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A Mechanism Design Approach To Climate-Change Agreements

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  • David Martimort
  • Wilfried Sand-Zantman

Abstract

We take a mechanism design perspective to investigate how environmental agreements should account for multilateral externalities, incentive compatibility, and voluntary participation by sovereign countries. The optimal mechanism involves a tradeoff between a free rider problem in the effort provision of participating countries and the necessity of inducing countries to ratify the agreement. This mechanism can be approximated by a simple menu with attractive implementation and robustness properties. Limits on enforcement and commitment might nevertheless hinder the performance of this menu, making the “business as usual” scenario more likely.
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Suggested Citation

  • David Martimort & Wilfried Sand-Zantman, 2016. "A Mechanism Design Approach To Climate-Change Agreements," Journal of the European Economic Association, European Economic Association, vol. 14(3), pages 669-718, June.
  • Handle: RePEc:bla:jeurec:v:14:y:2016:i:3:p:669-718
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    File URL: http://hdl.handle.net/10.1111/jeea.2016.14.issue-3
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    Cited by:

    1. Dooseok Jang & Amrish Patel & Martin Dufwenberg, 2016. "Co-financing agreements and reciprocity: When 'no deal' is a good deal," University of East Anglia School of Economics Working Paper Series 2016-12, School of Economics, University of East Anglia, Norwich, UK..
    2. Billette de Villemeur, Etienne & Leroux, Justin, 2016. "A liability approach to climate policy: A thought experiment," MPRA Paper 75497, University Library of Munich, Germany.
    3. Carsten Helm & Franz Wirl, 2016. "Climate Policies with Private Information: The Case for Unilateral Action," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(4), pages 893-916.
    4. Chiroleu-Assouline, Mireille & Poudou, Jean-Christophe & Roussel, Sébastien, 2018. "Designing REDD+ contracts to resolve additionality issues," Resource and Energy Economics, Elsevier, vol. 51(C), pages 1-17.
    5. Guy Meunier & Juan-Pablo Montero & Jean-Pierre Ponssard, 2016. "Output-based allocations in pollution markets with uncertainty and self-selection," Working Papers hal-01321372, HAL.

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