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The Design of Stable International Environmental Agreements: Economic Theory and Political Economy
Abstract
International environmental agreements typically strive for the solution of a common property resource dilemma. Since the sovereignty of states precludes external enforcement, international environmental agreements must be self-enforcing. Game theoretical models explain why rewards and punishments imposed through the environmental externality generally fail to enforce full cooperation. Therefore, environmental treaties incorporate provisions that enhance the incentives for participation such as transfers, sanctions and linkage to other negotiation topics in international politics. Moreover, interaction with markets and governments as well as the rules and procedures adopted in the negotiation process influence the design and the effectiveness of an international environmental agreement. Copyright 2001 by Blackwell Publishers Ltd
... However, cooperative game theory assumes the existence of an external enforcement mechanism that allows for binding pre-choice agreements and, as previously stated, national actors at the global scale have no such exogenous enforcement. Given this anarchy at the international level, international environmental dilemmas are more properly modeled as non-cooperative games (Barrett 2005;Wagner 2001) in which binding agreements prior to execution of strategies are not permissible (see Chander and Tulkens 2006 for a critique of this assertion). ...
... As Wagner (2001, 385) says, "An IEA must change the rules of the game." This is typically accomplished through a number of mechanisms used in IEAs such as side payments (Sandler 1999;Wagner 2001), trade and other forms of issue linkage (Barrett and Stavins 2003 Barrett 2003), and cost sharing (Sandler 2004;Boyle 1991). It may also include negative incentives such as trade restrictions and punitive financial policies (Barrett and Stavins 2003). ...
... Likewise both may be accomplished through supplementing the payoffs of a cooperative player through rewards. In either case mechanisms for sanctions and rewards have been widely investigated, used in practice, and advocated among policy makers (Andreoni, Harbaugh, and Vesterlund 2003;Fehr and Fischbacher 2004;Gürerk, Irlenbusch, and Rockenbach 2006;Oliver 1980;Sefton, Shupp, and Walker 2007;Barrett 2005;Wagner 2001). ...
Ultimately, hopes of sustainable outcomes are contingent on collective action. Unless nations cooperate with each other there is little hope they will achieve sustainability at a global scale. Such collective action requires that nations subordinate their own national self-interests to that of the larger global community. Standard economic theory asserts that incentives and/or deterrents are required to restructure a nation’s strategic choices so that its self-interests and social goals are aligned. Indeed, a typical objective of international environmental agreements is to restructure the payoffs from global social dilemmas so that all parties win. Yet, both real-world actions and experimental economics consistently reveal behavior that contradicts predictions of standard economic theory. One explanation is that humans have interdependent preferences, meaning that an individual’s utility is partly a function of others’ payoffs. This paper explores the fact that parties, motivated by relative payoffs, might be unresponsive to incentive structures that are meant to promote cooperative outcomes. If nations behave primarily with regard for relative payoffs then many international agreements may be ineffective despite the appearance of “win-win” situations. Thus, enhancing the efficacy of international environmental agreements requires a better understanding of the extent to which national strategies are influenced by relative considerations.
... The design of international environmental agreements is not random, but driven by rather strategic considerations of their "masters:" the nation states (see Fearon, 1998;Leeds, 1999;Koremenos et al., 2001;Grigorescu, 2007;Lupu et al., 2014;Chiba et al., 2015;Tallberg et al., 2016;Rapport & Rathbun, 2020;Young & Stokke, 2020). An extensive body of research reports here that inter alia country features, characteristics of the environmental problem at hand, as well international influences all play a role in shaping institutional design (see, e.g., Murdoch et al., 2003;Bernauer et al., 2010Bernauer et al., , 2013Tallberg et al., 2016;Spilker & Koubi, 2016;Carbonell & Allison, 2015;Böhmelt & Spilker, 2016;Böhmelt & Butkutė, 2018;Wagner, 2001;Wangler et al., 2013). ...
... First, I introduce a previously overlooked determinant of environmental treaty design. Many prominent studies demonstrate that country features, characteristics of an environmental problem, and international influences shape institutional design (see, e.g., Murdoch et al., 2003;Bernauer et al., 2010Bernauer et al., , 2013Tallberg et al., 2016;Spilker & Koubi, 2016;Carbonell & Allison, 2015;Böhmelt & Butkutė, 2018;Wagner, 2001;Wangler et al., 2013). However, the political ideology of negotiating parties has not fully been accounted for. ...
Does the political ideology of negotiating parties influence the design of international environmental agreements? This article distinguishes between leftist and rightist executives in democracies to develop a twofold argument. First, left-leaning democratic governments tend to be generally more environmental-friendly, which implies that they should favor designs that are more conducive to effective institutions. Second, leftist democratic executives are commonly less concerned about sovereignty costs. Both mechanisms suggest that environmental treaties likely comprise “legalized,” i.e., hard-law elements when left-wing democracies negotiate their design. The empirical implication of the theory is tested with quantitative data on international environmental agreements since 1975. The findings report an association between leftist ideology in democracies and agreement legalization, although this is driven by aspects of sovereignty delegation. This article contributes to the literatures on environmental institutions, international cooperation more generally, as well as party politics.
... First, countries are sovereign and their participation in international agreements is voluntary. There is no supra-national authority that forces countries to participate in such an agreement, nor is there an international environmental court system powerful enough to guarantee compliance with an IEA (Endres 2004;Wagner 2001;Finus 2000). Second, each country may have an incentive to opt for a free ride. ...
... Cooperative game theory assumes that players realize that, if they act as a group and coordinate their actions, they can obtain mutual benefits. Any given agreement is therefore the result of questioning the circumstances under which the agreement can be established, the results that can be achieved by the group, and the ways in which the benefits of cooperation will be redistributed among participants(Dockner et al. 2000;Wagner 2001). ...
... International agreements to address environmental problems are known to exist since the 19th Century (Mitchell 2003). IEAs arise to solve the common property resource dilemma (Wagner 2001), exemplified in cases such as the ozone protection, the acid rain problem and transboundary river pollution. If countries organise themselves in the management of their shared environmental resources, their overall collective wellbeing can increase (Barrett 1994). ...
... Furthermore, IEAs need to be self-enforcing, as countries cannot be forced to sign an agreement. From an economic perspective, game theory has been implemented since the 1990s as an approach to study the incentives and disincentives for players to participate in IEA (Wagner 2001). ...
... Any agreement must have enough value on its own so that a country willingly wants to be a part of it (Barrett, 1994). Common self-enforcement methods include sanctions triggered against a violator or provisions that make the agreement more valuable or attractive, like minimum participation (MP) constraints or monetary transfers (Wagner, 2001, gives a thorough rundown of papers and enforcement mechanisms, a few of which will be described here). ...
This article, written in an accessible style, introduces some concepts of game theory and coalition theory and how researchers have used these tools to understand international environmental agreements.
... In general, the literature on International Environmental Agreement shows that an agreement is very difficult, if not impossible to reach (Wagner, 2001). Hoel (1991) points out that one country's unilateral reduction may increase total emission. ...
An international agreement is essential for saving our climate but has not been reached due to disagreements between developed and developing countries. We propose a global GHG tax combined with equal compensation to everyone. It follows from two principles of fairness: (i) to penalize GHG emissions equally because of their equal damage; (ii) to compensate everyone equally because of their equal rights. It is Pareto efficient, i.e., motivating every country to maximize world welfare. It benefits countries with current per capita emissions lower than the world average, i.e., benefiting most people in the world. Although not a Pareto improvement over the status quo, it makes every country better off compared with a fair benchmark where current emissions are duly penalized and compensated. We also demonstrate that subsidizing emission reductions by a poll tax on everyone can maximize world welfare and benefit every country over the status quo but is unfair.
... (See Appendix A for some additional background details.) This formal framework has been applied to social dilemmas like climate change (Finus, 2008;Pacheco et al., 2014;Wagner, 2001), nuclear proliferation (Brams & Kilgour, 1987a, b;Kraig, 1999;Zagare, 1987), conflicts over water resources (Madani, 2010), and more. However, it has yet to be applied to the unique cooperative challenges that are faced in the context of AI safety and ethics. ...
