Reference

David Martimort, and Wilfried Sand-Zantman, Accords Environnementaux : Le Marché Peut-il Réussir l’Arbitrage entre Incitations et Participation?, Revue Économique, vol. 65, n. 4, 2014, pp. 481–197.

Abstract

This article proposes a perspective on international climate agreements, based on mechanism design. We exhibit a trade-off between incentives and participation. We derive a general condition under which the first-best allocation can be implemented. We then discuss how this condition is affected by the assumptions on the status quo, in particular whether a non-cooperative or a grandfathering solution prevails when the negotiation fails. We show that, when the feasibility condition is satisfied, a market-based solution can indeed implement the first best allocation. At last, when the condition does not hold, we characterize the main properties of the second-best solution.

JEL codes

  • D62: Externalities
  • D82: Asymmetric and Private Information • Mechanism Design
  • Q54: Climate • Natural Disasters • Global Warming