Working Paper

Expectation-Driven Climate Treaties with Breakthrough Technologies

Kiel Working Papers, 1732

Recent research has shown that agreements centered on the adoption of breakthrough technologies can break the deadlock in international climate negotiations if the mitigation technology exhibits a network externality that transforms full cooperation into a self-enforcing outcome. This paper shows that the same externality also increases strategic uncertainty about future technology adoption, which makes coordination on the cooperative outcome more demanding. We analyze this coordination problem in a dynamic game of technology adoption with convex switching costs. We find that the adoption dynamics for some technologies depend exclusively on countries' expectations about future adoption. This possibility calls for a more prominent role of expectation management in climate policy. Another implication is that the choice of breakthrough technologies should be guided not only by economic efficiency and strategic adoption incentives but also by the amount of strategic uncertainty they engender.

Authors

Daiju Narita
Ulrich J. Wagner