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Potential Failure of an International Environmental Agreement under Asymmetric Information

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Author Info
Norimichi Matsueda () (Kwansei Gakuin University)

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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.

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File URL: http://www.economicsbulletin.com/2004/volume17/EB-04Q20003A.pdf
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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 17 (2004)
Issue (Month): 4 ()
Pages: 1-8
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Handle: RePEc:ebl:ecbull:v:17:y:2004:i:4:p:1-8

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Related research
Keywords: asymmetric information; perfect Bayesian equilibrium; signaling game; unidirectional transboundary pollution; Victim pays principle;

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Find related papers by JEL classification:
Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
D8 - Microeconomics - - Information, Knowledge, and Uncertainty

References listed on IDEAS
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  1. Rudolf Kerschbamer & Nina Maderner, 2001. "Optimal Control of Upstream Pollution under Asymmetric Information," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 19(4), pages 343-360, August. [Downloadable!] (restricted)
  2. Harsanyi, John C, 1995. "Games with Incomplete Information," American Economic Review, American Economic Association, vol. 85(3), pages 291-303, June.
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This page was last updated on 2009-12-12.

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