Policy and guideline proposals for ethical artificial intelligence research have proliferated in recent years. These are supposed to guide the socially-responsible development of AI for a common good. However, there typically exist incentives for non-cooperation (i.e., non-adherence to such policies and guidelines); and, these proposals often lack effective mechanisms to enforce their own normative claims. The situation just described constitutes a social dilemma—namely, a situation where no one has an individual incentive to cooperate, though mutual cooperation would lead to the best outcome for all involved. In this paper, we use stochastic evolutionary game dynamics to model this social dilemma in the context of the ethical development of artificial intelligence. This formalism allows us to isolate variables that may be intervened upon, thus providing actionable suggestions for increased cooperation amongst numerous stakeholders in AI. Our results show how stochastic effects can help make cooperation viable in such a scenario. They suggest that coordination for a common good should be attempted in smaller groups in which the cost of cooperation is low, and the perceived risk of failure is high. This provides insight into the conditions under which we should expect such ethics proposals to be successful with regard to their scope, scale, and content.
... The second strand is the literature on two-stage coalition formation games. For an overview, see the excellent surveys by Barrett (2003), Finus (2001), Wagner (2001) andde Zeeuw (2015). In general, these models draw a pessimistic picture for successful international cooperation: whenever the gains from cooperation would be large, stable coalition sizes are small and, thus, coalitions achieve little (e.g., Carraro andSiniscalco, 1993 andHoel, 1992). ...
... För att en stabil överenskommelse ska uppstå, där alla länder ingår, är ett nödvändigt villkor att alla finner det lönsamt att gå med jämfört med att stå utanför och vidta egna åtgärder. Dessutom, eftersom det kan vara ännu lönsammare att åka snålskjuts, måste ländernas incitament för det elimineras (Wagner 2001;Kolstad 2010). Slutsatsen är att det är svårt att utforma överenskommelser som de flesta länder ställer sig bakom. ...
... Self-enforcing means that sovereign countries are reluctant to join or comply with an agreement, as long as this is not in their own self-interest. 13 For comprehensive surveys of this literature see, e.g.,Barrett (2003),Finus (2008),Wagner (2001) andde Zeeuw (2015). ...
In the wake of 25 United Nations Climate Change Conferences of the Parties (and counting), international cooperation on mitigating greenhouse gas emissions to avoid substantial and potentially irreversible climate change remains an important challenge. The limited impact of the Kyoto Protocol on curbing emissions, and the gap between the ambitions of its successor and the Paris Agreement's lack of sanctioning mechanisms for addressing noncompliance, demonstrates both the difficulties in negotiating ambitious environmental agreements and the reluctance of countries to comply with their agreed emission targets once they have joined the treaty. Therefore, a better understanding of the obstacles and opportunities that the interactions between domestic and international policy pose for the design of successful international climate cooperation is of utmost importance. To shed light on the roots of the stalemate (and suggest possible ways out), this article reviews and draws lessons from a growing theoretical, experimental, and empirical literature that accounts for the hierarchical interplay between domestic political pressure and international climate policy.
... However, with Cournot coalitions and symmetric nations (i.e. only the externality effect) a stable agreement consists of no more than three members, (see Wagner (2001), Finus (2003, Benchekroun and Long (2012) and Caparrós (2016) for surveys of the IEA literature). This paper is the first to reveal the logic underlying the paradox. ...
This paper decomposes the canonical model of International Environmental Agreements (Barrett in Oxf Econ Pap 46:878–894, 1994) into three effects: externality, cost-effectiveness and timing. The externality and timing effects are countervailing forces on abatement levels of greenhouse gases. The Paradox of Cooperation in the three-stage Stackelberg game is explained by showing that when the gains to cooperation are small the timing effect dominates the externality effect and large coalitions are stable. The timing effect has the greatest impact when the high benefit nations have low abatement cost. The cost-effectiveness effect arises from asymmetry and generates the need for an agreement with transfers. The cost-effectiveness effect is largest when the high benefit nations are high cost. This creates a larger difference in the marginal abatement cost of the last unit of abatement in the absence of an agreement. Numerical examples illustrate how the parameters and effects interact to result in outcomes ranging from no to full participation.
... Our paper is also related to the literature on international environmental agreements (see Benchekroun and Long (2012), Long (2011), and Wagner (2001 for a review). We differ from this strand of literature in many dimensions. ...
Existing literature on climate policy analysis in an international environmental agreement does not condition the optimal policy on the economic conditions of the countries. This paper constructs a two-country environmental dynamic stochastic general equilibrium (E-DSGE) model to compare the optimal carbon tax rates between countries in noncooperative and cooperative scenarios in the presence of different economic shocks. Compared to those in the cooperative scenario, countries without cooperation would have an optimal carbon tax rate that increases less in response to a positive home-country total factor productivity (TFP) shock and decreases more in response to a positive energy price shock. Further, in the noncooperative scenario, the carbon tax rate decreases in response to the foreign-country TFP shock, but to a lesser extent than that in the cooperative scenario. Countries’ cooperation does not necessarily lead to a lower emissions stock. It decreases only in response to positive home- and foreign-country TFP shocks, and it increases in response to a positive energy price shock.
... Ölkələr arasında informasiya təhlükəsizliyi sahəsində koalisiyanın formalaşdırılması üçün aşağıda üçmərhələli model təklif edilir. Bu üç mərhələli koalisiya qurulması modeli ekologiya üzrə beynəlxalq sazişlərə həsr olunmuş əksər ədəbiyyatda təsvir edilən koalisiya formalaşdırılması [27] modellərinə oxşardır. Aşağıda təklif edilmiş koalisiyanın formalaşdırılması prosesi beynəlxalq ictimai rifah üçün [28]-də irəli sürülmüş ideyanın modifikasiyasıdır və üçmərhələli oyun formasında ifadə edilir. ...
... There have been numerous approaches to modeling self-enforcing agreements (Hovi et al. 2015;Wagner 2001). Modeling treaties often employs coalition theory and core or power index solution concepts (Bagnoli et al. 1989;Chander and Tulkens 1997;Cornes and Sandler 1996;Dinar and Howitt 1997;Yi 1997). ...
This paper examines the interaction of two types of provisions in international environmental agreements: an identity-based minimum participation clause (MPC) and an equal treatment provision. While MPCs have been widely studied in the context of multilateral agreements, this paper is the first to formally introduce treaties specifying equal proportional reductions from the no-treaty equilibrium for all participants. Does the presence of these two provisions assist or impede the formation and efficiency of the grand coalition? In cases of equal treatment and heterogeneity of agents, smaller coalitions may result in higher welfare than requiring the grand coalition. Using game theoretic analysis of a set of games, this paper gives a set of sufficient conditions for this welfare result to hold in a one-shot negative externality coalition game and presents examples of when smaller agreements do, and do not, improve upon unanimity. Furthermore, this paper focuses on how the choice of negotiation rules affects the optimal set of signatories. By specifying equal treatment (e.g. a proportional reduction rule) in a treaty, gains to the “narrow but deep” approach may warrant a smaller coalition.
... Performance standards in IEAs can be subject to a "free-rider" problem (i.e., nonparticipation and enjoyment of benefits without paying for them (Wagner 2001;. Suppose parties to the agreement pledged to ensure that a specified mortality level not be exceeded. ...
... For an overview, 2 It is also worth mentioning that strategic delegation is labeled as strategic voting whenever the principal is the electorate or, more precisely, the median voter and the elected government is the agent (Persson and Tabellini 1992). see the excellent surveys by Barrett (2003), Finus (2001), Wagner (2001) andde Zeeuw (2015). In general, these models draw a pessimistic picture for successful international cooperation: whenever the gains from cooperation would be large, stable coalition sizes are small and, thus, coalitions achieve little (e.g., Carraro andSiniscalco 1993 andHoel 1992). ...
