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Policies and Instruments for Self-Enforcing Treaties

Author

Listed:
  • Bård Harstad
  • Francesco Lancia
  • Alessia Russo
Abstract
We characterize the optimal policy and policy instruments for self-enforcing treaties when countries invest in green technology before they pollute. If the discount factor is too small to support the first best, then both emissions and investments will be larger than in the first best, when technology is expensive. When technology is inexpensive, countries must instead limit or tax green investment in order to make future punishment credible. We also uncover a novel advantage of price regulation over quantity regulation, namely that when regulation is sufficiently flexible to permit firms to react to non-compliance in another country, the temptation to defect is reduced. The model is tractable and allows for multiple extensions.

Suggested Citation

  • Bård Harstad & Francesco Lancia & Alessia Russo, 2020. "Policies and Instruments for Self-Enforcing Treaties," CESifo Working Paper Series 8460, CESifo.
    • Handle: RePEc:ces:ceswps:_8460
    as

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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp8460.pdf
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    References listed on IDEAS

    as
    1. Daron Acemoglu & Ufuk Akcigit & Douglas Hanley & William Kerr, 2016. "Transition to Clean Technology," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 52-104.
    2. Bård Harstad & Francesco Lancia & Alessia Russo, 2019. "Compliance Technology and Self-enforcing Agreements," Journal of the European Economic Association, European Economic Association, vol. 17(1), pages 1-29.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    climate change; environmental agreements; green technology; policy instruments; repeated games; compliance; self-enforcing treaties;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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