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Potential Failure of an International Environmental Agreement under Asymmetric Information

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  • Norimichi Matsueda

    ()
    (School of Economics, Kwansei Gakuin University)

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 study, 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. Our results indicate that the stalemate in addressing an international environmental issue can be partly explained by the incentive conflict due to the asymmetric information on the environmental preference of a polluter.

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File URL: http://192.218.163.163/RePEc/pdf/kgdp22.pdf
File Function: First version, 2004
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Bibliographic Info

Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 22.

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Length: 26 pages
Date of creation: Apr 2004
Date of revision: Apr 2004
Handle: RePEc:kgu:wpaper:22

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

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References

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  1. Kennan, John & Wilson, Robert, 1993. "Bargaining with Private Information," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 45-104, March.
  2. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521311120, April.
  3. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  4. Claus Huber & Franz Wirl, 1996. "Optimal incentives to reduce transboundary emissions: Theory and empirical illustration to sulphur emissions in Austria and (former) Czechoslovakia," Empirica, Springer, vol. 23(2), pages 149-172, June.
  5. Missfeldt, Fanny, 1999. " Game-Theoretic Modelling of Transboundary Pollution," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 287-321, July.
  6. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, April.
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Cited by:
  1. Michael Jakob & Kai Lessmann, 2012. "Signaling in international environmental agreements: the case of early and delayed action," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 12(4), pages 309-325, November.

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