... 3 Alternatively, aid provision-particularly aid for purposes that are specific to the issues under negotiation-can be regarded as a sidepayment or transfer that is also usually introduced in multilateral agreements as a way to reduce heterogeneity across parties and thus encourage broader participation(Carraro & Siniscalco, 1993;Chen, 1997). Issue-linkage and side payments are useful strategies in long-term negotiation processes that are best characterized as repeated games(Axelrod, 1984;Oye, 1985;Wagner, 2001). In this context, the body of work that argues that decision-making rules areimportant for negotiators' choice of bargaining strategies is particularly relevant for this chapter. ...
... водни ресурси, постало је посебно значајан предмет регулисања (Тодић, Златић, 2018). У делу литературе која је посвећена међународним уговорима у области животне средине расправљају се и друга питања као што су питање различитих чинилаца који утичу на опредељење држава да постану чланице неког међународног уговора, питање начина регулисања односа између међународног и унутрашњег права, питање динамике преузимања међународно-правних обавеза, правне технике и начина изражавања пристанка на обвезивање међународним уговорима (Baccini and Johannes, 2014;Cairncross, 2004;Frank, 1999;Orsini, 2016;Recchia, 2002;Roberts, 1996;Wagner, 2001), итд. Данас се са пуно основа говори о "систему" међународних уговора који, у зависности од примењене методологије и критеријума, чини значајан број међународних уговора различитог карактера и предмета уређивања. ...
... The following research takes this as a motivation as we address the question of how democratic members' participation in international environmental treaties is related to "hardlaw designs," i.e., environmental agreement legalization that is characterized by obligation, precision, and delegation (e.g., Gregory and Pollack 2010;Shaffer and Pollack 2011). In general, states are more reluctant to participate in more legalized, i.e., hard-law agreements (e.g., Wagner 2001;Bernauer et al. 2010Spilker and Koubi 2016), while there is also evidence that hard law is less likely to diffuse within the network of environmental treaties (e.g., Böhmelt and Spilker 2016). We contend that environmental agreements formed among a larger share of democracies are less likely to be characterized by hard law than soft law, i.e., democracies are less likely to participate in more legalized (hard-law) treaties. ...
Generally, democratic regime type is positively associated with participating in international environmental agreements. In this context, this study focuses on the legal nature of an agreement, which is linked to audience costs primarily at the domestic level that occur in case of non-compliance and are felt especially by democracies. Eventually, more legalized (“hard-law”) treaties make compliance potentially more challenging and as democratic leaders may anticipate the corresponding audience costs, the likelihood that democracies select themselves into such treaties decreases. The empirical implication of our theory is that environmental agreements with a larger share of democratic members are less likely to be characterized by hard law. Results from quantitative analyses strongly support our argument, shed new light on the relationship between participation in international agreements and the form of government, and also have implications for the “words-deeds” debate in international environmental policy-making.
... Ölkələr arasında informasiya təhlükəsizliyi sahəsində koalisiyanın formalaşdırılması üçün aşağıda üç mərhələli proses təklif edilir. Bu üç mərhələli koalisiya qurulması modeli ekologiya üzrə beynəlxalq sazişlərə həsr olunmuş əksər ədəbiyyatda təsvir edilən koalisiya formalaşdırılması [22] və beynəlxalq ictimai rifahın təqdim edilməsi [23] proseslərinə uyğundur. Fərqli cəhət dəqiq səsvermə prosedurunun daxil edilməsi və ikinci mərhələdə təsvir edilmiş siyasi prosesə daha ətraflı informasiyanın əlavə edilməsidir. ...
... In asymmetric countries model, the aggregate welfare is determined not only by the size of IEA but also through the abatement costs of IEA participants, whereas only the IEA size determines the total welfare in symmetric model. We find that even if the asymmetry leads to a smaller size of IEA, the total welfare can increase, approach (see Missfeldt (1999) and Wagner (2001) for a survey). Unlike the noncooperative approach, the cooperative approach gives relatively optimistic results that a grand coalition can be sustained (Chander and Tulkens (1995), Chander and Tulkens (1997)). ...
Theoretical analyses of self-enforcing international environmental agreements (IEAs) have adopted the assumption of identical countries. In this paper, we assume that each country is endowed with country-specific pollution abatement technology, and show that the asymmetry of abatement technology across countries plays an important role in IEA formation. Our welfare analysis presents that under an asymmetry of technology, larger size of IEA could result in a welfare loss. We also find that abatement technology transfer among countries could lead to a welfare loss by unstabilizing self-enforcing IEA.
... Issue-linkage and side payments are useful strategies in long-term negotiation processes that are best characterized as repeated games (Axelrod 1984;Oye 1985;Wagner 2001). ...
The relationship between aid and voting in UN agencies has been well documented in the aid literature. We extend this analysis to the wider field of international negotiations, outside the sphere of formal voting, where decisions are mostly taken by consensus. Is aid used strategically to influence the negotiations in this context, too? Based on a novel dataset on negotiation behavior under the UN Framework Convention on Climate Change we assess whether countries obtaining aid react by expressing increased support and/or reduced opposition towards the donor. Applying linear and instrumental variable regressions on a three-dimensional panel dataset with donor-recipient dyads for the period 2002-2013 enables us to distinguish between long-term partnerships and the strategic use of aid for the purpose of the negotiations. We find that aid can indeed buy support in the climate negotiations, but that this opportunity tends to be limited to mitigation and adaptation aid, rather than general aid. We argue that this is due to both greater demand for and greater supply of these specific types of aid, whose allocation is under the direct responsibility of the specialized delegates participating in the negotiations.
... Some choose to model negotiations as cooperative games (such as Stag Hunt, in which the goal of the game is for players to cooperate), while others support a non-cooperative model (such as Prisoner's Dilemma, in which one cannot assume a goal of cooperation because most of the time the game ends with non-cooperation). Wagner (2001) finds unrealistic the possibility of describing MEA signature as a cooperative game, since a cooperative scenario presupposes the country's ultimate desire to sign and precludes a nation's right to withdraw from negotiations and the agreement itself. Through his own theoretical analysis and a summary of other papers' empirical results, Wagner examines self-enforcement provisions, such as minimum participation clauses, transfers (cash, in-kind), and sanction threats, that contribute to the success of an agreement. ...
This paper studies the causes of success in the signing and ratification of Multilateral Environmental Agreements (MEAs). Following previous studies, the paper examines the domestic factors contributing to whether or not a country has signed or ratified a particular environmental treaty at a particular time. However, the paper also attempts to isolate the effect of the characteristics of the first countries to participate in an MEA by adding variables, which measure the relative influence of early signatories and parties. The study finds that the early participation of United Nations Security Council members encourages latter participants to join an agreement.
... The theory of International Environmental Agreements (IEAs) [for general introductions see Barrett ( 2003Barrett ( , 2005 , Wagner ( 2001 ) or the more technical and in-depth Finus ( 2001 ) ; for a more recent overview see Carraro and Massetti ( 2010 ) ] embodies such negotiations by analysing coalition formation between parties that adopt joint welfare maximisation. In the negotiations, countries consider abatement decisions that would maximise the collective bene fi t of a coalition of the willing. ...
... Results show that for identical players only a very small number of players form a coalition, while asymmetries among players allow for larger coalitions. Seminal papers within this approach are Carraro and Siniscalco (1993) and Barrett (1994), and surveys can be found in Finus (2001Finus ( , 2003, Wagner (2001) and Caparrós et al. (2003). ...
This article surveys game theoretic papers focused on the negotiation process that leads to an International Environmental Agreement. Most of the papers considered apply bargaining theory, although other approaches have been considered as well. Among other issues, the papers considered analyze: the burden sharing rule that will result from a negotiation over a global public good; the role of information asymmetries; the impact of unilateral commitments, delegation, and ratification; whether or not countries are going to form groups during the negotiation process; and the influence of the expectation of a future bargaining process on investment decisions. The basic bargaining model is optimistic, as it predicts that countries will reach an efficient agreement immediately. However, all the developments of this model surveyed afterwards are rather pessimistic and even the basic model has perverse incentives for pre-negotiation signals.
... The application to the Montreal Protocol contributes to a sizeable literature on international environmental agreements (see Wagner, 2001, for a survey). The workhorse in this literature has been the "self-enforcing" agreements model (Hoel, 1992;Carraro and Siniscalco, 1993;Barrett, 1994) which models treaty participation as a non-cooperative game played among governments. ...
