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Compliance Technology and Self-Enforcing Agreements

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  • Bård Harstad
  • Francesco Lancia
  • Alessia Russo

Abstract

We analyze a repeated game in which countries are polluting as well as investing in technologies. While folk theorems point out that the first best can be sustained as a subgame-perfect equilibrium when the players are sufficiently patient, we derive the second best equilibrium when they are not. This equilibrium is distorted in that countries over-invest in technologies that are “green” (i.e., strategic substitutes for polluting) but under-invest in adaptation and “brown” technologies (i.e., strategic complements to polluting). It is in particular countries which are small or benefit little from cooperation that will be required to strategically invest in this way. With imperfect monitoring or uncertainty, such strategic investments reduce the need for a long, costly punishment phase and the probability that punishment will be triggered.

Suggested Citation

  • Bård Harstad & Francesco Lancia & Alessia Russo, 2015. "Compliance Technology and Self-Enforcing Agreements," CESifo Working Paper Series 5562, CESifo.
    • Handle: RePEc:ces:ceswps:_5562
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    4. Ingmar Schumacher, 2019. "Climate Policy Must Favour Mitigation Over Adaptation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(4), pages 1519-1531, December.
    5. Bård Harstad, 2016. "The Dynamics of Climate Agreements," Journal of the European Economic Association, European Economic Association, vol. 14(3), pages 719-752.
    6. Rubio, Santiago J., 2018. "Self-Enforcing International Environmental Agreements: Adaptation and Complementarity," ETA: Economic Theory and Applications 276179, Fondazione Eni Enrico Mattei (FEEM).
    7. Eugenie Dugoua, 2023. "Induced innovation and international environmental agreements: Evidence from the ozone regime," CEP Discussion Papers dp1947, Centre for Economic Performance, LSE.
    8. Marco Battaglini & Bård Harstad, 2016. "Participation and Duration of Environmental Agreements," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 160-204.
    9. Kováč, Eugen & Schmidt, Robert C., 2021. "A simple dynamic climate cooperation model," Journal of Public Economics, Elsevier, vol. 194(C).
    10. Bård Harstad & Francesco Lancia & Alessia Russo, 2019. "Compliance Technology and Self-enforcing Agreements," Journal of the European Economic Association, European Economic Association, vol. 17(1), pages 1-29.
    11. Harstad, Bård & Lancia, Francesco & Russo, Alessia, 2022. "Prices vs. quantities for self-enforcing agreements," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    12. Casoria, Fortuna & Ciccone, Alice, 2021. "Do upfront investments increase cooperation? A laboratory experiment," European Economic Review, Elsevier, vol. 140(C).
    13. Miguel Borrero & Santiago J. Rubio, 2022. "An adaptation-mitigation game: does adaptation promote participation in international environmental agreements?," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 22(3), pages 439-479, September.
    14. Bärd Harstad & Francesco Lancia & Alessia Russo, 2020. "Policies and Instruments for Self-Enforcing Treaties," CSEF Working Papers 572, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    15. Dugoua, Eugenie, 2021. "Induced innovation and international environmental agreements: evidence from the Ozone regime," LSE Research Online Documents on Economics 110859, London School of Economics and Political Science, LSE Library.
    16. Eugenie Dugoua, 2023. "Induced Innovation and International Environmental Agreements: Evidence from the Ozone Regime," CESifo Working Paper Series 10669, CESifo.
    17. Dugoua, Eugenie, 2023. "Induced innovation and international environmental agreements: evidence from the ozone regime," LSE Research Online Documents on Economics 121317, London School of Economics and Political Science, LSE Library.
    18. Halonen-Akatwijuka, Maija & Pafilis, Evagelos, 2020. "Common ownership of public goods," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 555-578.
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    More about this item

    Keywords

    climate change; environmental agreements; green technology; imperfect monitoring; policy instruments; repeated games; self-enforcing treaties;
    All these keywords.

    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
    • 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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