Financial Mechanism and Enforceability of International Environmental Agreements

Abstract

We examine how international coordination among countries generates a trend towards establishing an international institution for the provision of global public goods. In the present model, the forces creating international agreement are a politician’s motive for re-election and a financial mechanism for compliance. If a politician expects another politician in a neighboring country to signal his good performance to his citizen by participating in the agreement, and is aware that his ex post deviation will be deterred by the financial mechanism, he too decides to participate in the agreement, which then corrects externality problems.