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Designing the Optimal International Climate Agreement with Variability in Commitments

Published online by Cambridge University Press:  24 September 2021

Jordan H. McAllister Open the ORCID record for Jordan H. McAllister [Opens in a new window]  and
Keith E. Schnakenberg Open the ORCID record for Keith E. Schnakenberg [Opens in a new window]
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Abstract

We analyze the design of an international climate agreement. In particular, we consider two goals of such an agreement: overcoming free-rider problems and adjusting for differences in mitigation costs between countries. Previous work suggests that it is difficult to achieve both of these goals at once under asymmetric information because countries free ride by exaggerating their abatement costs. We argue that independent information collection (investigations) by an international organization can alleviate this problem. In fact, though the best implementable climate agreement without investigations fails to adjust for individual differences even with significant enforcement power, a mechanism with investigations allows adjustment and can enable implementation of the socially optimal agreement. Furthermore, when the organization has significant enforcement power, the optimal agreement is achievable even with minimal investigative resources (and vice versa). The results suggest that discussions about institutions for climate cooperation should focus on information collection as well as enforcement.

Keywords

Climate changeinternational institutionsgame theorymechanism design
Type
Research Note
Information
International Organization , Volume 76 , Issue 2 , Spring 2022 , pp. 469 - 486
Copyright
Copyright © The IO Foundation 2021

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