Voluntary Agreements Theory: Impact on Technological Change

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Voluntary agreements are often viewed as a mechanism to promote information and technology-sharing within industries so that collaboration will increase the speed of carbon-reducing innovation.  As such, the role of technological change is critical to understanding whether, when, and why firms enter into voluntary agreements.

For any voluntary agreement, the availability, efficiency, and cost of monitoring technology are all important factors in gauging whether or not it will be successful.  A lack of effective and affordable monitoring technology will encourage free riding behavior and otherwise prevent cooperation between normally competitive firms.

Issues in the technological context include (1) how to define and implement technology-sharing agreements for future and existing technology without undermining the incentive to innovate in the first place; (2) how to create incentives for ambitious investment in carbon- reducing technology; (3) how to monitor and prevent free riders from undermining the incentive for innovation or otherwise not contributing to necessary investments; (4) estimating the baseline rate of innovation in a counterfactual world without voluntary agreements (so that progress can be accurately measured); and (5) how to account for competitiveness concerns between participants and non-participants.