Too Different To Get Along: Inequality and Global Public Goods

We study how inequality affects the feasibility of an international agreement on the provision of an environmental public good in a two-country two-level political economy model. At the international level, two negotiators try to agree on the respective country's provision of the public good under different international equity rules, knowing that this agreement will need to be accepted by the median voter in each country. At the national level, agents' preferences for the public good depend on their relative income position, which implies that negotiators must also take into account the level of inequality within their country. We show that the feasibility of the agreement and the distribution of the gains from cooperation depends on the equity rule imposed, on the levels of within-country inequality, and on the level of cross-country inequality.