Compliance Technology and Self-enforcing Agreements

Bård Harstad, Francesco Lancia, & Alessia Russo

Photo: Journal of the European Economic Association

Published in:

Journal of the European Economic Association , Volume 17, Issue 1, January 2019.

DOI: 10.1093/jeea/jvy055


This paper analyzes a game in which countries repeatedly make emission and technology investment decisions. We derive the best equilibrium, that is, the Pareto-optimal subgame-perfect equilibrium, when countries are insufficiently patient for folk theorems to be relevant. Relative to the first best, the best equilibrium requires countries to overinvest in technologies that are green, that is, strategic substitutes for polluting, but to underinvest in adaptation and brown technologies, that is, strategic complements to polluting. Technological transfers and spillovers might discourage investments but can be necessary to motivate compliance with emissions when countries are heterogeneous.

Published July 23, 2019 5:18 PM - Last modified July 23, 2019 5:18 PM