Pledge-and-review bargaining

The procedure repeats itself periodically, as newly developed technology makes the earlier pledges obsolete.

This event analyses a dynamic model of the pledge-and-review process and derives three main results:

(1) If there is slight uncertainty on the set of pledges that is acceptable, each equilibrium pledge coincides with the asymmetric Nash Bargaining Solution, and the weights placed on the others' payoffs reflect the underlying uncertainty. Since the weights vary from pledge to pledge, the set of equilibrium pledges is inefficient.

(2) Each party contributes too little to the public good, the incentive to develop new technology is weak, and the optimal period length is large.

(3) This result is overturned when participation to the treaty is endogenous: the undemanding treaty motivates more countries to participate, and this increases aggregate contributions, technology investments, and welfare, and reduces the optimal period length.

The analysis sheds light on key differences between the climate agreements signed in Kyoto (1997) and Paris (2015) and rationalizes the development from the former to the latter.