Coordinating to avoid the catastrophe

Abstract

“Tipping points” for dangerous climate damages can transform climate protection into a coordination problem. If the location of the threshold is known, Nash equilibria exist in which the catastrophe is averted even without a climate agreement. However, there usually exists also an equilibrium in which no country exerts effort to prevent it, and the catastrophe occurs. We model equilibrium selection among non-cooperative countries with the help of an external randomization device, and analyze how it affects coalition formation. We find that results are much more nuanced than in the case where non-cooperative countries always coordinate on preventing the catastrophe. In some cases, a “coalition of free-riders” forms that is detrimental to welfare. In other cases, a “threshold equilibrium” emerges in which coalition members commit to do more than the outsiders, and the coalition is just large enough to become active. The grand coalition is also an equilibrium outcome, but is often unstable towards deviations by groups of countries.