Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 23/2008: Pareto-Efficient Climate Agreements Can Always Be Renegotiation-Proof

Geir B. Asheim () and Bjart Holtsmark ()
Additional contact information
Geir B. Asheim: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Bjart Holtsmark: Statistics Norway, Postal: P.O.Box 8131 Dep, N-0033 Oslo , Norway

Abstract: Recent contributions show that climate agreements with broad participation can be implemented as weakly renegotiation-proof equilibria in simple models of greenhouse gas abatement where each country has a binary choice between cooperating (i.e., abate emissions) or defecting (no abatement). Here we show that this result carries over to a model where countries have a continuum of emission choices. Indeed, a Pareto-efficient climate agreement can always be implemented as a weakly renegotiation-proof equilibrium, for a sufficiently high discount factor. This means that one need not trade-off a “narrow but deep” treaty with a “broad but shallow” treaty.

Keywords: Climate agreements; Pareto-effiency; greenhouse gases

JEL-codes: A10

22 pages, August 12, 2008

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