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A Mechanism Design Approach to Climate Agreements

  • Martimort, David
  • Sand-Zantman, Wilfried

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.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 682.

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Date of creation: 31 Aug 2011
Date of revision: 30 Apr 2013
Publication status: Published in Journal of the European Economic Association, 2016.
Handle: RePEc:ide:wpaper:24929
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  1. Chander, P. & Tulkens, H., . "A core-theoretic solution for the design of cooperative agreements on transfrontier pollution," CORE Discussion Papers RP 1158, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. repec:zbw:hohpro:336-11 is not listed on IDEAS
  3. Beccherle, Julien & Tirole, Jean, 2010. "Regional Initiatives and the Cost of Delaying Binding Climate Change Agreements," IDEI Working Papers 628, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Martimort, David & Sand-Zantman, Wilfried, 2012. "Solving the GlobalWarming Problem: Beyond Markets, Simple Mechanisms May Help!," IDEI Working Papers 746, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, vol. 51(6), pages 1799-819, November.
  6. David Martimort & Humberto Moreira, 2010. "Common agency and public good provision under asymmetric information," Post-Print halshs-00754453, HAL.
  7. Chander, Parkash & Tulkens, Henry, 1994. "The Core of an Economy With Multilateral Environmental Externalities," Working Papers 886, California Institute of Technology, Division of the Humanities and Social Sciences.
  8. Hans Gersbach & Noemi Hummel & Ralph Winkler, 2011. "Sustainable Climate Treaties," CER-ETH Economics working paper series 11/146, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  9. Dieter Helm & Cameron Hepburn & Richard Mash, 2003. "Credible Carbon Policy," Oxford Review of Economic Policy, Oxford University Press, vol. 19(3), pages 438-450.
  10. Gersbach, Hans & Winkler, Ralph, 2007. "On the Design of Global Refunding and Climate Change," CEPR Discussion Papers 6379, C.E.P.R. Discussion Papers.
  11. Carsten Helm & Franz Wirl, 2011. "International Environmental Agreements: Incentive Contracts with Multilateral Externalities," Working Papers V-336-11, University of Oldenburg, Department of Economics, revised Jun 2011.
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