Free-riding and cooperation in environmental games

This paper examines the negotiation of an international environmental agreement in which di¤erent countries determine the (nonenforceable) promises of investment in clean technologies to be included in the agreement. Furthermore, it analyzes countries’ optimal investments in clean technologies, considering that, in addition to the utility that countries perceive from an improved environmental quality, they are also concerned about each others’ful…llment of the terms speci…ed in the international agreement, what enters as a reference point in the countries’ utility function. This paper shows, …rst, why countries may prefer to shift most promises of investment in clean technologies included in the agreement to other countries, despite of the fact that these promises are usually nonenforceable by any international organization. Secondly, I determine countries’ optimal investments in these technologies, and analyze how their particular investments depend on how demanding is the international agreement, and on the importance that countries assign to other countries’ful…llment of their part of the treaty.