Cooperation on Climate-Change Mitigation†

We model greenhouse gas (GHG) emissions as a dynamic game. Countries’ emissions increase atmospheric concentrations of GHG, which negatively affects all countries' welfare. We analyze self-enforcing climate-change treaties that are supportable as subgame perfect equilibria. A simulation model illustrates conditions where a subgame perfect equilibrium supports the first-best outcome. In one of our simulations, which is based on current conditions, we explore the structure of a self-enforcing agreement that achieves optimal climate change policy, what such a solution might look like, and which countries have the most to gain from such a agreement. † The authors thank Stephen Salant, Akihiko Yanase, and the seminar participants at the University of Hawaii, the ASSA Meetings in 2007, Doshisha, Japan Economic Association Meeting, Hitotsubashi, Tokyo Tech, Tokyo, Tsukuba, Kobe, Keio University, and the Occasional Workshop on Environmental and Resource Economics. The authors are responsible for any remaining errors. Cooperation on Climate-Change Mitigation Abstract We model greenhouse gas (GHG) emissions as a dynamic game. Countries’ emissions increase atmospheric concentrations of GHG, which negatively affects all countries' welfare. We analyze self-enforcing climate-change treaties that are supportable as subgame perfect equilibria. A simulation model illustrates conditions where a subgame perfect equilibrium supports the first-best outcome. In one of our simulations, which is based on current conditions, we explore the structure of a self-enforcing agreement that achieves optimal climate change policy, what such a solution might look like, and which countries have the most to gain from such a agreement.We model greenhouse gas (GHG) emissions as a dynamic game. Countries’ emissions increase atmospheric concentrations of GHG, which negatively affects all countries' welfare. We analyze self-enforcing climate-change treaties that are supportable as subgame perfect equilibria. A simulation model illustrates conditions where a subgame perfect equilibrium supports the first-best outcome. In one of our simulations, which is based on current conditions, we explore the structure of a self-enforcing agreement that achieves optimal climate change policy, what such a solution might look like, and which countries have the most to gain from such a agreement.