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.
... If the difference between the global net benefits under non-cooperative (countries acting independently) and fully cooperative outcomes is large, so is the incentive to free-ride, and the self-enforcing IEA cannot support a large number of countries [8]. To increase participation and stability, coalition can employ a number of measures, such as penalizing free-riding [8], offering transfers [7,10,11], imposing trade sanctions [10,12] or linking environmental protection to other international agreements, such as those facilitating technology transfers [10,13]. ...
In a highly interconnected world, immunizing infections are a transboundary problem, and their control and elimination require international cooperation and coordination. In the absence of a global or regional body that can impose a universal vaccination strategy, each individual country sets its own strategy. Mobility of populations across borders can promote free-riding, because a country can benefit from the vaccination efforts of its neighbours, which can result in vaccination coverage lower than the global optimum. Here we explore whether voluntary coalitions that reward countries that join by cooperatively increasing vaccination coverage can solve this problem. We use dynamic epidemiological models embedded in a game-theoretic framework in order to identify conditions in which coalitions are self-enforcing and therefore stable, and thus successful at promoting a cooperative vaccination strategy. We find that countries can achieve significantly greater vaccination coverage at a lower cost by forming coalitions than when acting independently, provided a coalition has the tools to deter free-riding. Furthermore, when economically or epidemiologically asymmetric countries form coalitions, realized coverage is regionally more consistent than in the absence of coalitions.
... Remember, however, that the benefits from mitigation will accrue in the distant future in the form of avoided damages, not an easy source ol funds for compensatory payments today! Alternatively, the global carbon tax might be part of a wider international environmental agreement, which might provide for different forms of conditional side-payments, technology transfer, trade sanctions and so forth (for a survey, see Wagner 2001 Globql environmental taxes 463 environmental taxes. The international community seems more likely to accept such taxes if their revenues are earmarked for international spending, especially spending related to the nature of the taxes. ...
An analysis and review of the effectiveness, efficiency, feasibility and acceptability of international environmental taxes, in particular carbon taxes.
... For instance, they could point out that game theoretic analyses are being based on too abstract models and assuming too much about the rationality of agents. As to the first point, I would argue that abstraction is a general phenomenon of models in social 1 For a survey see for instance de Zeeuw (1999, 2000), Folmer and van Mouche (2000), Finus (2001Finus ( , 2003a, Wagner (2001), and Barrett (2003), Bohringer and Finus (2005). 2 Climate change is a good point in case. The Framework Convention on Climate Change called for actions to prevent severe damages to the climate. ...
... 1 Indeed RCP2.6, the most stringent of the RCPs contained in the Fifth Assessment Report of the IPCC (AR5), shows that in order for the 2C limit not to be exceeded, emissions of CO 2 equivalents will have to turn negative towards the end of the 21st century. 2 Given previous experience, agreement on such stringent emissions reduction scenarios at the COP21 seems distinctly unlikely. It has been argued for some time that the nature of climate change as a spatial and intergenerational problem, together with the absence of an enforcement mechanism within the Kyoto Protocol and successive agreements, more or less precludes agreement on collective action [5] [6] [7] [8]. There are straightforward free-rider problems: non-signatories bene…t from the action of signatories thereby reducing the incentive to participate in an international agreement. ...
Climate science initially aspired to improve understanding of what the future would bring, and thereby produce appropriate public policies and effective international climate agreements. If that hope is dashed, as now seems probable, effective policies for adapting to climate change become critical. Climate science assumes new responsibilities by helping to foster more appropriate adaptation measures, which might include shifting modes or locales of production. This theoretical article focuses on two broader tools: consumption smoothing in response to the risk of future losses, and physical adaptation measures to reduce potential damages. It shows that informative signals on the effects of climate change facilitate better decisions on the use of each tool, thereby increasing social welfare.
... Stability refers to the likely acceptability of particular sharing rule (Dinar and McKinney, 2010). The majority of the relevant literature refers to a stable agreement if none of the signatories wishes to withdraw (internal stability) and none of the nonsignatories has an incentive to join the scheme (external stability) (Diamantoudi and Sartzetakis, 2006;Wagner, 2001). However, due to the specific peculiarities of ICCAT discussed in section 2, the PI is particularly appealing. ...
The paper examines the issue of allocating fishing rights for the management of East Atlantic and Mediterranean tuna. Although it is well-known that fairness plays a crucial role for the acceptability of international environmental agreements, usually there is a trade-off between fairness and stability. Our results confirm such a trade-off between fairness and stability that prevails over international agreements and this paper examines a way to reconcile it. The proposed approach comprises three stages. First, various equitable sharing rules (originated from the “bankruptcy” literature) are used to allocate the fishing rights. Second, fairness and stability criteria are used to assess the eligibility of the examined allocation rules. The final choice is facilitated by using a social choice rule. The chosen rationing rule, namely the A-min, represents a specific weighted average of the two focal rationales in the sharing problems, namely the equal shares and the proportional ones. Setting aside the institutional inertia, the A-min rule dominates, in terms of stability and fairness, the existing rule used by the International Commission for the Conservation of Atlantic Tunas (ICCAT). Furthermore, it is a transparent and easy to justify allocation rule so, it may be proved to be a strong candidate for future policy changes concerning the allocation of fishing rights.
Of the many fields of economics, environmental economics has arguably had the greatest influence on legal practice in recent decades.
After brief introductory comments on the Dasgupta Review, I turn to a subject little discussed in this report, the Convention on Biological Diversity. I explain the many weaknesses of this agreement, and its greatest missed opportunity: a protocol to conserve biodiversity as a global public good. This value of biodiversity represents only a fraction of the total value of conservation, but it’s the fraction that can only be supplied by a global treaty. I explain the flaws in the current approach by parties to the Convention of target setting, the advantages of a focus on biodiversity hotspots, and the reasons another treaty, the World Heritage Convention, has failed to conserve hotspots representing humankind’s biodiversity heritage. I then sketch a model showing that collective action in conserving global biodiversity hotspots can be supported by a self-enforcing treaty. The road not taken looks far more promising than the one we’ve been on since 1992.
We reassess the well-known “narrow-but-deep” versus “broad-but-shallow” trade-off in international environmental agreements (IEAs), taking into account the principal–agent relationship induced by the hierarchical structure of international policy. To this end, we expand the modest coalition formation game, in which countries first decide on whether to join an agreement and then decide on emissions by a strategic delegation stage. In the weak delegation game, principals first decide whether to join an IEA, then delegate the domestic emission choices to an agent. Finally, agents in all countries decide on emissions. In countries not joining the IEA, agents choose emissions to maximize their own payoff, while agents of countries joining the IEA set emissions to internalize some exogenously given fraction γ of the externalities that own emissions cause on all members of the IEA. In the strong delegation game, principals first delegate to agents, who then decide on membership and emissions. We find that strategic delegation crowds out all efforts to increase coalition sizes by less ambitious agreements in the weak delegation game, while in the strong delegation game the first-best from the principals’ point of view can be achieved.
In the wake of 25 United Nations Climate Change Conferences of the Parties (and counting), international cooperation on mitigating greenhouse gas emissions to avoid substantial and potentially irreversible climate change remains an important challenge. The limited impact of the Kyoto Protocol on curbing emissions, and the gap between the ambitions of its successor and the Paris Agreement's lack of sanctioning mechanisms for addressing noncompliance, demonstrates both the difficulties in negotiating ambitious environmental agreements and the reluctance of countries to comply with their agreed emission targets once they have joined the treaty. Therefore, a better understanding of the obstacles and opportunities that the interactions between domestic and international policy pose for the design of successful international climate cooperation is of utmost importance. To shed light on the roots of the stalemate (and suggest possible ways out), this article reviews and draws lessons from a growing theoretical, experimental, and empirical literature that accounts for the hierarchical interplay between domestic political pressure and international climate policy.
Expected final online publication date for the Annual Review of Resource Economics, Volume 13 is October 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.
