Compliance Technology and Self-Enforcing Agreements

46 Pages Posted: 18 Nov 2015

See all articles by Bård Harstad

Bård Harstad

University of Oslo - Department of Economics

Francesco Lancia

University of Salerno; Centre for Economic Policy Research (CEPR); University of Naples Federico II - CSEF - Center for Studies in Economics and Finance

Alessia Russo

University of Oslo - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 20, 2015

Abstract

We analyze a repeated game in which countries are polluting as well as investing in technologies. While folk theorems point out that the first best can be sustained as a subgame-perfect equilibrium when the players are sufficiently patient, we derive the second best equilibrium when they are not. This equilibrium is distorted in that countries over-invest in technologies that are “green” (i.e., strategic substitutes for polluting) but under-invest in adaptation and “brown” technologies (i.e., strategic complements to polluting). It is in particular countries which are small or benefit little from cooperation that will be required to strategically invest in this way. With imperfect monitoring or uncertainty, such strategic investments reduce the need for a long, costly punishment phase and the probability that punishment will be triggered.

Keywords: climate change, environmental agreements, green technology, imperfect monitoring, policy instruments, repeated games, self-enforcing treaties

JEL Classification: D860, F530, H870, Q540

Suggested Citation

Harstad, Bard and Lancia, Francesco and Russo, Alessia, Compliance Technology and Self-Enforcing Agreements (October 20, 2015). CESifo Working Paper Series No. 5562, Available at SSRN: https://ssrn.com/abstract=2691965

Bard Harstad (Contact Author)

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

HOME PAGE: http://www.sv.uio.no/econ/english/people/aca/bardh/

Francesco Lancia

University of Salerno ( email )

Via Giovanni Paolo II, 132
Fisciano, Salerno 84084
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

University of Naples Federico II - CSEF - Center for Studies in Economics and Finance ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Alessia Russo

University of Oslo - Department of Economics ( email )

Oslo
Norway

HOME PAGE: http://https://sites.google.com/site/alessiarecon/

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