ACHIEVING EFFECTIVE CLIMATE POLICY: The relative importance of making global agreements and caring about future generations

A small increase in international cooperation would do more to achieve stronger climate policy compared with a small increase in how much we are concerned about generations in the distant future. But a large increase in ''intergenerational altruism'' potentially does more to achieve stronger policy compared with a large increase in countries working together to combat climate change.

These are among the conclusions of new research by Professor Larry Karp, published in the December 2017 issue of the Economic Journal. His study assesses the relative importance of international cooperation and intergenerational altruism in achieving effective climate policy.

He begins by noting that since climate-related damages are likely to be global and to persist for many hundreds of years, effective climate policy requires both a high degree of international cooperation and significant concern for future generations:

• Even if policy-makers achieved a high level of international cooperation, they would not be willing to undertake meaningful climate policy if they care little about distant generations.

• And even if policy-makers care deeply about future inhabitants of their own countries, it would not be rational for them to undertake significant policy unilaterally: greenhouse gases are a global pollutant, so other countries enjoy much of the benefit from a single country''s reduced emissions.

A common narrative asserts that countries have an incentive to delay climate policy until the problem becomes severe. Higher concentrations of greenhouse gases increase the likely severity of the climate problem.

This narrative implies that a country''s rational response to other countries'' reduced emissions – and the resulting lower atmospheric carbon stocks – is to relax their own climate regulations. To the extent that other countries ameliorate the climate problem, it becomes less important for any individual country to incur costs to reduce their own emissions.

This outcome is described by saying that climate policies are ''dynamic strategic substitutes'', which means that greater effort on the part of a group of countries leads to lower equilibrium effort by other countries in the future. This ''free-riding'' incentive leads to pessimism about the chances of a meaningful climate agreement among sovereign countries, which cannot bind themselves to enforceable agreements.

There may be many outcomes – or ''equilibria'' – in the type of game studied in this research. Climate policies might be dynamic strategic substitutes, as the familiar narrative asserts.

But Professor Karp shows that there are other plausible equilibria in which one country''s decision to implement emissions reduction causes other countries to reduce their own future emissions too. In this case, climate policies are ''dynamic strategic complements''.

The recognition of this possibility moderates the pessimism implied by the usual narrative. International negotiations make coordination on a good equilibrium easier to achieve, and thus are important when countries'' sovereignty makes it difficult to achieve an enforceable agreement.

''Provision of a Public Good with Multiple Dynasties'' by Larry Karp is published in the December 2017 issue of the Economic Journal. Larry Karp is in the Department of Agricultural and Resource Economics at the University of California, Berkeley.