Do reciprocal preferences matter for participation in international environmental agreements? Combining the two canonical models of Barrett (2003) and Rabin (1993), I find that 1) the empty coalition is always stable; 2) the grand coalition is stable if reciprocity preferences are sufficiently strong; 3) if a minority of countries are not reciprocal, a majority coalition can still be stable, if reciprocity is sufficiently strong and widespread; and 4) there is also a stable minority coalition, if costs are moderate and the number of countries is not too small. The latter coalition is weakly larger than the maximum stable coalition with standard preferences, but barely improves on welfare, and is characterized by negative sentiments. The analysis illustrates that although models of reciprocity tend to be complex, the context of a specific applied game may reduce this complexity.
Policy and guideline proposals for ethical artificial-intelligence research have proliferated in recent years. These are supposed to guide the socially-responsible development of AI for the common good. However, there typically exist incentives for non-cooperation (i.e., non-adherence to such policies and guidelines); and, these proposals often lack effective mechanisms to enforce their own normative claims. The situation just described constitutes a social dilemma---namely, a situation where no one has an individual incentive to cooperate, though mutual cooperation would lead to the best outcome for all involved. In this paper, we use stochastic evolutionary game dynamics to model this social dilemma in the context of the ethical development of artificial intelligence. This formalism allows us to isolate variables that may be intervened upon, thus providing actionable suggestions for increased cooperation amongst numerous stakeholders in AI. Our results show how stochastic effects can help make cooperation viable in such a scenario. They suggest that coordination for a common good should be attempted in smaller groups in which the cost for cooperation is low, and the perceived risk of failure is high. This provides insight into the conditions under which we should expect such ethics proposals to be successful with regard to their scope, scale, and content.
We apply a network approach to analyze individual and aggregate consumption that generates predominately local pollution (e.g., noise, water and air quality, waste disposal sites). This allows us to relate the individual pollution levels to network centralities and to determine the effects of transfers among agents on the aggregate contamination. We then apply our theoretical framework to analyze the European data on fossil fuel energy consumption and discuss the impact of EU redistributive transfer policies on the aggregate level of pollution.
In the context of multilateral negotiations on climate change, this paper proposes to use the claims approach as a reasonable and practicable alternative in order to allocate the admissible CO2 emissions per region. The proposed methodology entails analyze the application of a broad group of theoretical solutions through the establishment of equity and stability criteria. To this regard, the empirical analyzing combines several CO2 world endowments from Meinshausen et al. (2009) together with claims forecasts associated with the RCP (Representative Concentration Pathways) scenarios. The results obtained indicate that the constrained equal awards and α-minimal solutions are clearly equity-sensitive. Given that the CO2 emission reduction imposed by the constrained equal awards solution on Asia and the OECD are very important, and considering the better balance between equity and proportionality associated with the α-min solution, it could be that this latter solution would be the most practicable and acceptable.
We analyze the impact of ratification constraints on the optimal terms of international environmental agreements (IEAs). For this, we combine the literature on IEAs with the public choice literature on two-level games. By also incorporating uncertain preferences of the pivotal voter in the ratification stage, we make several important contributions: (i) we contribute to a more realistic modeling of the temporal structure of international agreements, (ii) we show a surprising, yet intuitive non-monotonic relationship between the optimal commitment level and the variance of ratification decisions, (iii) we identify reasons to expect a larger number of countries to join international negotiations than predicted by most of the coalition formation literature based on a representative agent model. Ratification constraints thereby can improve the welfare gains from stable international agreements.
Technological innovation is a key strategy for tackling climate change and other environmental problems. The required R&D expenditures however are substantial and fall on self-interested countries. Thus, the prospects of successful innovation critically depend on innovation incentives. This paper focuses on a specific mechanism for strategic distortions in this R&D game. In this mechanism, the outlook of future conflicts surrounding technology deployment directly impacts on the willingness to undertake R&D. Apart from free-riding, a different deployment conflict with distortive effects on innovation can occur. Low deployment costs and heterogeneous preferences might give rise to 'free-driving' (Weitzman 2015): The country with the highest preference for technology deployment, the free driver, may dominate the deployment outcome to the detriment of others. The present paper develops a simple two stage model for analysing how technology deployment conflicts, free-riding and free-driving, shape R&D incentives of two asymmetric countries. The framework gives rise to rich findings, underpinning the narrative that future deployment conflicts extend to the R&D stage. While the outlook of free-riding unambiguously weakens innovation incentives, the findings for free-driving are more complex, including the possibility of excessive R&D as well as incentives for counter-R&D.
Lengthy international climate negotiations indicate a great difficulty to agree on a global climate policy. This chapter discusses the prospect of global climate policy in the context of game theoretic literature on international environmental agreements. Since a global authority with power to enforce a global policy is lacking, international policy has to resort to self-enforcing agreements of sovereign nation states. Game theoretic research has shown that this results in a social dilemma with strong incentives to free-ride, and difficulty in achieving cooperation. But it has also outlined possible ways forward that may foster greater participation in an international climate agreement.
Performance and technology standards, key features of many international environmental agreements (IEAs) for common and public resources, are policy tools that can contribute to the conservation of Pacific sea turtle populations. Many such standards have been applied in other IEAs, including the conservation of dolphins in the eastern Pacific Ocean, polar bears in the Arctic, fur seals in the North Pacific, and seals in the Antarctic. Relevant standards have also been adopted as measures to address ozone depletion in the atmosphere, global warming from emissions of greenhouse gases, acid rain pollution from emissions of sulfur and nitrous dioxides, and ocean pollution from ships.
International law, of which international environmental law is a part, shapes and constrains state behaviour. Essentially, it tells states what they are permitted to do, what they are prohibited from doing, and what they are required to do. In this respect, international law is indistinguishable from domestic law. In other respects, however, domestic and international law could not be more different. Domestic law develops and is applied within a vertical system of governance, with a legislature that creates law, a judiciary that interprets law, and an executive that enforces law. International law, by contrast, is rooted to a horizontal system - states at once make, interpret, and enforce international law. This article presents an economic theory of international environmental law, showing how international law can restructure incentives, making it in the interest of states to change their behaviour, and so protect the environment. It examines customary law, theory of treaty design, treaty participation, minimum participation, compliance, narrow and deep versus broad and shallow treaties, tipping treaties, trade restrictions, asymmetric countries, and payment compensation. © D. Bodansky, J. Brunnée, and E. Hey, 2007. All rights reserved.
International climate change negotiations primarily occur during annual Conferences of the Parties (COPs) to the United Nations Framework Convention on Climate Change and currently involve virtually every country in the world. What effect does such a large and heterogeneous group of states have on the complexity of climate change negotiations? Would a smaller, more homogenous, assortment of countries produce a more efficient negotiation space? To begin to answer these questions, I apply Latent Dirichlet Allocation to a corpus of High-level climate change conference speeches, covering the formal statements made by country-representatives at the 16th-to-19th COPs. This exercise yields a very large and coherent set of latent topics and many, but not all, of these topics correspond to the negotiating positions presumed by extant research. Analysis of the resultant topics reveals that the dominant dimensions of climate change negotiation favor developing country concerns over cooperation, though reducing negotiations to a smaller core group of countries may lessen this disparity. Together these findings indicate that unsupervised topic models can substantially expand our understandings of climate change negotiations, and international cooperation more generally.
Thomas Sterner's book is an attempt to encourage more widespread and careful use of economic policy instruments. The book compares the accumulated experiences of the use of economic policy instruments in the U.S. and Europe, as well as in rich and poor countries in Asia, Africa, and Latin America. Ambitious in scope, it discusses the design of instruments that can be employed in any country in a wide range of contexts, including transportation, industrial pollution, water pricing, waste, fisheries, forests, and agriculture.
International agreements on transfrontier pollution issues require ap- proval by domestic political institutions. In this paper we employ a voting game theoretic model to characterize the stability of such agreements when each country’s participation is conditioned upon a domestic ratification vote. To describe pre-treaty or no treaty situ- ations, we propose a concept of (noncooperative) political equilibrium, and prove its existence. Then, we show that the set of cooperative joint policies (yielding a treaty) that are ratified by all countries is nonempty. Moreover, in our model, the unique agreement so ratified corresponds to the ratio equilibrium allocation of the international economy with the noncooperative equilibrium allocation as initial endowment.
