2009 Volume 2 Issue 1 Pages 28-38
We consider matching agreements as models for transboundary environmental agreements, and investigate their effectiveness. Matching agreements do not fix the level of pollution abatement, instead fixing a “matching rate” for each country. In the first stage the matching rate for each country is fixed by negotiation; and in the second stage, an unconditional flat abatement is decided non-cooperatively taking the value of the matching rate as given. Each country is subjected to an additional abatement obtained by multiplying the total of all the other countries’ flat abatements by its matching rate. The analysis of a matching agreement game with symmetric countries as players suggests the existence of a self-enforcing set of matching rates leading to an efficient and equitable outcome, and thus shows that matching agreements are effective. Even if an individual country refuses to participate in a matching agreement, as long as all the other countries participate that country cannot increase its payoff, and therefore no incentive to defect from the agreement is generated. However, we must note that when multiple countries defect from the agreement simultaneously, free-riding by those countries cannot be prevented.
