No 9354, CESifo Working Paper Series from CESifo

Abstract: This paper considers endogenous coalition formations and endogenous technology choices in a model of private provision of global public goods. We show that the possibility of future interstate (partial) coordination may hinder the current adoption of better technology by a country outside the cooperation, which may exacerbate an existing underprovision problem. In particular, in the subgame perfect equilibrium of a three-stage game, we find two paradoxical results: prohibition of the formation of future partial coalitions encourages the country outside the cooperation to adopt better technology, which could lead to an increase in the total public good supply and an improvement of global welfare. The results have an important policy implication: in the context of the Paris Agreement, for example, a large country announces lower nationally determined contributions by a strategic incentive to adopt lower technology to motivate coalition building by other nations, which in the end may lead to lower aggregate public-good supply and global welfare.

Keywords: coalition formation; public goods; endogenous technology; environmental agreements (search for similar items in EconPapers)
JEL-codes: F53 H41 Q54 Q55 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cdm, nep-env, nep-gth and nep-pub
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Journal Article: A paradox of coalition building in public good provision (2024) Downloads
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