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International Environmental Agreements: Incentive Contracts with Multilateral Externalities

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  • Carsten Helm

    ()
    (Department of Economics, University of Oldenburg)

  • Franz Wirl

    ()
    (University of Vienna, Center of Business Studies, Brünnerstr. 72, 1210 Wien, Austria,)

Abstract

We consider how one party can induce another party to join an international emission compact given private information. Due to multilateral externalities the principal uses her own emissions besides subsidies to incentivize the agent. This leads to a number of non-standard features: Optimal contracts can include a boundary part, which is not a copy of the no contract outcome. Compared to this, a contract can increase emissions of the principal for inefficient types. Subsidies can be constant or even decreasing and turn negative, i.e., the agent reduces emissions and pays the principal.

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File URL: http://www.vwl.uni-oldenburg.de/download/HelmWirlFinal_WP.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by University of Oldenburg, Department of Economics in its series Working Papers with number V-336-11.

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Date of creation: Jun 2011
Date of revision: Jun 2011
Publication status: Published in Oldenburg Working Papers V-336-11
Handle: RePEc:old:dpaper:336-11

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Postal: 26111 Oldenburg
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Web page: http://www.vwl.uni-oldenburg.de/
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Related research

Keywords: private information; multilateral externalities; mechanism design; restricted contracts; environmental agreements;

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References

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