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NIMICAR follows three complementary approaches to international agreement formation and the analysis of global risks. First, we introduce a new and simple equilibrium concept to improve our understanding of international agreement formation. Most current approaches assume that countries are readily withdrawing from agreements because they have the ability to derive (short-term) benefits from free-riding, i.e., from letting the other countries do the job. Our approach assumes that countries form long-term beliefs about possible outcomes of international agreements such as on climate change mitigation. As a result, they do not deviate as easily whenever they can realize a short-term benefit, in particular, because they more readily anticipate the long-term repercussions of such actions. We expect a better descriptive model of international agreement formation that can explain the large coalitions that have formed in many areas. Second, we explore a new agreement (or self-enforcing mechanism) to implement the best possible climate change mitigation outcome in a highly diverse (heterogeneous) world at minimal cost. These mechanisms rely on countries providing a collateral and participating in redistribution schemes rewarding the ambitious and punishing countries who try to free-ride. Third, we introduce a detailed dynamic structure to these games. Focusing on climate change, we build a realistic analytic stochastic regional model of climate change, economic and energy production, and trade to implement and quantify the strategies and mechanisms developed in the earlier part of the project. The analytic structure allows us to gain deeper insights into the challenges and opportunities of cooperation in a heterogenous world. Such heterogeneity in economic well-being, climate impact, and mitigation opportunity is representative for most global public good provision and risk reduction problems.

The project develops new mechanisms to engage global cooperation on climate change mitigation and reduction of global risks. We develop new insights and tools for the provision of these important public goods. The project provides three complementary approaches to international agreement formation. First, we introduce a new (and simple!) equilibrium concept. It builds on the idea that countries form long-term beliefs about possible outcomes of international agreements such as climate change agreements. We thereby introduce to games with externalities, i.e., situations where a country’s self-centered choice harms global well-being, insights related to farsightedness and (von Neumann-Morgenstern-) stability that have been explored in other classes of games and better describe the coalition formation challenges at hand. Second, we explore a new self-enforcing mechanism to implement the best possible outcome in a heterogeneous world at minimal cost. These mechanisms rely on countries providing a collateral and participating in redistribution schemes rewarding the ambitious and punishing countries who try to free-ride. Third, we introduce a detailed dynamic structure to these games. Focusing on climate change, we build a realistic analytic stochastic regional model of climate change, economic production, energy sectors, and regional trade to implement and quantify the strategies and mechanisms developed in the earlier part of the project. This modeling approach has been pre-tested and will permit us to build the first such model with strategic interactions between regions. The analytic structure allows us to gain deeper insights into the challenges and opportunities of cooperation in a heterogeneous world. Such heterogeneity in economic well-being, climate impact, and mitigation opportunity is representative for most global public good provision and risk reduction problems.