Mads Greaker, Oslo Metropolitan University
"R&D and Climate Clubs"
Provision of global public goods necessitates coordination and cooperation between countries. This is particularly difficult in view of the fact that public goods encourage free riding. Moreover, if the costs of contributing is high, the incentive to free ride on others’ contributions becomes even more severe. A necessary part of the solution to sustain global cooperation is cost-reducing innovation. But the most advanced and premature technologies often require heavy start-up costs. This model considers a scenario where the chance of ending up as the single developer that harvests all the revenue of a breakthrough technology is too small to tempt investments. When countries do not have the incentive to undertake unilateral development of risky innovation projects, they should conduct research jointly. We consider an international environmental agreements (IEA) that includes an R&D club where members share the sales revenues from licensing their cost-reducing technology to non-members. An R&D and climate club can sustain a higher number of members and thus more abatement than a standard IEA. If the costs (abatement costs or research costs) are sufficiently high, the club will achieve full membership and the social optimal level of abatement.
Contact person: Peter Birch Sørensen