Advantageous leadership in public good provision: the case of an endogenous contribution technology

Abstract

From the perspective of standard public good theory the total amount of greenhouse gas mitigation (or public good supply in general) will be lower in a leader–follower (Stackelberg) game than in a simultaneous Nash game so that strategic leadership is disadvantageous for climate policy. We show that this needs no longer be true when the leading country has the option to employ a technology by which it can reduce its abatement costs and thus improve the productivity of its contribution technology. Then both countries also are better off in the Stackelberg game than in the Nash game. Our general result is illustrated by an example with Cobb–Douglas preferences and, finally, an empirical application to global climate policy is briefly discussed.

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Notes

  1. 1.

    A description of various types of abatement costs and their regional differences is provided by the IPCC (2014, p. 457).

  2. 2.

    See, e.g., Andreoni (1988). These threshold levels coincide with the “dropout levels” for voluntary public good contributions as described in Cornes and Hartley (2007).

  3. 3.

    If we allowed for \( a < 1 \) the SE would definitely become country F’s standalone solution for \( a \) small enough.

  4. 4.

    As a special case of Proposition 3 we have \( a_{N}^{*} = a \) for any \( a > 1 \) if condition (8) is not fulfilled and thus \( \bar{a} = 1 \) holds.

  5. 5.

    In models in which two countries strategically choose their emission taxes Bárcena-Ruiz (2006) and Hattori and Kitamura (2013) have addressed the endogenous timing issue in the context of international environmental policy.

  6. 6.

    The tedious calculations of this case can be obtained from the authors on request.

  7. 7.

    So the general secretary of China’s Communist Party, Xi Jiniping, has declared at the 19th National Party Congress in October 2017 that China has “taken a driving seat in international cooperation to respond climate change”. For a critical assessment of the recent trends in China’s clean-air policy see Economist (2017).

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Acknowledgements

Helpful comments from Dirk Rübbelke, the participants at a seminar at the ‘Mercator Institute for Global Commons and Climate Change’ at Berlin in July 2017, at the Annual Congress of the ‘Verein für Socialpolitik’ 2017 at Vienna and at the International Spring School at the TU Bergakademie Freiberg in March 2018 are gratefully acknowledged. Special thanks go to two referees whose detailed and insightful comments have been very helpful to revise and improve the paper.

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Correspondence to Wolfgang Buchholz.

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Buchholz, W., Eichenseer, M. Advantageous leadership in public good provision: the case of an endogenous contribution technology. J Econ 126, 1–17 (2019). https://doi.org/10.1007/s00712-018-0613-5

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Keywords

  • Public goods
  • Leadership
  • Choice of technology
  • Climate policy

JEL Classification

  • C72
  • H41
  • O31
  • Q54
  • Q55