Law & Economics Working Papers
Any breakthrough in international climate change negotiations has to address the enforcement problem: how to entice reluctant states to meet the emission reduction targets set by treaties. The challenge is acute because traditional enforcement measures—sanctions or rewards—are insufficient. The threat to impose sanctions on violator states is too costly and hence not credible; and the magnitude of rewards violators demand for their compliance is excessive. This article proposes a novel enforcement mechanism, which combines sanctions and rewards in a way that is both credible and cheaper than existing proposals. The idea is to set up a reward fund that serves two purposes. First, the fund offers rewards to violators who are willing to comply. Second, if a violator turns down the reward and continues the violation, the fund reimburses other states for the cost of sanctioning this violator. This dual—either/or—utilization of the fund creates double incentives to comply. That is, it allows the funding states to buy off the compliance of violator states at roughly half the cost that ordinary sanctions or rewards require. Because the same fund finances both the threat of sanctions and the promise of rewards, it broadens the wedge between the violator's payoff for compliance and for violation. The article applies this insight to the ongoing negotiations of an international climate change treaty, showing how the enforcement problem undermining the treaty negotiations can be mitigated.
Omri Ben-Shahar & Anu Bradford, "The Economics of Climate Enforcement" (John M. Olin Program in Law and Economics Working Paper No. 512, 2010).