ABSTRACT
This chapter presents some insights from the last decade of theoretical work in the International Environmental Agreement (IEA) literature to illustrate the role of transfers when nations are asymmetric. The goal is to improve the design of IEAs and subsequently to increase both participation and abatement levels. The theoretical literature does not ask who is responsible for past emissions, nor imply normative judgments about who should pay for abatement, or even abate their emissions. Rather, the primary concern is what abatement requirements will generate a large number of signatories and substantial increases in abatement, compared to the outcome without a treaty. This analysis adopts the standard assumption in economics that nations are rational and choose actions that maximize their well-being, without regard for other nations. IEAs need to be self-enforcing in the sense that there is no supra-national institution that can force sovereign nations to adhere to the IEA. Nations join the IEA when they are better off by doing so, and leave if it is in their interest to do so. This means that the abatement requirements need to be chosen with the voluntary participation constraint in mind.
