Sober optimism and the formation of international environmental agreements

We analyze a dynamic model of international environmental agreements where countries cannot make long-term commitments or use sanctions or rewards to induce cooperation. The equilibrium is a Markov chain, not a particular coalition. A large and effective coalition is an absorbing state, reached after a random succession of short-lived ineffective coalitions. Reaching such a coalition requires that the endogenous probability of “success” in any negotiating round is neither too small nor too large, a circumstance we describe as “sober optimism”: the understanding that cooperation is possible but not easy to achieve. An empirical application illustrates the importance of sober optimism in creating a climate agreement.