Optimal Provision of Global Public Goods under Uncertainty: Strategic Transfers and Reservations in a Multilateral Treaty Obligation

Abstract

This paper studies the formation and management of an international entity for promoting the provision of global public goods in a setup of international treaties on concessions and reservations. Based on the so-called Vienna Convention by which there can be a discrepancy between the original treaty obligation and the ratified one in the multi-lateral treaty implementation, we construct two-stage mechanisms for international treaties on global public goods; the concession stage and the ratification stage with reservations. We explicitly analyze the optimal reservation levels from the optimal mechanism when the countries face asymmetric information on the preference parameters to global public goods. Specifically, we characterize the environments where the optimal mechanism with dominant-strategy incentive-compatibility and ex-post participationconstraint in the literature of mechanism design exists. The result shows that the sophisticatedly calculated transfers in the principal of quid pro quo control the international concessions and reservations.