Potential Failure of an International Environmental Agreement under Asymmetric Information
The free-riding issue is generally considered to be the biggest obstacle in the success of an international environmental agreement. Even without free-riding incentives, however, asymmetric information can pose a potentially significant threat in establishing a cooperative relationship. In this note, we examine perfect Bayesian equilibria of a simple signaling game between a polluter country and a victim country over an agreement to mitigate unidirectional transboudary pollution. We show that the stalemate in addressing an international environmental issue can be explained partly by the incentive conflict due to asymmetric information on the environmental preference of a polluter. We also identify several conditions that allow such a stalemate to occur more easily.
Volume (Year): 17 (2004)
Issue (Month): 4 ()
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- Kennan, J. & Wilson, R., 1991.
"Bargaining with Private Information,"
90-01rev, University of Iowa, Department of Economics.
- Claus Huber & Franz Wirl, 1996. "Optimal incentives to reduce transboundary emissions: Theory and empirical illustration to sulphur emissions in Austria and (former) Czechoslovakia," Empirica, Springer, vol. 23(2), pages 149-172, June.
- Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
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