ABSTRACT
It is w e l l - k n o w n that collective well-being can be increased if all countries cooperate in managing shared environmental resources like the climate and ozone layer, but that if this improved situation is attained, every country will earn even higher returns by free-riding on the virtuous behavior of the remaining cooperators. However, the fact that countries can do better if cooperation can be sustained suggests that countries have incentives to develop institutions which can punish free riding. Such institutions do in fact exist in the form of international environmental agreements (IEAs). Indeed, more than 100 IEAs are currently in force, the most recent of which include the Montreal Protocol on Substances that Deplete the Ozone Layer and the Framework Convention on Climate Change. The essential feature of IEAs is that they must be self-enforcing. No country can be forced to sign an IE A, and signatories to an IEA can always withdraw from the agreement. If IEAs can improve the management of shared environmental resources, they must make it attractive for countries to want to sign, and to want to carry out the terms of the agreement. This paper employs some concepts from game theory to explore the properties of self-enforcing IEAs.
