Solving the global warming problem: beyond markets, simple mechanisms may help!

This paper discusses the feasibility and performances of simple mechanisms to implement international environmental agreements in the multilateral externalities context of global warming. Asymmetric information and voluntary participation by sovereign and heterogeneous countries are key constraints on the design of those agreements. Mechanisms must prevent two sorts of freeriding problems free riding in effort provision and free riding in participation. As markets might fail to solve simultaneously those two problems, we construct instead a simple menu of options that trades off the provision of incentives for participating countries and the provision of incentives to participate . With such a mechanism, all countries voluntarily contribute to a fund, although at different intensities, but only the most efficient ones effectively reduce their pollution below its business as usual level.