Fighting windmills? EU industrial interests and global climate negotiations

2. Theoretical background

2.1 Basic incentives in the greenhouse

Several papers recognize that the basic incentive structure in the climate change
issue resembles a multiplayer prisoner’s dilemma game (Barrett, 1998, Sandler,
1997). In a prisoners dilemma game each player has a dominant strategy not to
contribute with abatement efforts. In a two-player version, the normal form of
the game looks as depicted in Table 1 below.

Table 1 shows the non-cooperative equilibrium outcome in bold (4,4), which is
clearly non-optimal compared to the cooperative outcome (10,10).

This implies that reaching an effective agreement to address the climate change
issue is complicated. Even worse, the necessary carrot-stick approach to change
the prevailing incentive structure is not easily identified (Barrett, 1998, Mabey
et al., 1997). Barrett (1997) notes that credible compliance mechanisms and ef-
fective monitoring systems are crucial in situations with strong free-riding in-
centives. Under such circumstances it is necessary to find the right ”carrot-
stick” approach, since progress will only result by finding the right mix of
threats (against non signers) and incentives to promote participation.

Barrett (1997) argues that credible threats containing multilateral sanctions
were presumably the main reasons why full participation in the Montreal Proto-

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