Conference Agenda

Existing international environmental institutions curb fossil fuels by rewarding countries for reducing demand

and expanding substitutes. This paper argues that it would be beneficial to create new institutions that would

reward countries for reducing their fossil fuel supply. Assuming complete information, I prove a Price Preservation

Lemma: For any given budget, the optimal way to split the budget between the three approaches (rewarding

supply reduction, demand reduction and substitute expansion) leaves the world market price of the fossil fuel

unchanged. In a dynamic setting, this result holds under full commitment for any given intertemporal budget at

the global institution’s disposal. Using this Lemma, I show that the optimum cannot be implemented by relying

on the supply side entirely on a deposit purchase fund. The results suggest that it would be valuable to also

create funds rewarding countries for taxing fossil fuel extraction.

In a two-stage global public good coalition formation game, Kornek and Edenhofer (2020) propose a transfer scheme in the spirit of mechanism design which allows to stabilize large coalitions, including the grand coalition. The transfer scheme addresses the free-rider problem in terms of participation. In order to address the free-rider problem in terms of compliance, they propose a deposit refund system in the spirit of Gerber and Wichardt (2009) and others. However, the exact timing when deposits have to be paid and are refunded remains somehow vague. Moreover, they do not consider asymmetric countries. In this paper, we clarify the timing of deposits and show that their transfer scheme also works for asymmetric countries. It emerges that it is promising to generalize further the setting of Kornek and Edenhofer (2020).

We study the formation of international environmental agreements in a standard two-stage coalition formation model when countries exhibit other-regarding preferences. We adopt Fehr & Schmidt (1999) inequality aversion, where countries suffer disutility from payoff differences, with potentially different weights on advantageous and disadvantageous inequality. Countries are homogeneous in material payoffs but heterogeneous in their social-preference parameters. We show that equilibrium abatement choices are symmetric within membership groups: coalition members choose a common abatement level and free-riding outsiders also choose a common (generally different) abatement level. Relative to the benchmark without other-regarding preferences, coalition members reduce abatement, while outsiders increase abatement. Turning to membership decisions, other-regarding preferences can increase stable coalition size, but this effect is typically modest. We further obtain systematic self-sorting into membership status depending on countries' degrees of advantageous and disadvantageous inequality aversion. A numerical illustration demonstrates that other-regarding preferences can substantially mitigate the public-good provision problem, mainly because they raise outsiders' abatement rather than because they generate much larger coalitions.

Carbon dioxide removal (CDR) technologies are central to most climate mitigation pathways, yet their future availability risks weakening current abatement efforts—a phenomenon known as mitigation deterrence. This paper develops a transparent two-period benchmark model to explore how political economy forces and behavioral biases shape intertemporal climate choices. We allow for general functional forms as well as uncertainty about climate damages and CDR costs. We further demonstrate the framework’s flexibility by extending it with a simple political-economy module in which lobbying over mitigation and future CDR systematically depresses abatement. The model provides a useful starting point for future research on the complex interactions between CDR expectations, current mitigation efforts, and climate policy.