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Developing Countries And Environmental Protection: The Effect 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. Note: Forthcoming in Journal of Development Economics

Suggested Citation

  • Batabyal, Amitrajeet A., 1996. "Developing Countries And Environmental Protection: The Effect Of Budget Balance And Pollution Ceiling Constraints," Economics Research Institute, ERI Study Papers 28347, Utah State University, Economics Department.
  • Handle: RePEc:ags:usuesp:28347
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    References listed on IDEAS

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    1. Batabyal, Amitrajeet A., 1995. "Leading issues in domestic environmental regulation: A review essay," Ecological Economics, Elsevier, vol. 12(1), pages 23-39, January.
    2. Hurley, Terrance M. & Shogren, Jason F., 1997. "Environmental Conflicts and the SLAPP," Journal of Environmental Economics and Management, Elsevier, vol. 33(3), pages 253-273, July.
    3. 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.
    4. Todd Sandler & Keith Sargent, 1995. "Management of Transnational Commons: Coordination, Publicness, and Treaty Formation," Land Economics, University of Wisconsin Press, vol. 71(2), pages 145-162.
    5. Jean Tirole, 1988. "The Multicontract Organization," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 459-466, August.
    6. Kofman, Fred & Lawarree, Jacques, 1993. "Collusion in Hierarchical Agency," Econometrica, Econometric Society, pages 629-656.
    7. Black, Jane & Levi, Maurice D & de Meza, David, 1993. "Creating a Good Atmosphere: Minimum Participation for Tackling the 'Greenhouse Effect.'," Economica, London School of Economics and Political Science, vol. 60(239), pages 281-293, August.
    8. Barrett, Scott, 1994. "Self-Enforcing International Environmental Agreements," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 878-894, Supplemen.
    9. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
    10. Bernauer, Thomas, 1995. "The effect of international environmental institutions: how we might learn more," International Organization, Cambridge University Press, vol. 49(02), pages 351-377, March.
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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 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..
    3. 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.
    4. Yutaka Suzuki, 2013. "Hierarchical Global Pollution Control in Asymmetric Information Environments: A Continuous-type, Three-tier Agency Framework," Working Papers e65, Tokyo Center for Economic Research.
    5. 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.
    6. 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.

    More about this item

    Keywords

    environmental; agreement; LDCs; budget; ceiling; Environmental Economics and Policy; International Development; D62; D82; Q25;

    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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