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Financial Transfers and Climate Cooperation

Author

Listed:
  • Suzi Kerr

    () (Motu Economic and Public Policy Research)

  • Steffen Lippert

    () (University of Auckland)

  • Edmund Lou

    () (Motu Economic and Public Policy Research)

Abstract

We investigate the impact of side-payments to countries that have a low net benefit from participating in efficient climate cooperation in a repeated games framework with investment in different technologies. We consider different timings of these payments and different degrees of commitment. If countries cannot commit ex ante to transfer funds to low-benefit participants to an agreement, then there is a trade-off. Investment based agreements, where transfers occur before emissions are realized, but after investments have been committed, maximize the scope of cooperation. Results-based agreements minimize transfers whenever these agreements implement cooperation. If countries can commit to transfer funds, then agreements in which countries with high benefits of climate cooperation pre-commit to results-based payments to countries with low benefits both maximize the scope of cooperation and minimize transfers.

Suggested Citation

  • Suzi Kerr & Steffen Lippert & Edmund Lou, 2019. "Financial Transfers and Climate Cooperation," Working Papers 19_04, Motu Economic and Public Policy Research.
  • Handle: RePEc:mtu:wpaper:19_04
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    References listed on IDEAS

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    1. David Martimort & Wilfried Sand-Zantman, 2016. "A Mechanism Design Approach To Climate-Change Agreements," Journal of the European Economic Association, European Economic Association, vol. 14(3), pages 669-718, June.
    2. Bård Harstad & Francesco Lancia & Alessia Russo, 2015. "Compliance Technology and Self-Enforcing Agreements," CESifo Working Paper Series 5562, CESifo Group Munich.
    3. Suzi C. Kerr, 2013. "The Economics of International Policy Agreements to Reduce Emissions from Deforestation and Degradation," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 7(1), pages 47-66, January.
    4. Dutta, Prajit K. & Radner, Roy, 2009. "A strategic analysis of global warming: Theory and some numbers," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 187-209, August.
    5. Beccherle, Julien & Tirole, Jean, 2011. "Regional initiatives and the cost of delaying binding climate change agreements," Journal of Public Economics, Elsevier, vol. 95(11), pages 1339-1348.
    6. David McEvoy & John Stranlund, 2009. "Self-enforcing International Environmental Agreements with Costly Monitoring for Compliance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 42(4), pages 491-508, April.
    7. Fong, Yuk-fai & Surti, Jay, 2009. "The optimal degree of cooperation in the repeated Prisoners' Dilemma with side payments," Games and Economic Behavior, Elsevier, vol. 67(1), pages 277-291, September.
    8. Suzi Kerr & Adam Millard-Ball, 2012. "Cooperation To Reduce Developing Country Emissions," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1-30.
    9. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796.
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    More about this item

    Keywords

    game theory; cooperation; repeated games; climate change; international agreement;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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