Johannes Urpelainen

Explaining the Schwarzenegger Phenomenon: Local Frontrunners in Climate Policy

The surge of local climate policy is a puzzling political-economic phenomenon. Why have local policy-makers, incapable of mitigating global warming through individual emissions reductions, adopted ambitious policies while national governments refrain from action? I construct a game-theoretic model of two-level climate policy with incomplete information over political benefits. In equilibrium, the government selects a lax national regulation, and local policy-makers with private information on high local benefits choose more ambitious policies despite incentives to free ride. The analysis also suggests that even though local policy-makers prefer not to reveal information to the government, they must do so to pursue short-term political gains. Counterintuitively, new information can lead to more ambitious national regulation even if the government learns that the local political benefits are likely lower than expected. As an empirical application, I study the evolution of climate policies in the United States.

A Strategic Theory of Regime Integration and Separation

States frequently disagree on the importance of cooperation in different issue areas. Under these conditions, when do states prefer to integrate regimes instead of keeping them separated? We develop a strategic theory of regime integration and separation. The theory highlights the nature of spillovers between issues. Positive spillovers exist when cooperation in one issue area aids the pursuit of objectives in another issue area; negative spillovers exist when cooperation in one issue area impedes this pursuit in another issue area. Conventional wisdom suggests that both positive and negative spillovers foster greater integration. We argue that negative spillovers encourage integration while positive spillovers do not. States integrate not to exploit positive spillovers between issues but to mitigate negative spillovers. To test our theory, we examine the degree of integration or separation among environmental regimes.

Strategic Side Payments: Preferential Trading Agreements, Economic Reform, and Foreign Aid

We propose that major powers give foreign aid to developing countries to facilitate politically costly economic reforms that preferential trading agreements mandate. Only democratic developing countries can credibly commit to using fungible revenue in ways that benefit the donor, so a side payment for deeper reforms should only apply to democracies. A quantitative test lends support to the theory. Fully democratic developing countries that form a preferential trading agreement obtain a threefold increase in foreign aid in the short run. Additional tests show that this increase is not driven by macroeconomic difficulties and that the increase in foreign aid is temporary. The theory implies that donors have used foreign aid to magnify the effect of preferential trading agreements on the economic reforms that they expect to benefit from.

Technology investment, bargaining, and international environmental agreements

If countries are to engage in international environmental cooperation, they must bargain over the distribution of gains. When future bargaining over pollution abatement is expected, how should a country decide on public technology investments to reduce the domestic cost of pollution abatement? I find that while countries tend to underinvest because they fail to internalize the global benefits of new technology, the magnitude of the problem depends on a country’s bargaining power. Powerful countries underinvest less frequently, because they expect to reap most of the global benefits from new technology in the international negotiations. I also investigate the effectiveness of a simple reciprocal technology agreement. I find that it can help solve the underinvestment problem, and this beneficial effect is particularly pronounced in the case of powerful countries. These findings imply that changing the bargaining protocol on climate change to the benefit of powerful countries may help secure the necessary technology investments.

Can Unilateral Leadership Promote International Environmental Cooperation

Why do governments sometimes exercise unilateral leadership in international environmental cooperation, such as the mitigation of global climate change? It is usually the case that unilateral leadership cannot solve the problem at hand, so it is not clear what the benefits of unilateral leadership are. In this article, I provide a new political rationale for unilateral leadership. I show that if a green politician (worried about environmental destruction) fears that he or she will probably lose power soon, he or she may want to unilaterally implement domestic mitigation policies to reduce the domestic cost of mitigation in the future. By exercising unilateral leadership, this politician ensures that even a future brown politician (only mildly interested in environmental protection) is, due to the domestic cost reduction, willing to engage in international cooperation. The findings imply that while unilateral leadership is not a panacea, it may be a useful commitment device under empirically plausible conditions.

The origins of social institutions

How do individual agents enact the institutions that govern collective behavior in a social situation? How do individuals come to share self-enforcing expectations about collective behavior, so that societal rules and constraints have an effect on individual choice? Conventional accounts, such as contract and evolutionary theories or the analysis of conventions and social conflict, cannot explain the origins of social institutions because they do not address the origins of shared and self-enforcing expectations about collective behavior in a social situation. I analyze two separate stages of institutionalization. First, agents must imagine collective intentionality, so that an ‘imagined institution’ entailing a symbolic representation of collective behavior becomes common knowledge. Second, they must ‘enact’ it through shared and self-enforcing expectations on the path of play. In my model, the agents are goal-oriented, so the process is strategic throughout.

Domestic Reform as a Rationale for Gradualism in International Cooperation

Gradualism is common in international cooperation, as states begin with limited cooperation and choose more ambitious targets slowly over time. However, most models of international cooperation are static and thus cannot explain gradualism. I show that when states can implement domestic reforms to reduce the cost of international cooperation, enforcement concerns prompt gradualism. First, to achieve ambitious international cooperation, states must internationally enforce costly domestic reform. Second, defection at the reform stage is particularly pernicious. When other states reform, their ability to punish the defector by suspending cooperation is reduced. States choose the extent of reform to maximize the benefits of expected international cooperation in the future. As collective enforcement power increases or the number of states decreases, the extent and pace of reform increase. Gradualism is also most probable in international public good provision because excludable benefits mitigate enforcement problems.

Enforcement and Capacity Building in International Cooperation

I examine enforcement and capacity building in international cooperation. In a game-theoretic model, a wealthy donor gives foreign aid in exchange for policy implementation by a poor recipient. The recipient has limited capacity to comply with international agreements, so the donor is not sure if cooperation failure is caused by willful disobedience or unintended error. I show that if perceived cooperation failure prompts reciprocal suspension of cooperation, the donor and recipient have a common preference for capacity building. But when the donor can request compensation for perceived cooperation failure, it only chooses to build capacity if cooperation is otherwise impossible. Consequently, the choice of enforcement mechanism shapes capacity building. This result lays a foundation for a genuine synthesis between the enforcement and managerialist schools of compliance. It generates falsifiable hypotheses and explains why reciprocal enforcement, which unfortunately inflicts collateral damage on the victim, is often considered legitimate.

Global Warming, Irreversibility, and Uncertainty: A Political Analysis

The consequences of global warming are uncertain and possibly irreversible. In this article, I investigate the value of early mitigation action given these uncertainties and irreversibilities. I complement standard economic techniques with a political analysis: in the model, an incumbent government may be replaced through elections or other means by another policymaker with very different preferences. I find that if a green policymaker (very concerned about global warming) is probably replaced by a brown policymaker (mildly concerned about global warming), the case for early mitigation action is even stronger than otherwise. Thus, if environmentally aware governments will gain power in major emitter countries, they have particularly strong incentives to negotiate a global climate treaty when they expect that their successor may be less interested in climate cooperation. Similarly, concerns about the preferences of future policymakers could motivate environmentally aware local policymakers to impose increasingly stringent climate policies.

Promoting International Environmental Cooperation Through Unilateral Action: When Can Trade Sanctions Help?

International environmental cooperation is difficult because states disagree on burden sharing and have incentives to free ride. However, interested countries can promote future cooperation through unilateral action that induces technological change in and, thereby, shapes the preferences of foreign countries. How can the effectiveness of such unilateral action be improved? This article offers a game-theoretic analysis of the value of combining unilateral action with trade sanctions, or policies that force foreign exporters to comply with domestic environmental regulations. Trade sanctions can significantly improve the effectiveness of unilateral action, but only when (1) they induce clean technology adoption by exporters in targeted countries and (2) this reduces the cost of clean technology elsewhere in the economy through intersectoral technology spillovers.