Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/123204
Authors: 
Harstad, Bård
Lancia, Francesco
Russo, Alessia
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5562
Abstract: 
We analyze a repeated game in which countries are polluting as well as investing in technologies. While folk theorems point out that the first best can be sustained as a subgame-perfect equilibrium when the players are sufficiently patient, we derive the second best equilibrium when they are not. This equilibrium is distorted in that countries over-invest in technologies that are “green” (i.e., strategic substitutes for polluting) but under-invest in adaptation and “brown” technologies (i.e., strategic complements to polluting). It is in particular countries which are small or benefit little from cooperation that will be required to strategically invest in this way. With imperfect monitoring or uncertainty, such strategic investments reduce the need for a long, costly punishment phase and the probability that punishment will be triggered.
Subjects: 
climate change
environmental agreements
green technology
imperfect monitoring
policy instruments
repeated games
self-enforcing treaties
JEL: 
D86
F53
H87
Q54
Document Type: 
Working Paper

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