Global public good agreements with fixed costs

We analyze a two-stage coalition formation game in which the provision of the global public good is not only associated with variable costs but also with fixed costs. We consider the assumptions that signatories share or do not share fixed costs. We show that fixed costs may imply corner solutions for equilibrium public good provision levels and generate several different coalition formation scenarios. Some scenarios are a game changer in that stable agreements and global welfare gains from cooperation are large. That is, the well-known conclusion about the “paradox of cooperation” may break down in the light of fixed costs.