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Expectation-driven climate treaties with breakthrough technologies

Author

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  • Narita, Daiju
  • Wagner, Ulrich J.

Abstract

Recent research has shown that agreements centered on the adoption of breakthrough technologies can break the deadlock in international climate negotiations if the mitigation technology exhibits a network externality that transforms full cooperation into a self-enforcing outcome. This paper shows that the same externality also increases strategic uncertainty about future technology adoption, which makes coordination on the cooperative outcome more demanding. We analyze this coordination problem in a dynamic game of technology adoption with convex switching costs. We find that the adoption dynamics for some technologies depend exclusively on countries' expectations about future adoption. This possibility calls for a more prominent role of expectation management in climate policy. Another implication is that the choice of breakthrough technologies should be guided not only by economic efficiency and strategic adoption incentives but also by the amount of strategic uncertainty they engender.

Suggested Citation

  • Narita, Daiju & Wagner, Ulrich J., 2011. "Expectation-driven climate treaties with breakthrough technologies," Kiel Working Papers 1732, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1732
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    References listed on IDEAS

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    1. Mussa, Michael, 1978. "Dynamic Adjustment in the Heckscher-Ohlin-Samuelson Model," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 775-791, October.
    2. Heal, Geoffrey & Tarui, Nori, 2010. "Investment and emission control under technology and pollution externalities," Resource and Energy Economics, Elsevier, vol. 32(1), pages 1-14, January.
    3. Paul Krugman, 1991. "History versus Expectations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 651-667.
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    7. Geoffrey Heal & Bengt Kriström, 2002. "Uncertainty and Climate Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 22(1), pages 3-39, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    International environmental agreements (IEAs); climate policy; technology choice; expectations; multiple equilibria;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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