Does It Pay to Play? How Bargaining Shapes Donor Participation in the Funding of Environmental Protection∗

Multilateral funding for global environmental protection, such as biodiversity conservation, requires donor participation. When are donors willing to participate? We examine a game-theoretic model of multilateral funding for environmental projects in developing countries. Donors must first decide whether to participate in a multilateral institution. They do so in anticipation of a bargaining outcome that depends on their participation decisions. The multilateral institution then bargains with a recipient over the distribution of gains from project implementation. We find that the donors’ and the recipient’s vulnerability to negative environmental externalities have diverging effects on their participation behavior. As donors’ vulnerability to negative externalities increases, their bargaining power decreases and fewer donors participate. But as the recipient’s vulnerability increases, more donors participate because their bargaining power grows. These findings can illuminate bargaining over multilateral climate finance and inform the design of international institutions. ∗This paper was written during a research stay funded by an ERP fellowship of the Studienstiftung des deutschen Volkes. Patrick Bayer gratefully acknowledges this generous funding and is thankful for the hospitality of Columbia University. We thank Christopher Marcoux, Michael Rubin, Ariel Dinar, and the reviewers for insightful comments on a previous draft. An online appendix contains model extensions and technical details. †Corresponding author. Department of Political Science, University of Mannheim, D7, 27, 68131 Mannheim, Germany. Phone: + 49 621 181 2418. Email: [email protected]