Abstract
We study the impact of countries’ subjective beliefs, i.e., pessimism and optimism, on international agreements to provide global public goods. Under linear payoffs, we find that while pessimism could decrease signatories’ efforts, it can also increase the coalition size. Optimism yields the opposite effects. Using an objective welfare criterion, signatories are typically worse off but non-signatories could be better off. As a result, despite the bias the social welfare may increase. When some countries have identical subjective beliefs (optimistic or pessimistic) and the rest have objective beliefs, the proportion of subjective signatories strongly affects signatories’ effort level. A stable coalition may consist of countries with one type of beliefs or a mixture of types. If it consists of only type, then this type is the relatively more optimistic type.
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