Financial Transfers and Climate Cooperation
46 Pages Posted: 8 Nov 2019
Date Written: March 29, 2019
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.
Keywords: game theory, cooperation, repeated games, climate change, international agreement
JEL Classification: C37, Q54, Q56, Q58, F55, F53
Suggested Citation: Suggested Citation