  Free-riding is widely perceived as a key obstacle for effective climate
policy. In the game-theoretic literature on non-cooperative climate policy and
on climate cooperation, the free-rider hypothesis is ubiquitous. Yet, the
free-rider hypothesis has not been tested empirically in the climate policy
context. With the help of a theoretical model, we demonstrate that if
free-riding were the main driver of lax climate policies around the globe, then
there should be a pronounced country-size effect: Countries with a larger share
of the world's population should, all else equal, internalize more climate
damages and thus set higher carbon prices. We use this theoretical prediction
for testing the free-rider hypothesis empirically. Drawing on data on
emission-weighted carbon prices from 2020, while controlling for a host of
other potential explanatory variables of carbon pricing, we find that the
free-rider hypothesis cannot be supported empirically, based on the criterion
that we propose. Hence, other issues may be more important for explaining
climate policy stringency or the lack thereof in many countries.
