Funding Global Public Goods: The Dark Side of Multilateralism

The funding of global public goods, such as climate mitigation and biodiversity conservation, 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 funding for a project. Donors can form a multilateral funding 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 may oppose institutional arrangements that promote multilateral funding. For example, even environmentally aware donor countries have incentives to oppose multilateral climate finance. These incentives have played an important role in multilateral negotiations on climate finance, especially in Cancun (2010) and Durban (2011). ∗This paper was written during a research stay funded by an ERP fellowship of the Studienstiftung des deutschen Volkes. Patrick Bayer gratefully acknowledges this generous funding and is thankful for the hospitality of Columbia University. We thank Scott Barrett, Joe Brown, and Chris Marcoux for useful comments on a previous draft. †Corresponding author. Assistant Professor, Department of Political Science, Columbia University. 420 West 118th Street, 712 International Affairs Building. New York, NY 10027, USA. Phone: +1-734-757-0161. Email: [email protected].