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Uncertainty, learning and international environmental policy co-ordination

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  • Ulph, A.
  • Maddison, D.

Abstract

In this paper we construct a simple model of global warming which captures a number of key features of the global warming problem: (i) environmental damages are related to the stock of greenhouse gases in the atmosphere; (ii) the global commons nature of the problem means that these are strategic interactions between the emissions policies of the governments of individual nation states; (iii) there is uncertainty about the extent of the future damages that will be incurred by each country from any given level of concentration of greenhouse gases but there is the possibility that at a future date better information about the true extent of environmental damages may become available; an important aspect of the problem is the extent to which damages in different countries may be correlated. In the first part of the paper we consider a simple model with two symmetric countries and show that the value of perfect information is an increasing function of the correlation between damages in the two countries in both the cooperative and non-cooperative equilibria. However, while the value of perfect information is always non-negative in the cooperative equilibrium, in the non-cooperative equilibrium there is a critical value of the correlation coefficient below which the value of perfect information will be negative. In the second part of the paper we construct an empirical model of global warming distinguishing between OECD and non-OECD countries and show that in the non-cooperative equilibrium the value of perfect information for OECD countries is negative when the correlation coefficient between environmental damages for OECD and non-OECD countries is negative. The implications of these results for international agreements are discussed. Copyright Kluwer Academic Publishers 1997

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Bibliographic Info

Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 9507.

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Date of creation: 01 Jan 1995
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Handle: RePEc:stn:sotoec:9507

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References

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  1. Carroll, Christopher D & Kimball, Miles S, 1996. "On the Concavity of the Consumption Function," Econometrica, Econometric Society, vol. 64(4), pages 981-92, July.
  2. Christopher Dixon Carroll, 2001. "Death to the Log-Linearized Consumption Euler Equation! (And Very Poor Health to the Second-Order Approximation)," The B.E. Journal of Macroeconomics, De Gruyter, vol. 0(1), pages 6.
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  6. repec:fth:coluec:645 is not listed on IDEAS
  7. Skinner, Jonathan, 1988. "Risky income, life cycle consumption, and precautionary savings," Journal of Monetary Economics, Elsevier, vol. 22(2), pages 237-255, September.
  8. Angus Deaton, 1989. "Saving and Liquidity Constraints," NBER Working Papers 3196, National Bureau of Economic Research, Inc.
  9. Weil, Philippe, 1993. "Precautionary Savings and the Permanent Income Hypothesis," Review of Economic Studies, Wiley Blackwell, vol. 60(2), pages 367-83, April.
  10. Maddison, David, 1995. "A cost-benefit analysis of slowing climate change," Energy Policy, Elsevier, vol. 23(4-5), pages 337-346.
  11. Carraro, Carlo & Siniscalco, Domenico, 1991. "Strategies for the International Protection of the Environment," CEPR Discussion Papers 568, C.E.P.R. Discussion Papers.
  12. Binder, M. & Pesaran, M. H. & Samiei, S. H., 1998. "Analytical and Numerical Solution of Finite-horizon Nonlinear Rational Expectations Models," Cambridge Working Papers in Economics 9808, Faculty of Economics, University of Cambridge.
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  16. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
  17. Chichilnisky, G. & Heal, G., 1993. "Global Environmental Risks," Discussion Papers 1993_03, Columbia University, Department of Economics.
  18. Peck, Stephen C. & Teisberg, Thomas J., 1993. "Global warming uncertainties and the value of information: an analysis using CETA," Resource and Energy Economics, Elsevier, vol. 15(1), pages 71-97, March.
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  20. Gal-Or, Esther, 1985. "Information Sharing in Oligopoly," Econometrica, Econometric Society, vol. 53(2), pages 329-43, March.
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Citations

RePEc Biblio mentions

As found on the RePEc Biblio, the curated bibliography for Economics:
  1. > Environmental and Natural Resource Economics > Climate economics > International agreements
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Cited by:
  1. Michael Toman, 1998. "Research Frontiers in the Economics of Climate Change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 11(3), pages 603-621, April.
  2. Sudhir A. Shah, 2004. "Allocations and manipulation in Kyoto type protocols," Working papers 125, Centre for Development Economics, Delhi School of Economics.
  3. Yann Bramoullé & Nicolas Treich, 2009. "Can Uncertainty Alleviate the Commons Problem?," Journal of the European Economic Association, MIT Press, vol. 7(5), pages 1042-1067, 09.
  4. Charles Kolstad & Alistair Ulph, 2011. "Uncertainty, Learning and Heterogeneity in International Environmental Agreements," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 50(3), pages 389-403, November.
  5. Sudhir A. Shah, 2006. "A Non-Cooperative Theory Of Quantity-Rationing International Transfrontier Pollution," Working papers 143, Centre for Development Economics, Delhi School of Economics.
  6. Hwang, In Chang & Reynès, Frédéric & Tol, Richard S. J., 2011. "Climate Policy Under Fat-Tailed Risk: An Application of Dice," Papers WP403, Economic and Social Research Institute (ESRI).
  7. Baker, Erin, 2005. "Uncertainty and learning in a strategic environment: global climate change," Resource and Energy Economics, Elsevier, vol. 27(1), pages 19-40, January.
  8. Rob Dellink & Michael Finus & Niels Olieman, 2008. "The stability likelihood of an international climate agreement," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 39(4), pages 357-377, April.
  9. Boucher, Vincent & Bramoullé, Yann, 2010. "Providing global public goods under uncertainty," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 591-603, October.

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