Refundable Deposits as Enforcement Mechanisms in Cooperative Agreements: Experimental Evidence with Uncertainty and Non-deterrent Sanctions

Managing global-scale threats such as climate change, loss of biological diversity and pandemics each constitute a global social dilemma, in which collectively countries are better off cooperating but individually they are better off free riding on the cooperative effort of others. Effective international institutions, or agreements, are required to better align the collective and individual incentives, but sovereignty demands that countries voluntarily agree to take action and then voluntarily comply with their commitments. Here we use experimental methods to test an agreement structure that, in theory, encourages meaningful participation and compliance. One of the defining features of the agreement is that it requires members to pay refundable deposits upon ratification. Our results show that this agreement structure can be successful at increasing the provision of public goods in the absence of a strong regulatory body. Most importantly, the agreement remains highly effective even in the face of uncertainty regarding the benefits from public good provision. Our results suggest that making ex ante deposits, even non-deterrent ones, serves as a coordination device that allows countries to achieve meaningful international cooperation.