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A Proposal to Reform the Kyoto Protocol: the Role of Escape Clauses and Foresight

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  • Karp, Larry
  • Zhao, Jinhua

Abstract

A reform to the Kyoto Protocol that allows signatories to pay a fine instead of meeting the target level of abatement would achieve three goals. First, it would defuse one U.S. objection to the agreement: the concern that the cost of achieving the target might turn out to be extremely high. Second, unlike other cost-reducing measures (such as trade in pollution permits) it would increase the equilibrium number of signatories in a non-cooperative participation game. Third, it would make it easier to force signatories to comply with their obligations. We study the participation game under an escape clause using both a Nash Equilibrium and the concept of a stable set when nations are “farsightedâ€. We compare our results to a prominent model of International Environmental Agreements (IEAs) which finds that the equilibrium size of an IEA tends to be small when the benefits of cooperation are large. We show that with an escape clause and a properly chosen level of fine, a large IEA can be formed even when the benefits of cooperation are large.

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Bibliographic Info

Paper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt5b10v2jr.

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Date of creation: 23 Feb 2007
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Handle: RePEc:cdl:agrebk:qt5b10v2jr

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Keywords: Kyoto Protocol; escape clause; cost uncertainty; participation game; International Environmental Agreement; stable set with farsight; coalitional games;

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References

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  1. DIAMANTOUDI, Effrosyni & SARTZETAKIS, Eftichios, 2002. "International environmental agreements - The role of foresight," CORE Discussion Papers 2002061, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Hoel, Michael & Karp, Larry, 2001. "Taxes and quotas for a stock pollutant with multiplicative uncertainty," Journal of Public Economics, Elsevier, vol. 82(1), pages 91-114, October.
  3. de Zeeuw, Aart, 2008. "Dynamic effects on the stability of international environmental agreements," Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 163-174, March.
  4. Stiglitz Joseph, 2006. "A New Agenda for Global Warming," The Economists' Voice, De Gruyter, vol. 3(7), pages 1-4, July.
  5. Carraro, Carlo & Siniscalco, Domenico, 1991. "Strategies for the International Protection of the Environment," CEPR Discussion Papers 568, C.E.P.R. Discussion Papers.
  6. Licun Xue, 1998. "Coalitional stability under perfect foresight," Economic Theory, Springer, vol. 11(3), pages 603-627.
  7. Johan Eyckmans, 2001. "On the farsighted stability of the Kyoto Protocol," Energy, Transport and Environment Working Papers Series ete0103, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
  8. Debraj Ray & Rajiv Vohra, 2001. "Coalitional Power and Public Goods," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1355-1384, December.
  9. Amitrajeet A. Batabyal, 2011. "The Economics of Hate," Review of Social Economy, Taylor & Francis Journals, vol. 69(4), pages 534-537, December.
  10. Mariotti, Marco, 1997. "A Model of Agreements in Strategic Form Games," Journal of Economic Theory, Elsevier, vol. 74(1), pages 196-217, May.
  11. Dixit, Avinash & Olson, Mancur, 2000. "Does voluntary participation undermine the Coase Theorem?," Journal of Public Economics, Elsevier, vol. 76(3), pages 309-335, June.
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Cited by:
  1. Larry Karp & Jinhua Zhao, 2010. "International Environmental Agreements: Emissions Trade, Safety Valves and Escape Clauses," Revue économique, Presses de Sciences-Po, vol. 61(1), pages 153-182.
  2. Karp, Larry & Zhao, Jinhua, 2008. "A Proposal for the Design of the Successor to the Kyoto Protocol," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt35n7x8mt, Department of Agricultural & Resource Economics, UC Berkeley.
  3. Zeeuw, A.J. de, 2008. "Dynamic effects on the stability of international environmental agreements," Open Access publications from Tilburg University urn:nbn:nl:ui:12-377597, Tilburg University.

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