Kerr, S., Lippert, S., Lou, Y., 2025. Transfers in climate action teams. Economic Theory 80, 595–618.
We investigate the impact of side payments to countries that have a low net benefit from participating in efficient climate cooperation in a repeated game framework with investment in green compliance technology. We consider different timings of these payments and different degrees of commitment. If high-benefit countries cannot commit ex ante to transfer funds to low-benefit participants to an agreement, then there is a trade-off. Investment-based agreements, where transfers occur before emissions are realized, but after investments have been committed, maximize the scope of cooperation. Emissions-based agreements minimize transfers whenever these agreements implement cooperation. If countries can commit to transfer funds, then agreements in which countries with high benefits of climate cooperation pre-commit to emissions-based payments to countries with low benefits both maximize the scope of cooperation and minimize transfers.