Whalley and Wigle (1991b) use a static, six-region, perfect competition, general equilibrium model to explore various global carbon tax policies designed to cut CO2 emissions. Their program is used here to model unilateral carbon taxes applied by large regions such as the EC or the OECD. Sample model results suggest that a 20% unilateral cut in EC carbon-based energy consumption achieves a 0.7% cut in world consumption in equilibrium; the ECs production of energy-intensive goods falls by 8.3%; but EC welfare is hardly changed, thanks to a shift in consumption towards nonenergy-intensive goods and to cheaper carbon-based energy imports. Unilateral action, even by large economies, therefore seems to be environmentally ineffective but economically neutral overall. However, international leadership effects or induced technical progress might change these conclusions. Also, Perroni and Rutherford (1991) find less extreme results for similar policies, probably because they model world energy markets very differently.
This paper models the selection of environmental policies under authoritarian and democratic regimes, and tests the hypothesis that political institutions systematically affect the enactment of environmental regulations. The results support the contention that political institutional arrangements, rather than resource endowments, largely determine policies concerning environmental regulation. Copyright 1992 by MIT Press.
For a simple economic model of transfrontier pollution, widely used in theoretical studies of international treaties bearing on joint abatement, we offer in this paper a scheme for sharing national abatement costs through international financial transfers that is inspired by a classical solution concept from the theory of cooperative games—namely, the core of a game. The scheme has the following properties: total damage and abatement costs in all countries are minimized (optimality property), and no coalition or subset of countries can achieve lower total costs for its members by taking another course of action in terms of emissions or transfers, under some reasonable assumption about the reactions of those not in the coalition (core property). In the concluding section economic interpretations of the scheme are proposed, including its connection with the free-riding problem.
The paper analyzes the coalition formation process in a global emission game with asymmetric countries where the number of signatories, the abatement target and the policy instrument are chosen simultaneously. Exemplarily, a uniform emission reduction quota and an effluent charge are considered. Stability is analyzed in a supergame framework by applying the concept of coalition-proofness. The analysis also considers the impact of impatient agents, restricted and simple punishment profiles. Two main results may be mentioned: First, paradoxically, IEAs achieve only little (if signed at all) if the externality problem is distinct. Second, the authors' model helps to explain the frequent appearance of emission quotas in international pollution control despite the recommendations by economists to use market-based instruments like effluent charges. Copyright 1998 by Kluwer Academic Publishers
For international environmental problems involving many countries, such as, e.g., the climate problem, it is unlikely that all countries will participate in an international environmental agreement. If some countries commit themselves to cooperate, while the remaining countries act independently and in pure self-interest, it appears to be possible to achieve a Pareto improvement if the non-signatory countries reduce their emissions, in exchange for transfers from the countries which sign an agreement. However, the paper shows that the prospect of receiving a transfer for reducing one's emissions provided the country does not commit itself to cooperation, tends to reduce the incentive a country might have to commit itself to cooperation. Moreover, if the disincentive effect of such side payments is strong, total emissions will be higher in a situation with side payments than in a situation in which the signatory countries commit themselves to not give transfers to free riding countries. Copyright Kluwer Academic Publishers 1997
The purpose of this paper is to introduce the concept of interconnected games and to show its relevance for modeling international environmental problems. It is argued that an interconnected game approach to international environmental problems may enhance cooperation and provide an alternative to the use of financial side payments to induce countries to cooperate. Two types of interconnected games are distinguished in this paper, i.e. direct sum games and tensor games. In the former all the constituting isolated games are games in strategic form and in the latter they are repeated games. In both cases the interconnected game can be interpreted as a multiple objective game, but only the setting where a trade-off is made for the vector-payoffs is considered. In addition to the formal definition of these types of interconnected games, some elementary results concerning Nash equilibria of such games are derived. Copyright Kluwer Academic Publishers 1993
Calling upon both positive and normative economics, the authors attempt to characterize the issues at stake in the current international negotiations on climatic change.
Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effects of this uncertainty, a stochastic dynamic growth model with the public sector is examined. It is shown that deterministic excessive red tape and corruption deteriorate the growth potential through income redistribution and public sector inefficiencies. Most importantly, it is demonstrated that the increase in corruption via higher uncertainty exerts adverse effects on capital accumulation, thus leading to lower growth rates.
International environmental agreements are increasingly important in a globalised economy. Beyond their specific interest, these agreements are also important in the context of coalition formation theory. Given the incentives to free ride, associated to the environment as a public good and to the presence of spillovers, the profitability and the optimality of environmental agreements are separated from their stability (i.e. self-enforcement): hence, a whole set of political economy issues. This paper reviews the recent advances in this area. In particular, it discusses mechanisms and strategies aimed at offsetting the incentives to free ride and increasing welfare, such as transfers, issue linkages, threats and multiple agreements. The main results show that partial coalitions and multiple agreements tend to prevail among subsets of players, and that agreements among all players are most unlikely to exist. The design of the agreements, moreover, can be crucial in determining the number of signatory countries.
Carbon emissions abatement in a group of countries can result in increased emissions in non-abating countries. This eect has been referred to as carbon leakage. The Kyoto Agreement calls for a number of industrialized countries to limit their emissions while other countries have no abatement commitments. This paper assesses the sectoral determinants of the leakage in a static multi-sector, multi-regional computable general equilibrium model. In baseline estimates based on our model, the Kyoto Agreement leads to the carbon leakage rate of 10 percent. A decomposition technique is applied which attributes increases in carbon emissions by non-participating countries to specic sectors in the abating countries. This information is important for the debate on the tax exemptions for certain industries in the participating countries as it provides information for the most- and least- leakage contributing sectors of the economy. In absolute terms, carbon restrictions on chemical, iron and steel industries are the major sources of the leakage of the carbon emissions into the developing world. In relative terms, these industries along with mining, non-ferrous metal industry, and non-metallic mineral industry have the highest ratio of induced leakage to their sectoral carbon emissions. Additional calculations indicate the need for caution in the carbon tax design. For example, exemptions of any sector from a carbon tax are not justied because they lower welfare in a region. At a region-specic level, actions by the European Union and the USA are mainly responsible for the leakage of carbon. Dierent regions have a dierent ratio of induced leakage to their share of abatement. Europe and Japan have a larger relative contribution to the leakage than the USA. The emissions are primarily transferred into China, the Middle East region, and South Africa. The degree of sectoral and regional data disaggregation, and international capital mobility do not change the leakage rate signicantly. As has been noted in other studies, fossil-fuel supply elasticity and trade substitution elasticity are crucial determinants for projecting the total world emissions of CO2.
A theoretical model of emission reductions is specified that accounts for voluntary and non-voluntary behaviour regarding the adherence to the Helsinki and Sofia Protocols, which mandated emission reductions for sulphur (S) and nitrogen oxides (NOx), respectively. From this model, we derive an econometric specification for the demand for emission reductions that adjusts for the spatial dispersion of the pollutant. When tested for 25 European nations, the model performs well for sulphur cutbacks. Less satisfying results are obtained for NOx, because the model’s assumption of a unitary actor at the national level is less descriptive. Collective action considerations indicate that sulphur emissions are easier to control than those of NOx.
Recent research on compliance in international regulatory regimes has argued (1) that compliance is generally quite good; (2) that this high level of compliance has been achieved with little attention to enforcement; (3) that those compliance problems that do exist are best addressed as management rather than enforcement problems; and (4) that the management rather than the enforcement approach holds the key to the evolution of future regulatory cooperation in the international system. While the descriptive findings above are largely correct, the policy inferences are dangerously contaminated by endogeneity and selection problems. A high rate of compliance is often the result of states formulating treaties that require them to do little more than they would do in the absence of a treaty. In those cases where noncompliance does occur and where the effects of selection are attenuated, both self-interest and enforcement play significant roles.
