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Developing countries and environmental protection: the effects of budget balance and pollution ceiling constraints

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  • Batabyal, Amitrajeet A.

Abstract

I analyze the problem faced by an asymmetrically informed supranational governmental authority (SNGA) with limited financial resources who wishes to design an International Environmental Agreement (IEA). The SNGA cannot contract directly with polluting firms in the various LDCs, but he must deal with such firms through their governments. I study this tripartite hierarchical interaction and focus on the properties of the optimal ex post contracts (IEAs), which can be implemented by the SNGA, in turn, in the case where governments and firms in each nation do not collude and then in the case where governments and firms do collude. I find that the monetary transfers necessary to induce optimal behavior by governments and firms are not very sensitive to the presence of collusion. However, because the optimal contracts satisfy budget balance, and because there is a ceiling on the amount of pollution reduction that an IEA can require, the level and pattern of pollution abatement are never ideal. My analysis suggests that IEAs are not inherently doomed due to a basic monitoring and enforcement problem arising from national sovereignty. However, the success of IEAs is fundamentally contingent on the funds available for environmental protection and the pollution reduction ceiling negotiated by the SNGA and the LDC government.
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  • Batabyal, Amitrajeet A., 1997. "Developing countries and environmental protection: the effects of budget balance and pollution ceiling constraints," Journal of Development Economics, Elsevier, vol. 54(2), pages 285-305, December.
  • Handle: RePEc:eee:deveco:v:54:y:1997:i:2:p:285-305
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    1. Batabyal, Amittrajeet A., 1996. "An agenda for the design and study of international environmental agreements," Ecological Economics, Elsevier, vol. 19(1), pages 3-9, October.
    2. Jean Tirole, 1988. "The Multicontract Organization," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 459-466, August.
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    9. Batabyal, Amitrajeet A., 1995. "Leading issues in domestic environmental regulation: A review essay," Ecological Economics, Elsevier, vol. 12(1), pages 23-39, January.
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    Cited by:

    1. Batabyal, Amitrajeet A, 1998. "On land use, minerals development, and institutional design in the American west," Resources Policy, Elsevier, vol. 24(3), pages 139-146, September.
    2. Amitrajeet Batabyal, 1999. "Developing Countries and Environmental Protection: Contract Design in Perfectly Correlated Environments," Open Economies Review, Springer, vol. 10(3), pages 305-323, July.
    3. Oladi, Reza & Caplan, Arthur J. & Gilbert, John, 2018. "Sequestration and the engagement of developing economies in a global carbon market," Resource and Energy Economics, Elsevier, vol. 52(C), pages 50-63.
    4. Amitrajeet A. Batabyal & Dug Man Lee, 2008. "Dynamic Environmental Policy In Developing Countries With A Dual Economy," World Scientific Book Chapters, in: Dynamic And Stochastic Approaches To The Environment And Economic Development, chapter 10, pages 165-187, World Scientific Publishing Co. Pte. Ltd..
    5. Yutaka Suzuki, 2013. "Hierarchical Global Pollution Control in Asymmetric Information Environments: A Continuous-type, Three-tier Agency Framework," Working Papers e065, Tokyo Center for Economic Research.
    6. Amitrajeet A Batabyal & Hamid Beladi, 2002. "Designing Collusion-Proof International Environmental Agreements: Developing Countries and Polluting Firms," Environment and Planning A, , vol. 34(1), pages 101-118, January.
    7. Batabyal, Amitrajeet A., 1998. "On the irrelevance of collusion in perfectly correlated environments," International Review of Economics & Finance, Elsevier, vol. 7(4), pages 393-405.
    8. Batabyal, Amitrajeet A., 1998. "Developing countries and international environmental agreements: The case of perfect correlation," International Review of Economics & Finance, Elsevier, vol. 7(1), pages 85-102.

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    More about this item

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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