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A bargaining experiment on heterogeneity and side deals in climate negotiations

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  • Greer Gosnell
  • Alessandro Tavoni

Abstract

The recent global climate change agreement in Paris leaves a wide gap between pledged and requisite emissions reductions in keeping with the commonly accepted 2°C target. A recent strand of theoretical and experimental evidence establishes pessimistic predictions concerning the ability of comprehensive global environmental agreements to improve upon the business-as-usual trajectory. We introduce an economic experiment focusing on the dynamics of the negotiation process by observing subjects’ behavior in a Nash bargaining game. Throughout repeated rounds, heterogeneous players bargain over the allocation of a fixed amount of profit-generating emissions with significant losses attached to prolonged failure to reach agreement. We find that the existence of side agreements that constrain individual demands among a subset of like countries does not ensure success; however, such side agreements reduce the demands of high-emission parties. Our results highlight the importance of strong signals amongst high emitters in reaching agreement to shoulder a collective emissions reduction target.

Suggested Citation

  • Greer Gosnell & Alessandro Tavoni, 2016. "A bargaining experiment on heterogeneity and side deals in climate negotiations," GRI Working Papers 249, Grantham Research Institute on Climate Change and the Environment.
  • Handle: RePEc:lsg:lsgwps:wp249
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, October.
    3. Robert Falkner & Hannes Stephan & John Vogler, 2010. "International climate policy after Copenhagen: towards a �building blocks� approach," GRI Working Papers 21, Grantham Research Institute on Climate Change and the Environment.
    4. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    5. David G. Victor, 2006. "Toward Effective International Cooperation on Climate Change: Numbers, Interests and Institutions," Global Environmental Politics, MIT Press, vol. 6(3), pages 90-103, August.
    6. Tavoni, Alessandro & Dannenberg, Astrid & Kallis, Giorgos & Löschel, Andreas, 2011. "Inequality, communication and the avoidance of disastrous climate change," LSE Research Online Documents on Economics 37570, London School of Economics and Political Science, LSE Library.
    7. Forsythe Robert & Horowitz Joel L. & Savin N. E. & Sefton Martin, 1994. "Fairness in Simple Bargaining Experiments," Games and Economic Behavior, Elsevier, vol. 6(3), pages 347-369, May.
    8. Hasson, Reviva & Löfgren, Åsa & Visser, Martine, 2010. "Climate change in a public goods game: Investment decision in mitigation versus adaptation," Ecological Economics, Elsevier, vol. 70(2), pages 331-338, December.
    9. Astrid Dannenberg & Andreas Löschel & Gabriele Paolacci & Christiane Reif & Alessandro Tavoni, 2015. "On the Provision of Public Goods with Probabilistic and Ambiguous Thresholds," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(3), pages 365-383, July.
    10. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
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