Potentially Harmful International Cooperation on Global Public Good Provision

Abstract

Experience from climate policy suggests that full cooperation among all countries is not a likely outcome. In this paper we therefore consider the case where only members of a subgroup of countries cooperate by reciprocally matching their public good contributions. In a two-stage game, matching rates are set at stage 1 then national contributions are chosen at stage 2. In the case of small coalitions, negative matching may result in the subgame-perfect equilibrium that decreases global public good provision and outsiders' welfare. Moreover, a growing number of countries may paradoxically entail a reduction of equilibrium public good supply.