There has been considerable interest in recent years in the question of issue linkages in international negotiations. What is significant about discussions of linkages in the present era is the stress put on making trade-offs explicit among issues. Most of the highly publicized cases of proposed issue linkages appear to have been motivated by attempts of individual countries or groups of countries to extend their dominant bargaining or veto power in one particular issue area into other areas so as to achieve maximum advantage from their whole array of international interactions. The existence of an additional rationale for linkage that relies upon mutual interest has important implications. Drawing on the economic theory of exchange, the use of issue linkages to facilitate the completion of a greater number of mutually beneficial agreements among nations is considered.
In global environmental problems, each country's own contribution to worldwide emissions is small, so there is little a country can do by itself. To solve global environmental problems one needs coordinated actions between countries. Environmental groups often advocate that in spite of the global character of the problem, a country ought to take unilateral actions to reduce its environmentally harmful emissions. The argument for such unilateral actions is that they at least give a contribution in the right direction (however small), and also that by “setting a good example” of this type one might affect the behavior of other countries, and/or improve the chances of reaching international agreements of coordinated reductions of harmful emissions. The paper gives an analysis of the consequences of unilateral reductions of harmful emissions. It is shown that such a policy will generally affect the outcome of international negotiations about reduced emissions. The outcome of such negotiations may very well imply higher total emissions when one country reduces its emissions unilaterally than if both countries act selfishly.
This paper shows that strong asymmetry among countries warrants a change in the rules of the game of global public goods provision, with the consequence that cooperation by some countries is bought by others and aggregate welfare is increased, perhaps substantially. Side payments on their own have virtually no effect on the outcomes that can be sustained by self-enforcing cooperative agreements. But when the rules of the game are changed by strong asymmetry – when some countries are effectively ‘committed’ to being non-signatories to an agreement eschewing money transfers – side payments become the vehicle for increasing participation in a cooperative agreement.
In this note it is shown that the requirement of weak renegatiation proofness does not eliminate any subgame perfect equilibrium outcome of the repeated prisoner's dilemma. Specifically it is demonstrated that, when players are sufficiently patient, any feasible and individually rational outcome can be sustained by means of an equilibrium in which the punishing player always profits by carrying out the punishment.
This paper analyzes the links between policies aimed at supplying a global public good and international trade in segmented markets. I find that the credible threat to impose trade sanctions may be capable of sustaining full cooperation in the supply of the public good, provided the sanctions are accompanied by a minimum participation clause which serves to coordinate government behavior. In equilibrium, trade is not restricted. But if the threat to impose sanctions were not allowed by the rules of the game, supply of the public good would be Pareto-inefficient.
This paper applies the theory of the voluntary provision of a pure public good to the behavior of nations to curb chlorofluorocarbon (CFC) emissions during the late 1980s. By devising an empirical test, we determine that these cutbacks in emissions are consistent with Nash behavior. When taste parameters are controlled, the relationship between emission cutbacks and national income is nearly linear as implied by the theory. If the sample is purged of potential outliers, then the linear relationship results. A significant taste parameter is the extent of political and civil freedoms, while a marginally significant parameter is geophysical position in terms of latitude.
A model is analysed in which a sovereign country engages in independent obligations to repay a creditor bank and to keep an environmental treaty. It is shown that the linkage of both obligations through a cross-default contract, whereby the sovereign is deemed to be in default of both contracts if either is defaulted on, may reduce the sovereign risk attached to both the debt and the environmental contracts. A sufficient condition for this is that the initial sovereign risks be not too high. Moreover, the linkage will create an incentive for the sovereign and the bank to engage in a debt-for-nature swap.
In an important class of “noncooperative” environments, it is natural to assume that players can freely discuss their strategies, but cannot make binding commitments. In such cases, any meaningful agreement between the players must be self-enforcing. Although the Nash best-response property is a necessary condition for self-enforceability, it is not sufficient—it is in general possible for coalitions arrange plausible, mutually beneficial deviations from Nash agreements. We provide a stronger definition of self-enforceability, and label the class of efficient self-enforcing agreements “coalition-proof.”
Domestic politics and international relations are often inextricably entangled, but existing theories (particularly “state-centric” theories) do not adequately account for these linkages. When national leaders must win ratification (formal or informal) from their constituents for an international agreement, their negotiating behavior reflects the simultaneous imperatives of both a domestic political game and an international game. Using illustrations from Western economic summitry, the Panama Canal and Versailles Treaty negotiations, IMF stabilization programs, the European Community, and many other diplomatic contexts, this article offers a theory of ratification. It addresses the role of domestic preferences and coalitions, domestic political institutions and practices, the strategies and tactics of negotiators, uncertainty, the domestic reverberation of international pressures, and the interests of the chief negotiator. This theory of “two-level games” may also be applicable to many other political phenomena, such as dependency, legislative committees, and multiparty coalitions.
Reductions of environmentally harmful emissions are often a public good in a global context. For strategic reasons, countries may adopt a technology with high per unit cost of emission reduction, even if a technology with lower per unit cost is available at no extra cost. They thereby credibly commit themselves to not reducing emission much in the future. In a game of private voluntary provision of emission reduction, this commitment will make other countries increase their emission reductions. Also, in the case where countries cooperate in the future, such commitment gives a country a strategic advantage, because it shifts the disagreement point in a favorable direction.
A simple taxonomy of international environmental problems is developed, based on economic considerations. The unidirectional externalities are illustrated by the case of one upstream and one downstream country. The main problem in this case is an informational one. The analysis of regional reciprocal externalities is illustrated by the acid rains in Europe. It is shown that an efficient solution could be achieved by transferable "export" rights. Finally, global external problems are discussed with reference to greenhouse effects and extinction of species. Copyright 1990 by Oxford University Press.
Suppose that land is communally owned. Every person has the right to hunt, till, or mine the land. This form of ownership
fails to concentrate the cost associated with any person's exercise of his communal right on that person. If a person seeks
to maximize the value of his communal rights, he will tend to overhunt and overwork the land because some of the costs of
his doing so are borne by others. The stock of game and the richness of the soil will be diminished too quickly. It is conceivable
that those who own these rights, i.e. every member of the community, can agree to curtail the rate at which they work the
lands if negotiating and policing costs are zero… [However,] negotiating costs will be large because it is difficult for many
persons to reach a mutually satisfactory agreement, especially when each hold-out has the right to work the land as fast as
he pleases. [Furthermore,] even if an agreement among all can be reached, we must yet take account of the costs of policing
the agreement, and these may be large, also.
The Kyoto Protocol, negotiated in December 1997, is the first international treaty to limit emissions of greenhouse gases. But Kyoto does not mark the conclusion to international cooperation on climate change. It is really just a beginning. This paper shows that, in the aggregate, the benefits of undertaking the Kyoto reductions should exceed the corresponding costs-provided these are achieved cost-effectively. But, although Kyoto seeks to promote cost-effectiveness, it may yet prove very costly. Moreover, the agreement may not even achieve the reductions that it promises, either because emissions will relocate to the countries that are not required to stay within Kyoto-prescribed ceilings or because "paper" trades will be promoted by the protocol's mechanisms. More fundamentally, Kyoto does not deter non-compliance, and it only weakly deters non-participation. These flaws need to be mended, but the nature of the problem makes that an especially difficult task. Copyright 1998 by Oxford University Press.
