Risk Aversion and International Environmental Agreements
AbstractWe 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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Bibliographic InfoPaper provided by CIRPEE in its series Cahiers de recherche with number 0739.
Date of creation: 2007
Date of revision:
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
This paper has been announced in the following NEP Reports:
- NEP-AGR-2007-11-17 (Agricultural Economics)
- NEP-ALL-2007-11-17 (All new papers)
- NEP-ENV-2007-11-17 (Environmental Economics)
- NEP-UPT-2007-11-17 (Utility Models & Prospect Theory)
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