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Climate policies with private information: The case for unilateral action

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  • Carsten Helm

    (University of Oldenburg, Department of Economics)

  • Franz Wirl

Abstract

Countries often have private information about their willingness to pay for protecting the climate system and their cost of emission reductions. We use a principal-agent model to re-examine the economic case for unilateral action by individual countries, in our case of the principal. We ?nd that the incentive structure that arises in an incomplete information framework can motivate (i) unilateral action before contract negotiations, (ii) optimal contracts in which the principal accepts higher marginal abatement costs for herself, as well as (iii) overcompliance by the principal after the contract has been negotiated. Multilateral externalities and type-dependent outside options, which are characteristic for climate policies, play a crucial role to explain these results.

Suggested Citation

  • Carsten Helm & Franz Wirl, 2015. "Climate policies with private information: The case for unilateral action," Working Papers V-378-15, University of Oldenburg, Department of Economics, revised Apr 2015.
    • Handle: RePEc:old:dpaper:378
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    Cited by:

    1. Aurélie Slechten, 2020. "Environmental Agreements under Asymmetric Information," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 7(3), pages 455-481.
    2. Torben K. Mideksa, 2021. "Leadership and Climate Policy," CESifo Working Paper Series 9054, CESifo.

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    More about this item

    Keywords

    unilateral action; voluntary action; unilateral commitment; private information; multilateral externalities; international environmental agreements; type-dependent outside options;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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