Conference Agenda

We establish the existence of a Lindahl equilibrium in a dynamic, uncertain world with externalities and provide an algorithm to compute it. The resulting allocation is efficient, time-consistent, and implementable with emissions trading in a climate setting. We quantify the regional welfare effects of climate cooperation by building on a standard integrated assessment model, and incorporating uncertainty and negative emissions. Compared with competition in emissions, farsighted cooperation benefits everyone and yields the largest relative gains for low-income regions through three channels: lower damages under the efficient path, burden sharing of abatement consistent with efficiency, and equilibrium compensations that internalize the public-good externality. Unlike prior work, we show that a Lindahl equilibrium is not necessarily in the core, and that, quantitatively, free-riding remains profitable. Yet the net compensations required to support Lindahl's equilibrium are modest, billions of U.S.\ dollars, compared with benefits in the trillions–suggesting room for international climate negotiations.