Collective Action in an Asymmetric World

Abstract

A central authority possessing tax and expenditure responsibilities can readily provide an efficient level of a public good. Absent a central authority, voluntary arrangements must replace coercive ones. Significant under-provision must be expected. International public goods are particularly challenging because of the strong asymmetries among nations. We identify a solution, the Cheap-Riding Efficient Equilibrium, that defines the relative contributions of players in differing size (or preference intensity) to reflect cheap riding incentives, yet still achieves Pareto optimality. Players start by establishing the Alliance/Nash Equilibrium as a base point. From that point they apply either the principles of the Nash Bargaining Solution or the Lindahl Equilibrium to proceed to the Pareto frontier. We apply our theory to climate change mitigation, a critical international public good. Having examined the Nordhaus Climate Club proposal, we test the Alliance/Nash Equilibrium model using individual nations' Intended Nationally Determined Contributions pledged at the Paris Climate Change Conference. As hypothesized, larger nations made much larger pledges in proportion to their Gross National Incomes.