Abstract:
This thesis aims to investigate the properties of self-enforcing International Environmental Agreements (IEAs) and the incentives to invest in R&D to develop a cost-reducing abatement technology. The analysis is based on a quadratic cost-benefit model introduced by Scott Barrett in 1994. I have extended the model to including investments in R&D. The countries in the model presented are symmetric with regards to costs and benefits of pollution abatement, but asymmetric with regards to the possibilities of investing in R&D. When assuming that one "enthusiastic" country invests in a technology that lowers the cost of pollution abatement for all countries, the result alters the grim picture that is painted in the literature on self-enforcing IEAs. By including the possibilities for strategic technology investments, the size of the stable IEA increases. So does the optimal level of abatement. Furthermore, global welfare increases. In the model outlined in this thesis, it leads to a Pareto-improvement in the welfare-level of the respective nations, including the enthusiastic country. The thesis thus concludes that future climate negotiations should put a heavier focus on the development and diffusion of technologies that lower the costs of reducing emissions, rather than strict emission reduction targets and binding timeframes.