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Potential Failure of an International Environmental Agreement under Asymmetric Information

Author

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  • Norimichi Matsueda

    (Kwansei Gakuin University)

Abstract

The free-riding issue is generally considered to be the biggest obstacle in the success of an international environmental agreement. Even without free-riding incentives, however, asymmetric information can pose a potentially significant threat in establishing a cooperative relationship. In this note, we examine perfect Bayesian equilibria of a simple signaling game between a polluter country and a victim country over an agreement to mitigate unidirectional transboudary pollution. We show that the stalemate in addressing an international environmental issue can be explained partly by the incentive conflict due to asymmetric information on the environmental preference of a polluter. We also identify several conditions that allow such a stalemate to occur more easily.

Suggested Citation

  • Norimichi Matsueda, 2004. "Potential Failure of an International Environmental Agreement under Asymmetric Information," Economics Bulletin, AccessEcon, vol. 17(4), pages 1-8.
    • Handle: RePEc:ebl:ecbull:eb-04q20003
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    References listed on IDEAS

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    1. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
    2. Fanny Missfeldt, 1999. "Game‐Theoretic Modelling of Transboundary Pollution," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 287-321, July.
    3. Kennan, John & Wilson, Robert, 1993. "Bargaining with Private Information," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 45-104, March.
    4. Claus Huber & Franz Wirl, 1996. "Optimal incentives to reduce transboundary emissions: Theory and empirical illustration to sulphur emissions in Austria and (former) Czechoslovakia," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 23(2), pages 149-172, June.
    5. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, January.
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    Cited by:

    1. Michael Jakob & Kai Lessmann, 2012. "Signaling in international environmental agreements: the case of early and delayed action," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 12(4), pages 309-325, November.
    2. Fuhai Hong, 2014. "Technology transfer with transboundary pollution: A signalling approach," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(3), pages 953-980, August.

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    More about this item

    Keywords

    asymmetric information;

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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