PEW: Bard Harstad

Mon, Sep 17, 2018, 4:30 pm

Inspired by the Paris Agreement on climate change, this paper analyzes a novel bargaining game in which each party quantifies its own contribution (to a public good, for example), before the set of pledges must be accepted. I first show that, if the tolerance for delay is uncertain, each equilibrium pledge coincides with an asymmetric Nash bargaining solution. The weights placed on others' payoffs reflect the underlying uncertainty, but they vary from pledge to pledge, so the set of equilibrium pledges is inefficient. This bargaining outcome is embedded in a dynamic contribution game, with endogenous technology, participation, enforcement, and contract terms, to investigate when pledge-and-review bargaining is desirable. The model's predictions can rationalize the key differences between the climate agreements signed in Kyoto (1997) and Paris (2015) and the development from the former to the latter.

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