Interdependent preferences and prospects for global sustainability

Sustainable outcomes are contingent on collective action. Unless nations cooperate with each other there is little hope they will achieve sustainability at a global scale. Such collective action requires that nations subordinate their own national self-interests to that of the larger global community. Standard economic theory asserts that incentives and/or deterrents are required to restructure a nation’s strategic choices so that its self-interests and social goals are aligned. Indeed, a typical objective of international environmental agreements is to restructure the payoffs from global social dilemmas so that all parties win. Yet, both real-world actions and experimental economics consistently reveal behavior that contradicts predictions of standard economic theory. One explanation is that humans have interdependent preferences, meaning that an individual’s utility is partly a function of others’ payoffs. This paper explores the idea that parties, motivated by relative payoffs, might be unresponsive to incentive structures that are meant to promote cooperative outcomes. If nations behave primarily with regard for relative payoffs, many international agreements may be ineffective despite the appearance of “win-win” situations. Thus, enhancing the efficacy of international environmental agreements requires a better understanding of the extent to which national strategies are influenced by relative considerations.