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A Mechanism Design Approach to Climate Agreements

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  • Martimort, David
  • Sand-Zantman, Wilfried

Abstract

We analyze environmental agreements in contexts with asymmetric information, voluntary participation by sovereign countries and possibly limited enforcement. Taking a mechanism design perspective, we study how countries can agree on effort levels and compensations to take into account multilateral externalities. We delineate conditions for efficient agreements and trace out possible inefficiencies to the conjectures that countries hold following disagreement. We show how optimal mechanisms admit simple approximations with attractive implementation properties. Finally, we also highlight how limits on commitment strongly hinder performances of optimal mechanisms.

Suggested Citation

  • Martimort, David & Sand-Zantman, Wilfried, 2011. "A Mechanism Design Approach to Climate Agreements," IDEI Working Papers 682, Institut d'Économie Industrielle (IDEI), Toulouse, revised 30 Apr 2013.
    • Handle: RePEc:ide:wpaper:24929
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    1. David Martimort & Wilfried Sand‐Zantman, 2013. "Solving the global warming problem: beyond markets, simple mechanisms may help!," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(2), pages 361-378, May.
    2. Eskander, Shaikh & Janus, Thorsten & Barbier, Edward, 2016. "Linking The Unlinked: Transboundary Water-Sharing Under Water-For-Leverage Negotiations," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235650, Agricultural and Applied Economics Association.
    3. Helm, Carsten & Wirl, Franz, 2014. "The principal–agent model with multilateral externalities: An application to climate agreements," Journal of Environmental Economics and Management, Elsevier, vol. 67(2), pages 141-154.
    4. Aurélie Slechten, 2020. "Environmental Agreements under Asymmetric Information," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 7(3), pages 455-481.
    5. Alexey Kushnir & Shuo Liu, 2015. "On the equivalence of bayesian and dominant strategy implementation: the case of non-linear utilities," ECON - Working Papers 212, Department of Economics - University of Zurich.
    6. Christian Gollier and Jean Tirole, 2015. "Negotiating effective institutions against climate change," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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