Does it pay to play? How bargaining shapes donor participation in the funding of environmental protection

Multilateral funding for global environmental protection, such as biodiversity conservation, requires donor participation. When are donors willing to participate? We examine a game-theoretic model of multilateral funding for environmental projects in developing countries. Donors must first decide whether to participate in a multilateral institution. They do so in anticipation of a bargaining outcome that depends on their participation decisions. The multilateral institution then bargains with a recipient over the distribution of gains from project implementation. We find that the donors' and the recipient's vulnerability to negative environmental externalities have diverging effects on their participation behavior. As donors' vulnerability to negative externalities increases, their bargaining power decreases and fewer donors participate. But as the recipient's vulnerability increases, more donors participate because their bargaining power grows. These findings can illuminate bargaining over multilateral climate finance and inform the design of international institutions

Funding global public goods: the dark side of multilateralism

The funding of global public goods, such as climate mitigation, presents a complex strategic problem. Potential recipients demand side payments for implementing projects that furnish global public goods, and donors can cooperate to provide the funding. We offer a game-theoretic analysis of this problem. In our model, a recipient demands project funding. Donors can form a multilateral program to jointly fund the project. If no program is formed, bilateral funding remains a possibility. We find that donors rely on multilateralism if their preferences are relatively symmetric and domestic political constraints on funding are lax. In this case, the recipient secures large rents from project implementation. Thus, even donors with strong interests in global public good provision have incentives to oppose institutional arrangements that promote multilateral funding. These incentives have played an important role in multilateral negotiations on climate finance, especially in Cancun (2010) and Durban (2011)

Estimating Equilibrium Models of Sorting across Locations

With the growing recognition of the role played by geography in all sorts of economic problems, there is strong interest in measuring the size and scope of local spillovers (i.e., simple anonymous agglomeration or congestion effects, or more complicated interactions between individuals or firms of specific types). It is well-understood, however, that such spillovers cannot be distinguished from unobservable local attributes using just the observed location decisions of individuals or firms. We propose an empirical strategy for recovering estimates of spillovers in the presence of unobserved local attributes for a broadly applicable class of equilibrium sorting models. This approach relies on an instrumental variables strategy derived from the internal logic of the sorting model itself. We show practically how the strategy is implemented, provide intuition for our instrumental variables, and discuss the role of effective choice-set variation in identifying the model, and carry-out a series of Monte Carlo experiments to demonstrate the instruments' performance in small samples.Local Spillovers, Location Choice, Economic Geography, Natural Advantage, Social Interactions, Network Effects, Endogenous Sorting, Discrete Choice Models, Agglomeration, Congestion

Racial Sorting and Neighborhood Quality

In cities throughout the United States, blacks tend to live in significantly poorer and lower-amenity neighborhoods than whites. An obvious first-order explanation for this is that an individual%u2019%u2019s race is strongly correlated with socioeconomic status (SES), and poorer households can only afford lower quality neighborhoods. This paper conjectures that another explanation may be as important. The limited supply of high-SES black neighborhoods in most U.S. metropolitan areas means that neighborhood race and neighborhood quality are explicitly bundled together. In the presence of any form of segregating preferences, this bundling raises the implicit price of neighborhood amenities for blacks relative to whites, prompting our conjecture -- that racial differences in the consumption of neighborhood amenities are significantly exacerbated by sorting on the basis of race, given the small numbers of blacks and especially high-SES blacks in many cities. To provide evidence on this conjecture, we estimate an equilibrium sorting model with detailed restricted Census microdata and use it to carry out informative counterfactual simulations. Results from these indicate that racial sorting explains a substantial portion of the gap between whites and blacks in the consumption of a wide range of neighborhood amenities -- in fact, as much as underlying socioeconomic differences across race. We also show that the adverse effects of racial sorting for blacks are fundamentally related to the small proportion of blacks in the U.S. metropolitan population. These results emphasize the significant role of racial sorting in the inter-generational persistence of racial differences in education, income, and wealth.

A Note on the Equilibrium Properties of Locational Sorting Models

A central feature of many models of location choice -- whether of firms or households, within or across cities -- is the role of local interactions or spillovers, whereby the payoffs from choosing a location depend in part on the number or attributes of other individuals or firms that choose the same or nearby locations in equilibrium. The main goal of this paper is to develop the equilibrium properties of a broadly applicable and readily estimable class of sorting models that allow the location decision to depend on both fixed local attributes (including unobserved attributes) and such local interactions. In particular, we prove uniqueness in the case of congestion effects and use a series of simulations to demonstrate that a unique equilibrium is more likely to obtain (i) the smaller are any agglomeration effects, (ii) the larger are the set of choices available to the agents, (iii) the more "meaningful variation" there is in those choices, and (iv) the more heterogeneous are the agents themselves. This is encouraging for the use of our model to describe the sorting of individuals and firms over geographic space, where the number of choices is usually large and variation in exogenous fixed attributes can be important. Moreover, these results conveniently coincide with the conditions required for econometric identification of our model.Local Spillovers, Social Interactions, Economic Geography, Natural Advantage, Endogenous Sorting, Discrete Choice Models, Agglomeration, Congestion, Random Utility

Choosing international organizations: when do states and the World Bank collaborate on environmental projects?

