The Dynamics of Climate Agreements

Abstract

I provide a novel dynamic model with private provision of public bads and investments in technologies. The analysis is tractable and the MPE unique. By adding incomplete contracts, I derive implications of and for international climate treaties. While the non-cooperative equilibrium is bad, short-term agreements are worse due to hold-up problems. A long-term agreement should be more ambitious if it is relatively short-lasting and the technological externality large. The length itself should increase in this externality. With renegotiation, the outcome is first best. The technological externalities are related to trade agreements, making them strategic substitutes to climate treaties.