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

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  • David Martimort
  • Wilfried Sand‐Zantman

Abstract

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 free‐riding 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. Résoudre le problème du réchauffement climatique global : au‐delà des marchés, des mécanismes simples peuvent aider. Ce texte examine l'utilité et la performance de mécanismes simples pour mettre en place des accords environnementaux internationaux dans le contexte des externalités multilatérales du réchauffement global. L'information asymétrique et la nécessité d'obtenir la participation volontaire de pays hétérogènes et indépendants constituent des contraintes importantes dans le dessein de ces accords. L'utilisation de mécanismes peut prévenir deux sortes de comportement de passager clandestin ‐ dans l'effort à fournir et dans la participation. Comme les marchés peuvent faillir dans la résolution de ces deux problèmes, on construit un simple menu d'options qui négocient des relations d’équivalence entre les incitations pour les pays participants à s'impliquer, et les incitations pour les pays à participer. Avec un tel mécanisme, tous les pays contribuent volontairement à un fond , même si c'est avec des intensités diverses, mais seulement les plus efficaces réduisent effectivement leurs émissions polluantes en dessous du niveau de la routine habituelle.

Suggested Citation

  • David Martimort & Wilfried Sand‐Zantman, 2013. "Solving the global warming problem: beyond markets, simple mechanisms may help!," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(2), pages 361-378, May.
    • Handle: RePEc:wly:canjec:v:46:y:2013:i:2:p:361-378
    DOI: 10.1111/caje.12016
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    1. Taking care of free-riders in global warming policies
      by Economic Logician in Economic Logic on 2012-11-14 21:26:00

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    Cited by:

    1. Ngo Van Long, 2014. "The Green Paradox in Open Economies," CESifo Working Paper Series 4639, CESifo.
    2. Pal, Shreya & Mahalik, Mantu Kumar & Zhao, Qiuyun & Liu, Fan & Soliman, Alaa M., 2024. "Boosting productive capacity in OECD countries: Unveiling the roles of geopolitical risk and globalization," Technological Forecasting and Social Change, Elsevier, vol. 202(C).
    3. Stern, Lennart, 2024. "Rewarding countries for taxing fossil fuel combustion- optimal mechanisms under exogenous budgets," VfS Annual Conference 2024 (Berlin): Upcoming Labor Market Challenges 302448, Verein für Socialpolitik / German Economic Association.
    4. Ngo Van Long, 2015. "The Green Paradox in Open Economies: Lessons from Static and Dynamic Models," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 9(2), pages 266-284.
    5. Carsten Helm & Franz Wirl, 2021. "Multitasking: incentivizing agents differing either in their work ethic or intrinsic motivation," Journal of Economics, Springer, vol. 132(1), pages 41-65, January.
    6. Martimort, David & Sand-Zantman, Wilfried, 2011. "A Mechanism Design Approach to Climate Agreements," TSE Working Papers 11-251, Toulouse School of Economics (TSE), revised 30 Apr 2013.
    7. Elvio Accinelli & Filipe Martins & Alberto A. Pinto, 2022. "The basins of attraction in the generalized Baliga–Maskin public good model," Journal of Evolutionary Economics, Springer, vol. 32(4), pages 1289-1301, September.
    8. Kai A. Konrad & Marcel Thum, 2018. "Does a Clean Development Mechanism Facilitate International Environmental Agreements?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(4), pages 837-851, April.
    9. Alexey Kushnir & Shuo Liu, 2015. "On the equivalence of bayesian and dominant strategy implementation: the case of non-linear utilities," ECON - Working Papers 212, Department of Economics - University of Zurich.
    10. Oluc, Ihsan & Ben Jebli, Mehdi & Can, Muhlis & Guzel, Ihsan & Brusselaers, Jan, 2022. "The Productive Capacity And Environment: Evidence From OECD Countries," MPRA Paper 112590, University Library of Munich, Germany.
    11. Alexey Kushnir & Shuo Liu, 2019. "On the equivalence of Bayesian and dominant strategy implementation for environments with nonlinear utilities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 67(3), pages 617-644, April.
    12. Jeongmeen Suh & Myeonghwan Cho, 2017. "Roles of Flexible Mechanisms in International Environmental Agreements," Korean Economic Review, Korean Economic Association, vol. 33, pages 239-265.
    13. Helm, Carsten & Wirl, Franz, 2016. "Multilateral externalities: Contracts with private information either about costs or benefits," Economics Letters, Elsevier, vol. 141(C), pages 27-31.

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