Keywords: international agreements on the environment, parasitism, treaties The literature on the economics of international environmental agreements has been developing over the past two decades. Significant progress has been made. However, some simple and fundamental questions remain unanswered, such as the Schelling paradox, that intertemporal environmental agreements that benefit developing countries should be easier to achieve than development assistance agreements without an intertemporal dimension. This chapter provides a general overview of what we learned from the literature on the economics of international environmental agreements and the impact of this literature on the real world of environmental agreements. Four possible anomalies are identified between the theory of international agreements and empirical evidence. (1) Why do some countries seem willing to act unilaterally, when it is not individually rational in the standard sense? (2) Why is country income theoretically ignored when it is a dominant theme in the “real world”. (3) Why does the theory predict more parasitism than found in experimental work, or even the occasional empiricism of actual contract experience? (4) Why, in theory, the increase in the benefit/cost ratio of the reduction tends to reduce the size of contracts, but has the opposite effect in the experiments. The chapter suggests that social preferences can bring the theory and empirical approaches to international environmental agreements. Achieving the effectiveness of many global environmental problems requires voluntary cooperation between sovereign countries because of the public good of pollution reduction.
The theory of international environmental agreements (IAAs) in the economy attempts to understand how to facilitate cooperation between countries in reducing pollution. However, the reason why cooperation takes place, while non-cooperation seems individually rational, has been an economic issue for at least half a century. The problem is that the theory suggests a fairly small contribution (even zero) to a public good and high levels of free riding. Empirical experiments and evidence with individuals suggest a higher degree of cooperation. This is one of the main reasons for the emergence of the literature on social preferences (also known as “Other Preferences” or “prosociality”) in the 1990s and more recently, where participants are responsible for both their own well-being and that of others.