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A Mechanism Design Approach To Climate-Change Agreements

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  • David Martimort
  • Wilfried Sand-Zantman

Abstract

We take a mechanism design perspective to investigate how environmental agreements should account for multilateral externalities, incentive compatibility, and voluntary participation by sovereign countries. The optimal mechanism involves a tradeoff between a free rider problem in the effort provision of participating countries and the necessity of inducing countries to ratify the agreement. This mechanism can be approximated by a simple menu with attractive implementation and robustness properties. Limits on enforcement and commitment might nevertheless hinder the performance of this menu, making the "business as usual" scenario more likely.
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Suggested Citation

  • David Martimort & Wilfried Sand-Zantman, 2016. "A Mechanism Design Approach To Climate-Change Agreements," Journal of the European Economic Association, European Economic Association, vol. 14(3), pages 669-718, June.
    • Handle: RePEc:bla:jeurec:v:14:y:2016:i:3:p:669-718
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    File URL: http://hdl.handle.net/10.1111/jeea.2016.14.issue-3
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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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