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As the world grapples with intensifying climate risks, one critical question remains unanswered: how can we fairly and effectively share the global burden of reducing greenhouse gas emissions? A new study co-authored with Matthias Greiff sheds light on a promising path forward: redistribution mechanisms that transfer climate finance from wealthier to poorer nations can significantly increase and boost global cooperation to avoid catastrophic climate change.
Global warming is a problem that requires cooperation on a global scale. Yet climate action comes with a dilemma: while the benefits of limiting emissions are shared by all, the costs are not, which can reduce incentives for contributing to climate change mitigation. This is a classic case of what economists call a collective-risk social dilemma.
In addition, countries differ in their economic capacities and costs. Wealthy countries have relatively high costs of emission reduction. In contrast, developing countries could reduce emissions at lower costs, however, they may lack resources to do so. In this context, climate-related transfer mechanisms have received growing attention. Since the goal of raising $100 billion annually for climate action agreed at the 2009 Copenhagen Conference, the role of financing climate action in emerging and developing countries has become a central theme at climate negotiations. At the 2024 UN Climate Change Conference (COP29), sometimes referred to as the “finance COP”, an agreement was reached to triple finance to developing countries to USD 300 billion annually by 2035.
Our research explores whether these transfers actually work in motivating cooperation – and ultimately reaching climate targets.
We set up an incentivised experiment that mimics the real-world climate problem. In such experiments, participants’ decisions have financial consequences, meaning their earnings depend directly on their choices and those of others. This approach aligns participants’ incentives with the economic trade-offs at the heart of the research question.
In our collective-risk social dilemma experiment, participants received an initial endowment and played a game in groups of four. They made individual decisions on investments in a public „climate account“, and could not communicate among group members. Groups needed to collectively invest enough in this climate account to avoid a catastrophic event, where they would lose everything with 90% probability. Participants varied in their endowments (wealth) and in the cost of reducing emissions. In our main experimental treatment, we allowed the wealthy participants to vote on whether to transfer part of their funds to poorer participants. This mirrors the real world, where wealthy countries typically face higher mitigation costs and developing countries face lower ones and wealthy countries jointly decide on climate-related transfers in climate negotiations.
We conducted the experiment with almost 1,000 participants and this is what we found: First, when redistribution was possible, groups were over 20 percentage points more likely to reach the collective goal and avoid the catastrophic climate event. Hence, transfers effectively increase cooperation.
Second, redistribution shifted contributions from wealthy to poor participants. Contributions came from those best positioned to reduce emissions, meaning the same climate target was achieved at lower total cost. Hence, redistribution increases efficiency.
Third, and perhaps surprisingly, everyone benefited. Poor participants clearly benefitted from receiving transfers, but even rich participants ended up better off. Their losses from transfers to poor participants were, on average, outweighed by the increased likelihood to avoid the catastrophic outcome and the associated losses.
Our findings suggest a clear message for policy makers and climate negotiators: well-designed climate-related transfers can work – and work well. Specifically:
Of course, lab experiments simplify the complexities of international climate policy. Real-world negotiations involve many countries, political incentives, and trust dynamics. But what experiments like ours can offer is causal evidence on behaviour and cooperation in a collective-risk social dilemma.
In a world with increasing global warming, we need not just ambition, but also smart, evidence-based policy design. Our study shows that redistribution, done right, is not just fair – it’s effective.
Read the full paper here (open access): https://doi.org/10.1016/j.jebo.2025.107067
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