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Cost Uncertainty and Unilateral Abatement

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  • Katarina Elofsson

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Abstract

Unilateral abatement is sometimes advocated in order to set a good example that will make other countries follow. The aim of this paper is to investigate whether existence of correlated cost uncertainty provides an incentive for a country to undertake unilateral abatement. The theoretical model is driven by two main mechanisms; first, a learning effect, as the follower country might reduce its risk premium as it can observe the cost level in the leader country. Second, there is the public good effect, i.e., the marginal benefit of abatement declines when abatement is a public good and other countries contribute to pollution reductions. Results shows that unilateral abatement would be efficient in reducing uncertainty about the unit costs of abatement if a country with low cost uncertainty would undertake abatement first, while a country with initially high cost uncertainty would follow. However, countries may prefer to act simultaneously because of the larger uncertainties that are inherent in a sequential game. Copyright Springer Science+Business Media, Inc. 2007

Suggested Citation

  • Katarina Elofsson, 2007. "Cost Uncertainty and Unilateral Abatement," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 36(2), pages 143-162, February.
  • Handle: RePEc:kap:enreec:v:36:y:2007:i:2:p:143-162
    DOI: 10.1007/s10640-006-9018-y
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    File URL: http://hdl.handle.net/10.1007/s10640-006-9018-y
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    References listed on IDEAS

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    1. Ing-Marie Gren & Paul Jannke & Katarina Elofsson, 1997. "Cost-Effective Nutrient Reductions to the Baltic Sea," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 10(4), pages 341-362, December.
    2. Karl-Göran Mäler & Anastasios Xepapadeas & Aart de Zeeuw, 2003. "The Economics of Shallow Lakes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 26(4), pages 603-624, December.
    3. Jean-Christophe Pereau & Tarik Tazdait, 2001. "Co-operation and Unilateral Commitment in the Presence of Global Environmental Problems," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 20(3), pages 225-239, November.
    4. Kohn, Robert E., 2001. "Unilateral transfer of abatement capital," Resource and Energy Economics, Elsevier, vol. 23(2), pages 85-95, April.
    5. Eric Nævdal, 2001. "Optimal Regulation of Eutrophying Lakes, Fjords, and Rivers in the Presence of Threshold Effects," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 972-984.
    6. Elofsson, Katarina, 2003. "Cost-effective reductions of stochastic agricultural loads to the Baltic Sea," Ecological Economics, Elsevier, vol. 47(1), pages 13-31, November.
    7. Ing-Marie Gren, 2001. "International Versus National Actions Against Nitrogen Pollution of the Baltic Sea," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 20(1), pages 41-59, September.
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    Citations

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    Cited by:

    1. Kimiko Terai, 2012. "Financial Mechanism and Enforceability of International Environmental Agreements," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 53(2), pages 297-308, October.
    2. Elofsson, Katarina & Gren, Ing-Marie, 2014. "Cost-efficient climate policies for interdependent and uncertain carbon pools," Working Paper Series 2014:7, Swedish University of Agricultural Sciences, Department Economics.
    3. Kai A. Konrad & Marcel Thum, 2011. "Unilateral Action and Negotiations about Climate Policy," Working Papers unilateral_action_and_neg, Max Planck Institute for Tax Law and Public Finance.
    4. Gren, Ing-Marie, 2009. "A numerical model for dynamic cost effective mitigation of eutrophication with spatial heterogeneity in the Baltic Sea," Department of Economics publications 4311, Swedish University of Agricultural Sciences, Department of Economics.
    5. George HALKOS & Georgia GALANI, 2014. "Cost Effectiveness Analysis in Reducing Nutrient Loading in Baltic and Black Seas A Review," Journal of Advanced Research in Management, ASERS Publishing, vol. 5(1), pages 28-51.
    6. Larsson, Markus & Granstedt, Artur, 2010. "Sustainable governance of the agriculture and the Baltic Sea -- Agricultural reforms, food production and curbed eutrophication," Ecological Economics, Elsevier, vol. 69(10), pages 1943-1951, August.
    7. Gregor Schwerhoff, 2016. "The economics of leadership in climate change mitigation," Climate Policy, Taylor & Francis Journals, vol. 16(2), pages 196-214, March.
    8. Gregor Schwerhoff, 2013. "Leadership and International Climate Cooperation," Working Papers 2013.97, Fondazione Eni Enrico Mattei.
    9. Amihai Glazer & Stef Proost, 2012. "Informational Benefits of International Treaties," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 53(2), pages 185-202, October.
    10. Elofsson, Katarina, 2014. "International knowledge diffusion and its impact on the cost-effective clean-up of the Baltic Sea," Working Paper Series 2014:06, Swedish University of Agricultural Sciences, Department Economics.
    11. Vale, Petterson Molina, 2016. "The changing climate of climate change economics," Ecological Economics, Elsevier, vol. 121(C), pages 12-19.
    12. Czap, Hans J. & Czap, Natalia V., 2011. "Donating-selling tradeoffs and the influence of leaders in the environmental goods game," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(6), pages 743-752.
    13. repec:bla:jecsur:v:32:y:2018:i:2:p:491-517 is not listed on IDEAS
    14. repec:taf:tcpoxx:v:17:y:2017:i:5:p:573-590 is not listed on IDEAS

    More about this item

    Keywords

    Baltic Sea; cost uncertainty; Cournot; learning effect; nitrogen; Poland; Stackelberg; Sweden; unilateral abatement; C73; Q25; Q52; Q58;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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