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Joint implementation under asymmetric information and strategic behavior

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  • Cathrine Hagem

Abstract

Joint Implementation (JI) under the Framework Convention on Climate Change means that countries could partly offset their national abatement commitments by investing in CO 2 abatement projects abroad. JI is introduced as a mechanism for achieving a certain global abatement target less costly by separating the commitments from the implementation of measures. This paper studies the design of a JI contract when the investor has incomplete information about the foreign firm which carries out the JI project (the host). Asymmetric information leads to a decrease in the potential cost savings from JI. Furthermore, private information held by the potential host firm could give the firm a significant positive utility of participating in JI projects. The possibility of being a host for a JI project in the future can prevent potential host firms from investing in profitable abatement projects today. The paper analyzes the impact on emissions of CO 2 of strategic behavior among potential hosts for JI projects. Copyright Kluwer Academic Publishers 1996

Suggested Citation

  • Cathrine Hagem, 1996. "Joint implementation under asymmetric information and strategic behavior," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 8(4), pages 431-447, December.
    • Handle: RePEc:kap:enreec:v:8:y:1996:i:4:p:431-447
    DOI: 10.1007/BF00357412
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    References listed on IDEAS

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    1. repec:aen:journl:1992v13-03-a08 is not listed on IDEAS
    2. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
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    Citations

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    Cited by:

    1. Michael Toman, 1998. "Research Frontiers in the Economics of Climate Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 11(3), pages 603-621, April.
    2. Fischer, Carolyn, 2002. "Determining Project-Based Emissions Baselines with Incomplete Information," Discussion Papers 10520, Resources for the Future.
    3. Strand, Jon, 2013. "Strategic climate policy with offsets and incomplete abatement: Carbon taxes versus cap-and-trade," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 202-218.
    4. Matti Liski & Juha Virrankoski, 2004. "Frictions in Project-Based Supply of Permits," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 28(3), pages 347-365, July.
    5. Jon Hovi, 2001. "Decentralized Enforcement, Sequential Bargaining and the Clean Development Mechanism," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 27, pages 135-152.
    6. Norimichi Matsueda, 2003. "Asymmetrical information and delay of a side payment in unidirectional transboundary pollution," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 5(3), pages 229-247, April.
    7. Fischer, Carolyn, 2005. "Project-based mechanisms for emissions reductions: balancing trade-offs with baselines," Energy Policy, Elsevier, vol. 33(14), pages 1807-1823, September.
    8. Franz Wirl & Claus Huber & I.O Walker, 1998. "Joint Implementation: Strategic Reactions and Possible Remedies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 12(2), pages 203-224, September.
    9. Helm, Carsten & Wirl, Franz, 2014. "The principal–agent model with multilateral externalities: An application to climate agreements," Journal of Environmental Economics and Management, Elsevier, vol. 67(2), pages 141-154.
    10. repec:old:wpaper:336-11 is not listed on IDEAS
    11. Kolstad, Charles D. & Toman, Michael, 2005. "The Economics of Climate Policy," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 30, pages 1561-1618, Elsevier.
    12. Hagem, Cathrine, 2009. "The clean development mechanism versus international permit trading: The effect on technological change," Resource and Energy Economics, Elsevier, vol. 31(1), pages 1-12, January.
    13. Katrin Millock, 1999. "Endogenous Monitoring: a New Challenge for the Regulation of Energy Externalities," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 68(4), pages 635-646.
    14. Zavodov, Kirill, 2012. "Renewable energy investment and the clean development mechanism," Energy Policy, Elsevier, vol. 40(C), pages 81-89.
    15. Jeongmeen Suh & Myeonghwan Cho, 2017. "Roles of Flexible Mechanisms in International Environmental Agreements," Korean Economic Review, Korean Economic Association, vol. 33, pages 239-265.
    16. Kerr, Suzi, 2003. "Joint Implementation In Climate Change Policy," Motu Working Papers 293007, Motu Economic and Public Policy Research.
    17. Carsten Helm & Franz Wirl, 2011. "International Environmental Agreements: Incentive Contracts with Multilateral Externalities," Working Papers V-336-11, University of Oldenburg, Department of Economics, revised Jun 2011.
    18. Strand, Jon & Rosendahl, Knut Einar, 2012. "Global emissions effects of CDM projects with relative baselines," Resource and Energy Economics, Elsevier, vol. 34(4), pages 533-548.

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