International Environmental Agreements with Uncertainty, Learning and Risk Aversion
AbstractThis paper analyses the formation of international environmental agreements (IEAs) under uncertainty, focusing on the role of learning and risk aversion. It bridges two strands of literature: one focused on the role learning for the success of IEA formation when countries are risk neutral and another that explores the implications of uncertainty and risk aversion on IEA formation under no learning. Combining learning and risk aversion seems appropriate as the uncertainties surrounding many international environmental problems are still large, those uncertainties are often highly correlated as for instance in climate change and hence pooling risks may be limited, but those uncertainties are gradually reduced over time through learning. It is shown that the negative conclusion with respect to the role of learning derived for risk neutrality has to be qualified: below a threshold level of risk aversion learning can impact positively on the success of IEAs, above the threshold the opposite is true. Moreover, in a world without full learning (i.e. partial and no learning), risk aversion can lead to better outcomes, but only if risk aversion is sufficiently high.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4589.
Date of creation: 2014
Date of revision:
international environmental agreements; uncertainty; learning and risk aversion; game theory;
Other versions of this item:
- Finus, M & Pintassilgo, Pedro & Ulph, Alistair, 2014. "International Environmental Agreements with Uncertainty, Learning and Risk Aversion," Department of Economics Working Papers 39840, University of Bath, Department of Economics.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Charles Kolstad & Alistair Ulph, 2011. "Uncertainty, Learning and Heterogeneity in International Environmental Agreements," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 50(3), pages 389-403, November.
- Gollier & Jullien & Treich, 2000.
"Scientific progress and irreversibility : an economic interpretation of the Precautionary principle,"
156240, Institut National de la Recherche Agronomique, France.
- Gollier, Christian & Jullien, Bruno & Treich, Nicolas, 2000. "Scientific progress and irreversibility: an economic interpretation of the 'Precautionary Principle'," Journal of Public Economics, Elsevier, vol. 75(2), pages 229-253, February.
- Ulph, Alistair & Ulph, David, 1997. "Global Warming, Irreversibility and Learning," Economic Journal, Royal Economic Society, vol. 107(442), pages 636-50, May.
- Na, Seong-lin & Shin, Hyun Song, 1998. "International Environmental Agreements under Uncertainty," Oxford Economic Papers, Oxford University Press, vol. 50(2), pages 173-85, April.
- Dellink, Rob & Finus, Michael, 2009.
"Uncertainty and Climate Treaties: Does Ignorance Pay?,"
Stirling Economics Discussion Papers
2009-15, University of Stirling, Division of Economics.
- Dellink, Rob & Finus, Michael, 2012. "Uncertainty and climate treaties: Does ignorance pay?," Resource and Energy Economics, Elsevier, vol. 34(4), pages 565-584.
- Saha, Atanu, 1997. "Risk Preference Estimation in the Nonlinear Mean Standard Deviation Approach," Economic Inquiry, Western Economic Association International, vol. 35(4), pages 770-82, October.
- Finus, Michael & Pintassilgo, Pedro, 2012.
"The Role of Uncertainty and Learning for the Success of International Climate Agreements,"
Department of Economics Working Papers
28482, University of Bath, Department of Economics.
- Finus, Michael & Pintassilgo, Pedro, 2013. "The role of uncertainty and learning for the success of international climate agreements," Journal of Public Economics, Elsevier, vol. 103(C), pages 29-43.
- Finus, Michael & Pintassilgo, Pedro, 2009. "The Role of Uncertainty and Learning for the Success of International Climate Agreements," Stirling Economics Discussion Papers 2009-16, University of Stirling, Division of Economics.
- Carraro, Carlo & Siniscalco, Domenico, 1993.
"Strategies for the international protection of the environment,"
Journal of Public Economics,
Elsevier, vol. 52(3), pages 309-328, October.
- Carraro, Carlo & Siniscalco, Domenico, 1991. "Strategies for the International Protection of the Environment," CEPR Discussion Papers 568, C.E.P.R. Discussion Papers.
- Yann Bramoullé & Nicolas Treich, 2009. "Can Uncertainty Alleviate the Commons Problem?," Journal of the European Economic Association, MIT Press, vol. 7(5), pages 1042-1067, 09.
- Barrett, Scott, 1994. "Self-Enforcing International Environmental Agreements," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 878-94, Supplemen.
- Kolstad, Charles D., 1996. "Fundamental irreversibilities in stock externalities," Journal of Public Economics, Elsevier, vol. 60(2), pages 221-233, May.
- d'ASPREMONT, Claude & JACQUEMIN, Alexis & GABSZEWICZ, Jean J. & WEYMARK, John A., .
"On the stability of collusive price leadership,"
CORE Discussion Papers RP
-522, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Epstein, Larry G, 1980. "Decision Making and the Temporal Resolution of Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(2), pages 269-83, June.
- Arrow, Kenneth J & Fisher, Anthony C, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, MIT Press, vol. 88(2), pages 312-19, May.
- Ulph, A. & Maddison, D., 1995.
"Uncertainty, learning and international environmental policy co-ordination,"
Discussion Paper Series In Economics And Econometrics
9507, Economics Division, School of Social Sciences, University of Southampton.
- Alistair Ulph & David Maddison, 1997. "Uncertainty, learning and international environmental policy coordination," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 9(4), pages 451-466, June.
- Alistair Ulph, 2004. "Stable International Environmental Agreements with a Stock Pollutant, Uncertainty and Learning," Journal of Risk and Uncertainty, Springer, vol. 29(1), pages 53-73, 07.
- Kolstad, Charles D., 2007. "Systematic uncertainty in self-enforcing international environmental agreements," Journal of Environmental Economics and Management, Elsevier, vol. 53(1), pages 68-79, January.
- Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
- Kolstad, Charles D., 1996. "Learning and Stock Effects in Environmental Regulation: The Case of Greenhouse Gas Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 1-18, July.
- Santiago J. Rubio & Alistair Ulph, 2006.
"Self-enforcing international environmental agreements revisited,"
Oxford Economic Papers,
Oxford University Press, vol. 58(2), pages 233-263, April.
- Alistair Ulph & Santiago J. Rubio, 2004. "Self-Enforcing International Environmental Agreements Revisited," Working Papers. Serie AD 2004-23, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Fuhai HONG & Larry KARP, 2013. "International Environmental Agreements with Endogenous or Exogenous Risk," Economic Growth centre Working Paper Series 1310, Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre.
- Boucher, Vincent & Bramoullé, Yann, 2010. "Providing global public goods under uncertainty," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 591-603, October.
- Urvashi Narain & Michael Hanemann & Anthony Fisher, 2007. "The irreversibility effect in environmental decisionmaking," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 38(3), pages 391-405, November.
- Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-30, June.
- Larry Karp, 2012. "The effect of learning on membership and welfare in an International Environmental Agreement," Climatic Change, Springer, vol. 110(3), pages 499-505, February.
- Alfred Endres & Cornelia Ohl, 2003. "International environmental cooperation with risk aversion," International Journal of Sustainable Development, Inderscience Enterprises Ltd, vol. 6(3), pages 378-392.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).
If references are entirely missing, you can add them using this form.