Policy makers have time-inconsistent preferences if they fear losing power or are endowed with hyperbolic discount factors. Politicians may thus seek to influence future policy choices, for example, by investing in green technologies that motivate later politicians to act sustainably. I show that optimal investment subsidies are larger for technologies that are strategic complements to future investments, that are further upstream in the supply chain, or that are characterized by longer maturity. Time inconsistency can rationalize subsidies at similar levels as market failures such as externalities can. Furthermore, the two are superadditive: time inconsistency and strategic investments are especially important for long-term policies associated with externalities.

In recent decades, democratic countries have negotiated hundreds of international treaties and agreements. This paper analyzes the equilibrium design of treaties negotiated by political incumbents seeking reelection. We show that incumbents are prone to negotiate treaties that are “weak,” in that they may or may not be complied with: this makes it possible to differentiate the alternative candidates in a way that favors the incumbent. We also show that political economy considerations lead to overambitious treaties that rely too much on technology instead of sanctions to motivate compliance. Our theory can rationalize several puzzles associated with treaties.