While international cooperation research emphasizes institutional design, states mostly interact with existing organizations. How do states choose organizations for cooperation? We develop a theory of agency choice for development projects, emphasizing the importance of domestic institutions, the scope of cooperation, and the resources of the implementing agency. If states are to cooperate with funding agencies that have abundant resources, such as the World Bank, they must accept more stringent conditions on project implementation. We argue states accept the stringent conditions that resourceful organizations demand if the public goods from project implementation are highly valuable. Empirically, this is the case for democratic states, large projects, and projects that produce national instead of global public goods. We test this theory using data on 2,882 Global Environment Facility (GEF) projects, 1991–2011. The GEF offers an ideal case because various implementing agencies are responsible for the actual projects. States implement projects in collaboration with the World Bank, which has the most expertise and resources among the GEF’s implementing agencies, if their regime type is democracy, the project size is large, and the benefits are primarily national. Qualitative evidence sheds light on causal mechanisms

When international organizations bargain: evidence from the global environment facility

Who gets what in bargaining between states and international organizations (IOs)? Although distributional conflict is unavoidable in international cooperation, previous research provides few empirical insights into the determinants of bargaining outcomes. We test a simple bargaining model of cooperation between states and IOs. We expect that nonegalitarian international organizations, such as the World Bank, secure more gains from bargaining with economically weak than with economically powerful states. For egalitarian international organizations, such as most United Nations (UN) agencies, the state’s economic power should be less important. We test these hypotheses against a novel data set on funding shares for 2,255 projects implemented under the auspices of the Global Environment Facility, from1991 to 2011. The data allow us to directly measure bargaining outcomes. The results highlight the importance of accounting for the interactive effects of international organization and state characteristics

Global patterns of renewable energy innovation, 1990–2009

Cost-effective approaches to mitigating climate change depend on advances in clean energy technologies, such as solar and wind power. Given increased technology innovation in developing countries, led by China, we focus our attention on global patterns of renewable energy innovation. Utilizing highly valuable international patents as our indicator of innovation, we examine the economic and political determinants of energy innovation in 74 countries across the world, 1990–2009. We find that high oil prices and domestic renewable electricity generation capacity both increase innovation. There is no effect for corruption, but our findings suggest that democratic institutions may contribute to innovation. The main implication of our work for policymakers is that increasing renewable electricity capacity in developing countries could significantly contribute to global innovation in renewable energy

Laissez faire and the Clean Development Mechanism: determinants of project implementation in Indian states, 2003–2011

India is the world’s second-largest host of projects implemented under the Kyoto Protocol’s Clean Development Mechanism (CDM). There is, however, considerable variation in the distribution of CDM projects implemented across different Indian states. While a large body of the literature examines cross-national variation in the implementation of CDM projects, few studies have analyzed the determinants of sub-national variation in different national contexts. We theorize that given India’s laissez-faire approach to CDM project implementation the availability of profitable climate mitigation opportunities and the political stability are two factors that promote CDM project implementation. Using sub-national data collected from a variety of sources, we conduct systematic analysis that provides empirical support for a set of hypotheses regarding the effects of these variables on project implementation. First, we find that states with a lot of public electricity-generating capacity and industrial capital implement more CDM projects than other states. Additionally, project developers rarely propose CDM projects during election years as a result of high levels of political uncertainty associated with those years. Our findings show that India’s liberal approach prevents the central government from using the CDM to promote sustainable development in less developed states. In India and other host countries where coordinated national policies to maximize their gains from CDM projects is absent, there is a paucity of project implementation in states that need it the most

Leveraging private capital for climate mitigation: evidence from the clean development mechanism

To mitigate climate change, states must make significant investments into energy and other sectors. To solve this problem, scholars emphasize the importance of leveraging private capital. If states create institutional mechanisms that promote private investment, they can reduce the fiscal cost of carbon abatement. We examine the ability of different international institutional designs to leverage private capital in the context of the Kyoto Protocol's Clean Development Mechanism (CDM). Empirically, we analyze private capital investment in 3749 climate mitigation projects under the CDM, 2003–2011. Since the CDM allows both bilateral and unilateral implementation, we can compare the two modes of contracting within one context. Our model analyzes equilibrium private investment in climate mitigation. When the cost of mitigation is high, unilateral project implementation in one host country, without foreign collaboration, draws more investment than bilateral contracting, whereby foreign investors participate in the project