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The Dynamics Of Climate Agreements

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  • Bård Harstad

Abstract

I develop a dynamic model of private provision of public bads allowing investments in technologies. The analysis is tractable and the MPE unique. The framework is used to derive optimal incomplete contracts in a dynamic setting. While the noncooperative equilibrium is very inefficient, short-term contracts can be worse due to hold-up problems. The optimal long-term contract is more ambitious if its length is relatively short and the technological spillover large. The optimal length increases in this externality. With renegotiation, the outcome is first best. The results have several implications for how to design a climate treaty.
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  • Bård Harstad, 2016. "The Dynamics Of Climate Agreements," Journal of the European Economic Association, European Economic Association, vol. 14(3), pages 719-752, June.
  • Handle: RePEc:bla:jeurec:v:14:y:2016:i:3:p:719-752
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    File URL: http://hdl.handle.net/10.1111/jeea.2016.14.issue-3
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    More about this item

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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