Institutions (IFIs) has however to date been limited, and only limited MF has been mobilized. This section considers, at a relatively abstract level, the potential for such institutions to play a major and constructive role for such mobilization.

While the problem of combatting climate change has been called “the greatest market failure facing mankind” (Stern 2006), we in this section propose a mechanism with promise to deal with parts of this problem.<sup>19</sup> Most of the literature on this topic to date has attempted to derive rules for cooperative mitigation actions taken by individual countries, and has yielded implementable mitigation solutions which are far from globally optimal.

Our solution outlined here and in Appendix 3 differs fundamentally from most other proposals by focusing on far more direct control of individual contributions by participating countries.<sup>20</sup> The basic potential for individuals, institutions and countries to cooperate is widely recognized (Ostrom 1990, 2000). Much of the literature on cooperation for climate mitigation action stresses two central issues, captured here but largely absent from other proposed climate policy architectures: 1) a central institution for coordinating climate action; and 2) high visibility of climate policy targets and whether or not they are achieved by parties.<sup>21</sup> A centralized institution organizes and collects financial contributions for mitigation action, which is widely published, and easily observable. This makes it relatively easy to design effective reaction (“punishment”) mechanisms for agreement enforcement. As also widely recognized (Fehr and Gächter 2000), deviations from a cooperative agreement will be punished by other players, often even when punishers do not gain from their punishment; in our case the punishing reactions are beneficial to punishers. Our assumed reactive strategies, of a “tit-for-tat” form, are highly plausible and realistic.

We assume that an IFI coordinates donor MF contributions, and study the impacts of such coordination on donors’ WTP to supply MF to L countries. To simplify the presentation, we

> 19 For broader analyses see e g Stern et al. 2006; IPCC 2014 chapter 13; Barrett 2003, 2007; Nordhaus 2008; Victor 2011; and Hovi et al. 2015; for important recent analytical work see Finus 2001; 2008; Asheim et al. 2006; Bosetti et al. 2008; Nagashima et al. 2009; Fuentes-Alberto and Rubio 2010; Harstad 2016; Battaglini and Harstad 2016; Gersbach et al. 2017; and Ansink et al. 2018.

> 20 Our presentation of analytical results in this section is based largely on Mundaca and Strand 2020.

> 21 See Carattini et al. 2019. Dannenberg and Gallier 2019 argue that high individual (country) contributions requires the choice of coordinating institution to be endogenous, thus chosen by the participating countries in our case. Experimental results by Tavoni et al. 2011 indicate that high levels of inequality between participating parties reduces the likelihood of successful outcomes, but that better communication increases success dramatically, and promotes the amounts of transfers, here between H and L countries, in similar coordination games.

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