This paper considers the ability of developed countries to sustain a cooperative agreement to compensate developing countries for the “incremental costs” of biodiversity conservation. It is shown that, depending on certain parameter values and the model specification, such an agreement could only codify the non-cooperative outcome or achieve the full cooperative outcome where global net benefits are maximized. However, where the agreement can sustain the full cooperative outcome, net benefits will be only slightly larger than in the noncooperative outcome. Copyright Kluwer Academic Publishers 1994
International cooperation can be looked at in two ways: as a process and as an outcome. This paper shows how the process of treaty-making can affect treaty outcomes and how treaty design can change the rules of the game of international cooperation. Copyright Kluwer Academic Publishers 1998
The deterrence equilibrium concept of an important class of repeated games is shown to suffer from an unsoluble rational ity versus credibility conflict. The implicit assumption made when de terrence solutions to repeated games are constructed is that perfectn ess is a suffi-cient condition for the credibility of threats. The va lidity of this assumption, however, hinges on the unsatisfactory cond ition that players must exhibit a different rationality at different stages of the game. Making rationality stationary implies that suffic ient conditions for the credibility of threats fail to exist. Copyright 1988 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
The authors analyze the international aspects of the greenhouse problem. The equity versus efficiency trade-off is examined by reducing the set of instruments to the allocation of abatement efforts over countries without the possibility of side payments. The traditional cost-effective allocation of abatement efforts is no longer necessarily optimal. The trade-off is illustrated empirically by combining the available cost and benefit estimates in a simplified two-period model with twelve regions in the world. In a second application, the authors follow an inverse optimum approach and compute the power weights implicit in actual agreements. Copyright 1993 by WWZ and Helbing & Lichtenhahn Verlag AG
Transboundary pollution is pollution that is emitted in one country, and deposited or causing harm in another country. Due to the absence of a supranational institution that could enforce international legislation, transboundary externalities cannot be approached in the same way as domestic pollution problems. In an attempt to find non-traditional solutions to such -border problems, recent environmental economics literature incorporates behavioural assumptions with the help of game theory. This paper discusses how different types of transboundary pollution have been approached, and which static and dynamic game theoretic solution concepts have been evaluated. While full cooperation among countries yields the economically optimal outcome it is difficult to reach, because countries are faced with an inequitable sharing of the burden of pollution abatement and with the incentive to free-ride. Side payment schemes to aid burden sharing and strategies to circumvent free riding are reviewed. Issues such as transaction costs, information and motivation are briefly discussed. Copyright 1999 by Blackwell Publishers Ltd
This paper explores the implications of setting a minimum ratification level on an international agreement to tackle the greenhouse effect. Several aspects of the ratification level are considered, including the threshold number of signatories required to affect agreement, the potential number of participating countries, and the distribution of benefits from taking action. The likelihood of reaching agreement on a ratification level is also considered. It is shown, for example, that the optimal ratification level is reasonably robust to variations in circumstances and that the prospects for effecting a treaty may be improved by there being a large number of countries. Copyright 1993 by The London School of Economics and Political Science.
This paper demonstrates how several important results in environmental economics, true under mild conditions in closed economies, are false or need serious amendment in a world with international trade in goods. Since the results we highlight have framed much of the ongoing discussion and research on the Kyoto protocol, our viewpoint from trade theory suggests a re-examination may be in order. Specifically, we demonstrate that in an open trading world, but not in a closed economy setting: (1) unilateral emission reductions by the rich North can create self-interested emission reductions by the unconstrained poor South; (2) simple rules for allocating emission reductions across countries (such as uniform reductions) may well be efficient even if international trade in emission permits is not allowed; and (3) when international emission permit trade does occur it may make both participants in the trade worse off and increase global emissions.
If all countries participate in a climate agreement, policies affecting the supply of fossil fuels have identical economic consequences as policies affecting the demand of fossil fuels. This is no longer true when there is limited participation in an international agreement. In the paper, it is assumed that a group of countries commit themselves to cooperating, while the remaining countries act independently and in pure self-interest. The paper compares supply and demand policies in this context and demonstrates that policies which affect only demand or only supply of carbon generally are inferior to policies affecting both demand and supply of carbon. The optimal mix of supply and demand policies is derived in the paper, with particular emphasis on carbon taxes. An important result is that if the marginal environmental costs of total emissions are sufficiently high (in the cooperating countries), then both production and consumption of carbon should be taxed at a positive rate. If on the other hand the marginal environmental costs of total emissions are sufficiently low, it may be optimal to subsidize production or consumption. In this case, production should be subsidized if the cooperating countries are net importers of carbon, while consumption should be subsidized if the cooperating countries are net exporters of carbon. Another important conclusion of the paper is that the cooperating countries should try to induce the non-cooperating countries, through appropriate transfers, to tax consumption and production of carbon at the same rate as in the cooperating countries. (C) 1994 Academic Press, Inc.
In repeated games, subgame-perfect equilibria involving threats of punishment may be implausible if punishing one player hurts the other(s). If players can renegotiate after a defection, such a punishment may not be carried out. We explore a solution concept that recognizes this fact, and show that in many games the prospect of renegotiation strictly limits the cooperative outcomes that can be sustained. We characterize those outcomes in general, and in the prisoner's dilemma, Cournot and Bertrand duopolies, and an advertising game in particular.
This paper provides a general framework for studying the profitability and stability of international agreements to protect the environment in the presence of trans-frontier or global pollution. N countries are assumed to bargain on emission control. Each country decides whether or not to coordinate its strategy with other countries. A coalition is formed when both profitability and stability (no free riding) conditions are satisfied. The analysis shows that such coalitions exist but that only a small number of countries decide to cooperate. The paper thus explores the possibility of expanding such coalitions through transfers that induce other countries to cooperate. It is shown that large stable coalitions exist when low environmental interdependence exists and/or when the environmental damage functions are near-separable with respect to domestic and imported emissions. It is also shown that there are cases in which environmental negotiations can achieve substantial emission control even if countries behave non-cooperatively.
In this paper, the autor extends his previous treatment of «The Bargaining Problem» to a wider class of situations in which threats can play a role/ A new approach is introduced involving the elaboration of the threat concept.
We investigate the joint occurrence of international intertemporal trade and international environmental-permit trade, both of which are subject to country sovereignty. Assuming that side payments cannot be made to keep a debtor country from terminating international environmental cooperation, we analyze the impact of these two trade opportunties on a debtor country's incentive to continue environmental cooperation. We also show how, by way of a suitable strategic linkage between debt and permit trade, the public good of ensuring continued environmental cooperation can be provided by the supply side of private international loans. Copyright 1995 by Blackwell Publishing Ltd.
Presents a non-cooperative equilibrium concept, applicable to supergames, which fits John Nash's non-cooperative equilibrium and also has some features resembling the Nash cooperative solution. Description of an ordinary game; Definition and discussion of a non-cooperative equilibrium for supergames; Description of supergame and supergame strategies; Information on the Cournot strategy.
This paper uses the newly developed RICE-98 model to analyze the economics of the Kyoto Protocol. It analyzes versions of the Kyoto Protocol that have different approaches to trading emissions rights and compares these with efficient approaches. The major conclusions are: (a) the global cost of the Kyoto Protocol is $716 billion in present value, (b) the United States bears almost two-thirds of the global cost; and (c) the benefit-cost ratio of the Kyoto Protocol is 1/7. Additionally, the emissions strategy is highly cost-ineffective, with the global temperature reduction achieved at a cost almost 8 times the cost of a strategy which is cost-effective in terms of "where" and "when" efficiency.
This paper explores the consequences of cognitive dissonance, coupled with time-inconsistent preferences, in an intertemporal decision problem with two distinct goals: acting decisively on early information (vision) and adjusting flexibly to late information (flexibility). The decision maker considered here is capable of manipulating information to serve her self-interests, but a tradeoff between distorted beliefs and distorted actions constrains the extent of information manipulation. Building on this tradeoff, the present model provides a unified framework to account for the conformity bias (excessive reliance on precedents) and the confirmatory bias (excessive attachment to initial perceptions).
The economics of global environmental agreements
- U J Wagner
Wagner, U. J. (2000) The economics of global environmental agreements. Diplomarbeit in Theoretischer Volkswirtschaftslehre. Kiel: Christian-Albrechts-UniversitaÈ t. STABLE INTERNATIONAL ENVIRONMENTAL AGREEMENTS
Die Entstehung internationaler Umweltabkommen. Forschungsreihe 8a97 HalleaSaale: Institut fuÈ r Wirtschaftsforschung. Schelling, T. C. (1960) The Strategy of Conflict
- J Rothfels
Rothfels, J. (1997) Die Entstehung internationaler Umweltabkommen. Forschungsreihe 8a97. HalleaSaale: Institut fuÈ r Wirtschaftsforschung. Schelling, T. C. (1960) The Strategy of Conflict. Cambridge, MA: Harvard University Press.