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Compliance Technology and Self-Enforcing Agreements

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Listed:
  • 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 Group Munich.
  • Handle: RePEc:ces:ceswps:_5562
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bård Harstad, 2018. "Pledge-and-Review Bargaining," CESifo Working Paper Series 7296, CESifo Group Munich.
    2. Bård Harstad, 2016. "The Dynamics of Climate Agreements," Journal of the European Economic Association, European Economic Association, vol. 14(3), pages 719-752.
    3. Rubio, Santiago J., 2018. "Self-Enforcing International Environmental Agreements: Adaptation and Complementarity," ETA: Economic Theory and Applications 276179, Fondazione Eni Enrico Mattei (FEEM).
    4. 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.
    5. Bård Harstad & Francesco Lancia & Alessia Russo, 2015. "Compliance Technology and Self-Enforcing Agreements," CESifo Working Paper Series 5562, CESifo Group Munich.
    6. Fortuna Casoria & Alice Ciccone, 2019. "Do upfront investments increase cooperation? A laboratory experiment," Working Papers 1918, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    7. Maija Halonen-Akatwijuka & Evagelos Pafilis, 2018. "Common Ownership of Public Goods," Bristol Economics Discussion Papers 18/700, Department of Economics, University of Bristol, UK.
    8. Suzi Kerr & Steffen Lippert & Edmund Lou, 2019. "Financial Transfers and Climate Cooperation," Working Papers 19_04, Motu Economic and Public Policy Research.

    More about this item

    Keywords

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

    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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