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A Paradox of Coalition Building in Public Good Provision

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  • Wolfgang Buchholz
  • Keisuke Hattori

Abstract

This paper considers endogenous coalition formations and endogenous technology choices in a model of private provision of global public goods. We show that the possibility of future interstate (partial) coordination may hinder the current adoption of better technology by a country outside the cooperation, which may exacerbate an existing underprovision problem. In particular, in the subgame perfect equilibrium of a three-stage game, we find two paradoxical results: prohibition of the formation of future partial coalitions encourages the country outside the cooperation to adopt better technology, which could lead to an increase in the total public good supply and an improvement of global welfare. The results have an important policy implication: in the context of the Paris Agreement, for example, a large country announces lower nationally determined contributions by a strategic incentive to adopt lower technology to motivate coalition building by other nations, which in the end may lead to lower aggregate public-good supply and global welfare.

Suggested Citation

  • Wolfgang Buchholz & Keisuke Hattori, 2021. "A Paradox of Coalition Building in Public Good Provision," CESifo Working Paper Series 9354, CESifo.
    • Handle: RePEc:ces:ceswps:_9354
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    References listed on IDEAS

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    More about this item

    Keywords

    coalition formation; public goods; endogenous technology; environmental agreements;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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