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Developing countries and environmental protection: the effects of budget balance and pollution ceiling constraints

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  • Batabyal, Amitrajeet A.

Abstract

I analyze the problem faced by an asymmetrically informed supranational governmental authority (SNGA) with limited financial resources who wishes to design an International Environmental Agreement (IEA). The SNGA cannot contract directly with polluting firms in the various LDCs, but he must deal with such firms through their governments. I study this tripartite hierarchical interaction and focus on the properties of the optimal ex post contracts (IEAs), which can be implemented by the SNGA, in turn, in the case where governments and firms in each nation do not collude and then in the case where governments and firms do collude. I find that the monetary transfers necessary to induce optimal behavior by governments and firms are not very sensitive to the presence of collusion. However, because the optimal contracts satisfy budget balance, and because there is a ceiling on the amount of pollution reduction that an IEA can require, the level and pattern of pollution abatement are never ideal. My analysis suggests that IEAs are not inherently doomed due to a basic monitoring and enforcement problem arising from national sovereignty. However, the success of IEAs is fundamentally contingent on the funds available for environmental protection and the pollution reduction ceiling negotiated by the SNGA and the LDC government.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 54 (1997)
Issue (Month): 2 (December)
Pages: 285-305

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Handle: RePEc:eee:deveco:v:54:y:1997:i:2:p:285-305

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  1. Batabyal, Amitrajeet A., 1996. "An Agenda For The Design And Study Of International Environmental Agreements," Economics Research Institute, ERI Study Papers 28353, Utah State University, Economics Department.
  2. Bernauer, Thomas, 1995. "The effect of international environmental institutions: how we might learn more," International Organization, Cambridge University Press, vol. 49(02), pages 351-377, March.
  3. Black, Jane & Levi, Maurice D & de Meza, David, 1993. "Creating a Good Atmosphere: Minimum Participation for Tackling the 'Greenhouse Effect.'," Economica, London School of Economics and Political Science, vol. 60(239), pages 281-93, August.
  4. Batabyal, Amitrajeet A., 1995. "Leading issues in domestic environmental regulation: A review essay," Ecological Economics, Elsevier, vol. 12(1), pages 23-39, January.
  5. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
  6. Hurley, Terrance M. & Shogren, Jason F., 1997. "Environmental Conflicts and the SLAPP," Journal of Environmental Economics and Management, Elsevier, vol. 33(3), pages 253-273, July.
  7. Todd Sandler & Keith Sargent, 1995. "Management of Transnational Commons: Coordination, Publicness, and Treaty Formation," Land Economics, University of Wisconsin Press, vol. 71(2), pages 145-162.
  8. Michael Hoel, 1992. "International environment conventions: The case of uniform reductions of emissions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 2(2), pages 141-159, March.
  9. Kofman, Fred & Lawarree, Jacques, 1993. "Collusion in Hierarchical Agency," Econometrica, Econometric Society, vol. 61(3), pages 629-56, May.
  10. Barrett, Scott, 1994. "Self-Enforcing International Environmental Agreements," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 878-94, Supplemen.
  11. Jean Tirole, 1988. "The Multicontract Organization," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 459-66, August.
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Cited by:
  1. Batabyal, Amitrajeet A., 1998. "On the irrelevance of collusion in perfectly correlated environments," International Review of Economics & Finance, Elsevier, vol. 7(4), pages 393-405.
  2. Lee, Dug Man & Batabyal, Amitrajeet A., 2002. "Dynamic environmental policy in developing countries with a dual economy," International Review of Economics & Finance, Elsevier, vol. 11(2), pages 191-206, May.
  3. Amitrajeet Batabyal, 1999. "Developing Countries and Environmental Protection: Contract Design in Perfectly Correlated Environments," Open Economies Review, Springer, vol. 10(3), pages 305-323, July.
  4. Batabyal, Amitrajeet A., 1998. "Developing countries and international environmental agreements: The case of perfect correlation," International Review of Economics & Finance, Elsevier, vol. 7(1), pages 85-102.

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