Negotiating an Agreement on Global Warming: A Theoretical Analysis

The outcome of international negotiation on combatting global warming is derived and analyzed using a two-country bargaining model. It is shown that while side payments between countries will generally be part of an agreement, some of these payments are made purely as a result of asymmetry in bargaining power and have nothing to do with the polluter pays principle or the victim pays principle. Factors affecting the outcome of negotiation include a countryʹs size of population, the welfare level at the disagreement point, and the order of making offers. The enforcement issue is also discussed.