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Developing Countries and Environmental Protection: Contract Design in Perfectly Correlated Environments

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  • Amitrajeet Batabyal

Abstract

I study the problem faced by an asymmetrically informed supranational governmental authority (SNGA) with limited funds that wishes to design an international environmental agreement (IEA) for less developed countries (LDCs). The SNGA cannot contract directly with polluting firms in the various LDCs, but it must deal with such firms through their national governments. I study this tripartite hierarchical interaction for two LDCs. My principal result is that despite the perfect correlation in the private information of the governments and the firms across the two countries, and in contrast with the result contained in Batabyal (1998a), the SNGA cannot implement a first-best IEA. Copyright Kluwer Academic Publishers 1999

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  • 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.
    • Handle: RePEc:kap:openec:v:10:y:1999:i:3:p:305-323
    DOI: 10.1023/A:1008364320374
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Multicontract Organization," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 459-466, August.
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    6. 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.
    7. 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.
    8. Batabyal, Amitrajeet A., 1997. "Developing countries and environmental protection: the effects of budget balance and pollution ceiling constraints," Journal of Development Economics, Elsevier, vol. 54(2), pages 285-305, December.
    9. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
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    Cited by:

    1. Amitrajeet A. Batabyal & Dug Man Lee, 2008. "Dynamic Environmental Policy In Developing Countries With A Dual Economy," World Scientific Book Chapters, in: Dynamic And Stochastic Approaches To The Environment And Economic Development, chapter 10, pages 165-187, World Scientific Publishing Co. Pte. Ltd..
    2. Amitrajeet A Batabyal & Hamid Beladi, 2002. "Designing Collusion-Proof International Environmental Agreements: Developing Countries and Polluting Firms," Environment and Planning A, , vol. 34(1), pages 101-118, January.
    3. 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.

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