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Risk Aversion and International Environmental Agreements

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Author Info
Vincent Boucher
Yann Bramoullé

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Abstract

We introduce uncertainty and risk aversion to the study of international environmental agreements. We consider a simple model with identical agents and linear payoffs. We show that a stable treaty with positive action always exists. While uncertainty lowers the action of signatories, we find that it may increase participation. In addition, uncertainty may generate multiple equilibria. A treaty with low action and low participation may coexist with one with high action and high participation. Overall, and despite risk aversion, the impact of uncertainty on welfare may be positive. A reduction in uncertainty may hurt international cooperation.

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Paper provided by CIRPEE in its series Cahiers de recherche with number 0739.

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Date of creation: 2007
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Handle: RePEc:lvl:lacicr:0739

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Related research
Keywords: International Environmental Agreements; Risk Aversion; Uncertainty;

Find related papers by JEL classification:
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

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  1. 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. [Downloadable!]
  2. Christian Gollier, 2004. "The Economics of Risk and Time," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572249.
  3. Sandler, Todd & Sternbenz, Frederic P., 1990. "Harvest uncertainty and the tragedy of the commons," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 155-167, March. [Downloadable!] (restricted)
  4. 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.
  5. Barrett, Scott, 1994. "Self-Enforcing International Environmental Agreements," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 878-94, Supplemen. [Downloadable!] (restricted)
  6. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September. [Downloadable!] (restricted)
  7. Geoffrey Heal & Bengt Kriström, 2002. "Uncertainty and Climate Change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(1), pages 3-39, June. [Downloadable!] (restricted)
  8. Gradstein, Mark & Nitzan, Shmuel & Slutsky, Steven, 1992. "The Effect of Uncertainty on Interactive Behaviour," Economic Journal, Royal Economic Society, vol. 102(412), pages 554-61, May. [Downloadable!] (restricted)
  9. Charles Kolstad, 2005. "Piercing the Veil of Uncertainty in Transboundary Pollution Agreements," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 31(1), pages 21-34, 05. [Downloadable!] (restricted)
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