Self-enforcing agreements under unequal nationally determined contributions

posted Jun 20, 2017, 9:19 AM by Adriana M   [ updated Jun 20, 2017, 9:21 AM ]

The Paris Agreement builds on intended nationally determined contri-
butions (INDCs) submitted by most participating nations. The INDCs vary across
nations, since national circumstances differ, including national incomes and dam-
ages. The INDCs follow a bottom-up approach, whereby nations submit their plans
of actions in a Nash-like form (i.e., taking the other nations’ plans as given). We build
a model with normal goods and an unequal world income distribution to consider
the endogenous formation and stability of an international environmental agreement
(IEA) under the bottom-up approach. Nations provide carbon abatement and pro-
duce R&D efforts that promote improvements in environmental efficiency of their
outputs. Nations share R&D efforts and enjoy R&D spillovers if they join an IEA.
Non-members do not enjoy R&D spillovers. Global carbon abatement rises as the
IEA expands in size due to the R&D spillovers. We show that the Grand Coalition is
stable under a nearly perfectly equitable income distribution, where all nations make
positive carbon abatement and R&D contributions. We also consider a more realistic
world income distribution, in which some nations lack sufficient income to provide
carbon abatement and R&D. In this case, the stable coalition contains all (wealth-
ier) nations that make positive abatement and R&D contributions. For a very unequal
world income distribution, not even a bilateral IEA, with the two richest nations in
the world, is stable. The stable IEAs provide too little carbon abatement relative to the
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