Proportionally Matching Voluntary Contributions to Global Public Good Institutions: Proposed Mechanisms for Using Future Royalty Revenues from Deep Seabed Mining beyond National Jurisdiction

Abstract

The International Seabed Authority might soon start collecting royalties from the mining of minerals on the bed of the deep sea beyond national jurisdiction. It has been proposed that this money be allocated to Global Public Good Institutions (GPGIs). This paper analyses a proposal that consists of allocating the money to GPGIs in proportion to the voluntary contributions that they receive from governments. I use a warm glow model to explain the status quo voluntary contributions to GPGIs as a Nash equilibrium. To predict how countries would adjust their contributions as a result of the proposed mechanism, I find a comparative statics formula depending on the elasticity of the marginal benefits created by the GPGIs. For the GPGIs dedicated to reducing deforestation, available marginal abatement cost curves suggest an elasticity of marginal benefits of -0.51. Decreasing marginal benefits lead to partial crowding out of voluntary contributions. However, there is a countervailing “matching reallocation effect” because by increasing their voluntary contributions to a GPGI countries cause a greater part of the money from the matching mechanism to go to this GPGI. Assuming that all GPGIs have the marginal benefit elasticity of -0.51, I show under some symmetry assumptions that the “matching reallocation effect” can cancel at most 22%\% of the crowding out caused as a result of the decreasing marginal returns, given the current pattern of voluntary contributions by countries. This sobering result potentially weighs in favor of alternative mechanisms that are less prone to crowding out effects, of which I discuss one.