ABSTRACT

Provision of a global public good like a stable climate necessitates that countries cooperate. International cooperation is particularly difficult in presence of free-riding. First, the levels of abatement will be insufficient as countries only consider their own benefit of abatement. Second, sub-optimal levels of abatement imply poor incentives for green innovation, and hence, too little green innovation will be carried out. We show that a club based on cooperative research and abatement can increase global investments in green innovation. Moreover, the club may attract a higher number of members, and thus more abatement, than a one-dimensional climate agreement that focus on abatement cooperation only. The club takes advantage of the monopoly power introduced by intellectual property rights in order to attract members. Then free-riding nonmembers license the technology from the club, while members that invested in the development access the technology for free.