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David Martimort, Wilfried Sand-Zantman, A Mechanism Design Approach to Climate-Change Agreements, Journal of the European Economic Association, Volume 14, Issue 3, 1 June 2016, Pages 669–718, https://doi.org/10.1111/jeea.12150
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Abstract
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.