Session 3: Other Strategies for International Cooperation Scott Barrett Johns Hopkins University School of Advanced International Studies

A second reason for MP’s success 2. By means of carrots, the MP got developing countries to cooperate. With homogeneous countries, side payments don’t help cooperation (Carraro-Siniscalco, 1993). With heterogeneous countries, side payments only make a material difference under possibly unrealistic assumptions (Chander-Tulkens, 1994). With strongly heterogeneous countries, side payments can facilitate cooperation (Barrett, 2001).

Model with Asymmetric Countries N countries; N 1 + N 2 = N. A country of type i (i = 1, 2) gets: Assume c > b 2 and Stage 3: All countries play Pollute.

Solution to Asymmetric Participation Game Stage 2: Stage 1:

Examples Ex. 1: N 1 = N 2 = 50, c = 100, and b 2 = 6; b 1 = 3,  1 = 0.5. Then there is just one equilibrium, {0,17}. Ex. 3: If b 1 = 5.9 and  1 = 0.9. Then there are six equilibria, {19,0}, {18,1}, {17,2}, {16,3}, {15,4}, and {0,17}.

Reformulated Game With strong asymmetry: –Stage 1: Type 2 countries choose to be a signatory or non-signatory. –Stage 2: Type 2 signatories choose collectively whether to play Abate or Pollute and a money side payment m to be paid to every Type 1 signatory. –Stage 3: Type 1 countries choose to be a signatory or non-signatory. –Stage 4: Non-signatories of both types choose to play Abate or Pollute.

Solution Stage 4: All non-signatories play Pollute. Stage 3: Each Type 1 country will join the treaty iff Stage 2: Type 2 signatories will play Abate if and will offer a money side payment if Stage 1:

Implications For Ex. 1, the equilibrium with side payments is {50,33}, whereas without side payments it was {0,17}. Before, the aggregate payoff was 5,950; now it is 17,800 (with full cooperation, it would be 23,700). Fairness.

Third reason for MP’s success 3. By means of a stick—the threat of a trade restriction—MP achieved full participation and deterred non-compliance.

Trade and public goods provision PP AA Underlying Free Trade Game Number of others that play AbateNumber of countries that play Abate Leakage Rate Though this game looks like the familiar PD, there is here substantial leakage.

Cooperation with trade restrictions nn ss nn ss IEA Game with Free TradeIEA Game with Trade Sanctions Number of other signatories

Final reasons for MP’s success 4. Threat to restrict trade against non-parties, made credible by substantial leakage. 5. Coordination achieved by minimum participation clause.

The difference Montreal made

Geographic Coordination Games Game 1Game 2

Analysis of Game 1 Countries have payoffs where z is the number of close neighbors that play Abate. Case 1: if b = 1 and c = 1.5, a country will play Abate provided two or more of its neighbors play Abate. There are several equilibria. Case 2: if b = 1 and c = 0.5, a country will play Abate provided at least one neighbor plays Abate. Here there are just two equilibria: in one, everyone plays Abate; in the other, no one plays Abate.

European Union Directives Europe harmonizes many standards. Why don’t all regions behave this way? Suppose c = 2.5 and b = 1. Then for Game 1 there is a unique equilibrium: no country plays Abate. For Game 2, there are two equilibria. In one, no country plays Abate. In the other, countries I, II, IV, and V play Abate and all others play Pollute. Closer integration provides the incentive for harmonization.

Automobiles Example Catalytic converters. Unleaded gasoline. European directives. Multilateral treaty: Agreement Concerning the Establishing of Global Technical Regulations for Wheeled Vehicles, Equipment and Parts (1998).

Oil Tanker Regulation (MARPOL)

Emission v. technology standards ESsTSs VerificationHardEasy 3-Mile Limit to Enforcement ProblemNo problem Prosecution by flag states only ProblemNo problem Need for reception facilities YesNo

Technology standards: positive feedbacks The more countries that adopt SBT, the greater is the incentive for others to adopt it. US unilateral adoption of SBT probably not sufficient for SBT to become a global standard (what is the tipping point?)? In creating a “level playing field,” the agreement appeared “fair” to tanker owners and operators.

Tanker treaty games

Lessons from the tanker study The performance standards treaty never entered into force. The technology standards treaty would only enter into force if half of all global tonnage participated. Currently there are 121 parties, making up 96% of global tonnage. Only a “second best” is sustained. The choice of instrument can be strategic.

Other reasons for Kyoto’s Failure (?) In contrast to the MP, few countries have an incentive to do much unilaterally. Trade restrictions difficult to implement; severe restrictions probably not credible.

Lessons not learned Different problems have different solutions. First best outcomes may not be sustainable. Enforcement is the greatest challenge; must devise effective and credible enforcement mechanisms before negotiating general obligations.

A better climate treaty(?) Cooperative R&D protocol. Technology standards protocols. Short term declaratory protocols. Adaptation assistance protocol. Though not ideal, there is no ideal treaty that is also enforceable. This may be the best second-best approach.