Self-Enforcing Agreements under Unequal Nationally Determined Contributions
For a large global economy with normal goods and unequal world income distributions, we consider the endogenous formation and stability of an international environmental agreement (IEA) under nationally determined contributions (NDCs). Nations share green R&D efforts and enjoy R&D spillovers if they join an IEA. Nonmembers do not enjoy R&D spillovers. We show that the Grand Coalition is stable under NDCs if all nations are active carbon abatement and R&D contributors. However, the global abatement level produced by the Grand Coalition is very small relative to the globally desirable level. In addition, the hypothetical world income distribution that yields full participation is nearly perfectly equitable. Under a more realistic world income distribution, some nations are inactive because they lack sufficient income to provide carbon abatement and R&D. Under such circumstances, the stable coalition under NDCs is the coalition of all active (wealthier) nations. One of the important messages of this paper is that an improvement in the world income distribution, by reducing income disparities, is good news for the environment.