A bargaining experiment on heterogeneity and side deals in climate negotiations

Abstract

The recent global climate change agreement in Paris leaves a wide gap between pledged and requisite emissions reductions in keeping with the commonly accepted 2 °C target. A recent strand of theoretical and experimental evidence establishes pessimistic predictions concerning the ability of comprehensive global environmental agreements to improve upon the business-as-usual trajectory. We introduce an economic experiment focusing on the dynamics of the negotiation process by observing subjects’ behavior in a Nash bargaining game. Throughout repeated rounds, heterogeneous players bargain over the allocation of a fixed amount of profit-generating emissions with significant losses attached to prolonged failure to reach agreement. We find that the existence of side agreements that constrain individual demands among a subset of like countries does not ensure success; however, such side agreements reduce the demands of high-emission parties. Our results highlight the importance of strong signals among high emitters in reaching agreement to shoulder a collective emission reduction target.