This article develops an empirical framework for analysing the timing of international treaties. A treaty is modelled as a dynamic game among governments that decide on participation in every period. The net benefit of treaty membership increases over time. Spillovers among members and non-members accelerate or delay treaty formation by transforming participation into a strategic complement or substitute, respectively. The predictions of the model inform the estimation of the structural parameters, based on a cross section of treaty ratification dates. With this approach, I estimate the sign and magnitude of strategic interaction in the ratification of the Montreal Protocol, in the formation of Europe's preferential trade agreements, and in the growth of Germany's network of bilateral investment treaties. Through a series of counterfactual experiments, I explore different mechanisms that give rise to strategic interaction in the formation of these treaties.

In theory, market-based regulatory instruments correct market failures at least cost. However, evidence on their efficacy remains scarce. Using administrative data, we estimate that, on average, the European Union Emissions Trading System (EU ETS)—the world’s first and largest market-based climate policy—induced regulated manufacturing firms to reduce carbon dioxide emissions by 14–16% with no detectable contractions in economic activity. We find no evidence of outsourcing to unregulated firms or markets; instead, firms made targeted investments, reducing the emissions intensity of production. These results indicate that the EU ETS induced global emissions reductions, a necessary and sufficient condition for mitigating climate change. We show that the absence of any negative economic effects can be rationalized in a model where pricing the externality induces firms to make fixed-cost investments in energy-saving capital that reduce marginal variable costs.