Julien Beccherle, and Jean Tirole, “Regional Initiatives and the Cost of Delaying Binding Climate Change Agreements”, Journal of Public Economics, vol. 95, December 2011, pp. 1339–1348.
The Kyoto and Copenhagen Protocols on climate change mitigation postponed the specification of binding commitments to a future negotiation. This paper analyzes the strategic implications of delayed negotiations. While, as is well-understood, the incentive to free ride leads to excessive emissions prior to a binding agreement, the cost of delay is magnified by players' attempt to secure a favorable bargaining position in the future negotiation. A "brinkmanship", an "effort substitution", and a "raising rival's cost" effects all concur to generate high post-agreement emissions. The paper applies this general insight to the issuance of forward or bankable permits.