Potentially Harmful International Cooperation on Global Public Good Provision. (30th January 2014) - Buchholz, Wolfgang
Abstract Experience from climate policy suggests that full cooperation among all countries is not a likely outcome. In this paper we therefore consider the case where only members of a subgroup of countries cooperate by reciprocally matching their public good contributions. In a two‐stage game, matching rates are set at stage 1 then national contributions are chosen at stage 2. In the case of small coalitions, negative matching may result in the subgame‐perfect equilibrium that decreases global public good provision and outsiders' welfare. Moreover, a growing number of countries may paradoxically entail a reduction of equilibrium public good supply.