Global public good agreements with fixed costs

Abstract International cooperation to provide global public goods is often weak: coalitions tend to be small, or, when large coalitions form, the resulting welfare gains are limited—a result known as the ‘paradox of cooperation’. We revisit this issue by analyzing a two-stage coalition formation game in which contributing to a global public good involves not only variable costs but also fixed upfront costs. This cost structure fundamentally alters cooperation incentives. Fixed costs can generate corner provision outcomes and qualitatively different coalition formation scenarios. Depending on their magnitude, fixed costs can alter the ‘paradox of cooperation’ by making broad and effective international agreements both stable and welfare-enhancing.