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  The strategic dimension of financing global public goods

Kornek, U., Edenhofer, O. (2020): The strategic dimension of financing global public goods. - European Economic Review, 127, 103423.
https://doi.org/10.1016/j.euroecorev.2020.103423

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Kornek, U.1, ???ENUM_CREATORROLE_AUTHOR???
Edenhofer, Ottmar2, ???ENUM_CREATORROLE_AUTHOR???                 
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1External Organizations, ou_persistent22              
2Potsdam Institute for Climate Impact Research, ou_persistent13              

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 ???ViewItemFull_lblAbstract???: One challenge in addressing transboundary problems such as climate change is the incentive to free-ride. Transfers from multilateral compensation funds are often used to counteract such incentives, albeit with varying success. We examine how such funds can change the incentive to free-ride in a global public-goods game. In our game, self-interested countries choose their own preferred course, deciding their voluntary public good provision, whether to join a fund that offers compensation for providing the public good and the volume of compensatory payments. We show that (i) total public-good provision is higher when those contributing are given more compensation; and (ii) non-participation in the fund can be punished if the remaining members decrease their public-good provision sufficiently. We then examine three specific fund designs. In the first, the compensation paid to each country is equal to the percentage of above-average total costs for public-goods provision. This design is best able to deter free-riding and can establish the social optimum as the equilibrium. In the second, the compensation paid to each country is a function of the marginal cost of their public-good provision. Here there are significant incentives to free-ride. In the third case, the monetary resources provided by the fund are fixed, a design frequently encountered in international funds. This design is the one least able to deter free-riding.

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 ???ViewItemFull_lblDates???: 2020-03-092020-03-092020
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 ???ViewItemFull_lblIdentifiers???: ???ENUM_IDENTIFIERTYPE_DOI???: 10.1016/j.euroecorev.2020.103423
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???ENUM_IDENTIFIERTYPE_PIKDOMAIN???: RD5 - Climate Economics and Policy - MCC Berlin
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???ViewItemFull_lblSourceTitle???: European Economic Review
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???ENUM_IDENTIFIERTYPE_OTHER???: Elsevier
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