Avoiding Catastrophic Climate Change: Heterogeneous Abatement Costs and Voting on Redistribution in a Threshold Public Good Experiment

Abstract

Achieving the goal of limiting global warming is challenging, as it requires national contributions, whereas the benefits are shared between contributors and free-riders. We model this global climate problem as a collective-risk social dilemma (CRSD), a threshold public good game, and analyse the effectiveness of a frequently discussed instrument of global climate policy, namely climate-related transfers. Our CRSD experiment captures the incentive structure inherent in the social dilemma of global emission reductions, i.e., the heterogeneous distribution of wealth and marginal abatement costs (MAC). We find that introducing the option to vote on transfers for rich subjects increases the likelihood of reaching the threshold within the CRSD. A key mechanism is the shift of contributions from rich high-MAC subjects to poor low-MAC subjects, which reduces the costs of reaching the threshold. As a result, overall welfare is higher with redistribution and both rich and poor subjects benefit in terms of higher payoffs. Additional treatments show that the results are not driven by reciprocity or self-selection and that non-climate-related transfers may be similarly effective in increasing the likelihood of reaching the threshold, but less cost efficient. Our findings highlight the importance of climate-related transfers for limiting global warming at least cost to society.

Keywords: climate change, collective-risk social dilemma, global public good, experiment, marginal abatement costs, redistribution

JEL Classification: C72, C92, D74, H41, Q54