Mitigation and adaptation are the most important strategies in combating global climate change. It is expected that in a post Kyoto world industrialized countries have to engage in greenhouse gas abatement, and to support developing countries in adapting to climate change. Within the framework of a non-cooperative Nash game we analyze, whether funding adaptation is incentive compatible in the sense that it stipulates mitigation. In particular it is the aim of this paper to discuss: (1) How does foreign funding of adaptation affect mitigation and regional welfare? (2) Under which conditions is it economically rational to fund adaptation in developing regions? We find that, if strict complementarity between adaptation and mitigation exists, funding adaptation increases both global mitigation and the donors' welfare, but negatively affects the recipients' welfare. The later only benefit, if maladaptation or adaptation, which is neutral to mitigation, is funded, which, however, makes the donors worse off.
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Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number
dp0804.
Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games F51 - International Economics - - International Relations and International Political Economy - - - International Conflicts; Negotiations; Sanctions Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
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