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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Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number
22.
Find related papers by JEL classification: Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
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