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Participation and Duration of Environmental Agreements

Marco Battaglini () and Bard Harstad

No 18585, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We analyze participation in international environmental agreements (IEAs) in a dynamic game where countries pollute and invest in green technologies. If complete contracts are feasible, participants eliminate the hold-up problem associated with their investments; however, most countries prefer to free-ride rather than participate. If investments are non-contractible, countries face a hold-up problem every time 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 that circumvent the hold-up problem. Under well-specified conditions even the first-best outcome is possible when 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.

JEL-codes: D86 F53 H87 Q54 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta, nep-ene and nep-env
Date: 2012-12
Note: EEE LE PE POL
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Published as Marco Battaglini & B�rd Harstad, 2016. "Participation and Duration of Environmental Agreements," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 000 - 000.

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