A Mechanism Design Approach to Climate-Change Agreements

David Martimort (1, 2) , Wilfried Sand-Zantman (3, 4)

1 PSE - Paris-Jourdan Sciences Economiques
2 PSE - Paris School of Economics
3 TSE-R - Toulouse School of Economics
4 GREMAQ - Groupe de recherche en économie mathématique et quantitative

We take a mechanism design perspective to investigate how environmental agreements should account for multilateral externalities, incentive compatibility, and voluntary participation by sovereign countries. The optimal mechanism involves a tradeoff between a free rider problem in the effort provision of participating countries and the necessity of inducing countries to ratify the agreement. This mechanism can be approximated by a simple menu with attractive implementation and robustness properties. Limits on enforcement and commitment might nevertheless hinder the performance of this menu, making the “business as usual” scenario more likely.

Mots clés: environmental taxes

Domaines: Economies et finances

David Martimort, Wilfried Sand-Zantman. A Mechanism Design Approach to Climate-Change Agreements . Journal of the European Economic Association, 2016, 16 (3), pp.669-718. ⟨10.1111/jeea.12150⟩. ⟨halshs-01513309⟩