Climate Change and Incentives to Cooperate

Abstract

We analyze incentives to cooperate in maintenance and improvement of local commons, such as irrigation systems. We show that climate change modelled as a reduction in agricultural productivity reduces the value of the relationship but also reduces the temptation to freeride in maintenance. The overall incentives to cooperate are improved because lower temptation to freeride is the dominant effect. Therefore, the negative effect of climate change is mitigated by higher degree of cooperation -- but only if agricultural productivity was initially so high that full cooperation was not possible. While climate change results in full reduction of surplus if agricultural productivity was initially relatively low and cooperation at the first best level was already sustainable.