Cap, Insure & Compensate: Domestic Policies and the Ratification of International Environmental Agreements

16 Pages Posted: 27 Apr 2013

See all articles by Jobst Heitzig

Jobst Heitzig

Potsdam-Institut für Klimafolgenforschung (PIK)

Ottmar Edenhofer

Potsdam Institute for Climate Impact Research (PIK); Mercator Research Institute on Global Commons and Climate Change (MCC); Technische Universität Berlin (TU Berlin)

Date Written: April 26, 2013

Abstract

Using Putnam’s two‐level game approach, we discuss the influence of domestic players that can veto the ratification of international environmental agreements on the breadth and depth of such treaties. We first show that in a symmetric Barrett‐type payoff model, veto-players can restrict the bargaining set so that either all or only non‐grand coalitions become “modest” endogenously, making the grand coalition stable and leading to either “broad but shallow” or “broad and deep” treaties, depending on the exact payoff function of the veto players. We then discuss the possibility of compensating veto‐players via domestic policies and the involved timing and commitment problems, and present the novel policy scheme of “cap, insure & compensate” to overcome these problems. In this scheme, the government negotiates an international emissions cap, insures households against climate‐related damages and uses the premium to compensate the domestic veto‐player for its abatement costs, thus ensuring the ratification of the treaty. We finally analyze the performance of this scheme in a simple two‐period model.

Keywords: two‐level game, veto player, stable coalition, modesty, side‐payment, timing

JEL Classification: Q48, H41, O13, G22, D19, D99, D61, H59

Suggested Citation

Heitzig, Jobst and Edenhofer, Ottmar, Cap, Insure & Compensate: Domestic Policies and the Ratification of International Environmental Agreements (April 26, 2013). Available at SSRN: https://ssrn.com/abstract=2256875 or http://dx.doi.org/10.2139/ssrn.2256875

Jobst Heitzig (Contact Author)

Potsdam-Institut für Klimafolgenforschung (PIK) ( email )

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HOME PAGE: http://www.pik-potsdam.de/members/heitzig

Ottmar Edenhofer

Potsdam Institute for Climate Impact Research (PIK) ( email )

P.O. Box 601203
14412 Potsdam, Brandenburg
Germany

Mercator Research Institute on Global Commons and Climate Change (MCC)

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Germany

Technische Universität Berlin (TU Berlin)

Straße des 17
Juni 135
Berlin, 10623
Germany

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