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International environmental cooperation with risk aversion

Author

Listed:
  • Alfred Endres
  • Cornelia Ohl

Abstract

This paper models global environmental policy in a stochastic setting: reducing pollution not only reduces expected environmental damage but also its spread. The national incentives to cooperate are analysed under adverse conditions: expected payoffs are taken to have the structure of a (static) prisoners' dilemma. It is shown that, even then, incentives to cooperate unilaterally or even bilaterally may exist. They actually do if countries are sufficiently risk averse. Following the traditional economic approach we take national risk preferences to be given. Still, the finding sketched above turns out to be relevant for the design of global environmental policy. We define critical thresholds that actual risk aversion must exceed to induce cooperation. It is shown that risk management may push these thresholds down. Thereby, appropriate policy design may improve the chances for stable and effective international environmental agreements.

Suggested Citation

  • Alfred Endres & Cornelia Ohl, 2003. "International environmental cooperation with risk aversion," International Journal of Sustainable Development, Inderscience Enterprises Ltd, vol. 6(3), pages 378-392.
  • Handle: RePEc:ids:ijsusd:v:6:y:2003:i:3:p:378-392
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    Citations

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    Cited by:

    1. Karp, Larry & Simon, Leo, 2013. "Participation games and international environmental agreements: A non-parametric model," Journal of Environmental Economics and Management, Elsevier, vol. 65(2), pages 326-344.
    2. Finus, M & Pintassilgo, Pedro & Ulph, Alistair, 2014. "International Environmental Agreements with Uncertainty, Learning and Risk Aversion," Department of Economics Working Papers 39840, University of Bath, Department of Economics.
    3. Fuhai Hong & Larry Karp, 2014. "International Environmental Agreements with Endogenous or Exogenous Risk," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(3), pages 365-394.
    4. Partha Dasgupta & Dale Southerton & Alistair Ulph & David Ulph, 2016. "Consumer Behaviour with Environmental and Social Externalities: Implications for Analysis and Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 191-226, September.
    5. Alfred Endres, 2008. "Ein Unmöglichkeitstheorem für die Klimapolitik?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 9(3), pages 350-382, August.
    6. Michael FinusAlistair Ulph & Alistair Ulph, 2013. "International Environmental Agreements with Uncertainty, Learning and Risk Aversion," The School of Economics Discussion Paper Series 1329, Economics, The University of Manchester.
    7. Rob Dellink & Michael Finus & Niels Olieman, 2008. "The stability likelihood of an international climate agreement," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(4), pages 357-377, April.
    8. Michael Finus & Bianca Rundshagen, 2015. "Game Theory and Environmental and Resource Economics–In Honour of Alfred Endres," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(4), pages 657-664, December.

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