Cooperation on climate-change mitigation

We analyze conditions under which it is possible to achieve efficient mitigation of greenhouse gas emissions with a self-enforcing international agreement in which all countries find it in their self-interest to abide by the agreement. We model the choice of emissions by countries as a dynamic game. We use a two-part punishment scheme for deviations from an agreement that is renegotiation-proof and show when this scheme supports the efficient outcome as a subgame perfect equilibrium. Using numerical examples, we show that an efficient subgame perfect equilibrium exists for a range of reasonable parameter values. The existence of such equilibrium may be non-monotonic in the discount rate and the ratio of slope of marginal abatement cost and marginal damages.