Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/223532
Authors: 
Harstad, Bård
Lancia, Francesco
Russo, Alessia
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8460
Abstract: 
We characterize the optimal policy and policy instruments for self-enforcing treaties when countries invest in green technology before they pollute. If the discount factor is too small to support the first best, then both emissions and investments will be larger than in the first best, when technology is expensive. When technology is inexpensive, countries must instead limit or tax green investment in order to make future punishment credible. We also uncover a novel advantage of price regulation over quantity regulation, namely that when regulation is sufficiently flexible to permit firms to react to non-compliance in another country, the temptation to defect is reduced. The model is tractable and allows for multiple extensions.
Subjects: 
climate change
environmental agreements
green technology
policy instruments
repeated games
compliance
self-enforcing treaties
JEL: 
D86
F53
H87
Q54
Document Type: 
Working Paper

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