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International Environmental Agreements with Endogenous or Exogenous Risk

Author

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  • Fuhai HONG

    (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332.)

  • Larry KARP

    (Department of Agricultural and Resource Economics, University of California, Berkeley, and the Ragnar Frisch Center for Economic Research.)

Abstract

We examine the effect of endogenous and exogenous risk on the equilibrium (expected) membership of an International Environmental Agreement when countries are risk averse. Endogenous risk arises when countries use mixed rather than pure strategies at the participation game, and exogenous risk arises from the inherent uncertainty about the costs and benefits of increased abate- ment. Under endogenous risk, an increase in risk aversion increases expected participation. Under exogenous risk and pure strategies, increased risk aver- sion weakly decreases equilibrium participation if and only if the variance of income decreases with abatement.

Suggested Citation

  • Fuhai HONG & Larry KARP, 2013. "International Environmental Agreements with Endogenous or Exogenous Risk," Economic Growth Centre Working Paper Series 1310, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
  • Handle: RePEc:nan:wpaper:1310
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    References listed on IDEAS

    as
    1. RobertS. Shupp & ArlingtonW. Williams, 2008. "Risk preference differentials of small groups and individuals," Economic Journal, Royal Economic Society, vol. 118(525), pages 258-283, January.
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    Citations

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    Cited by:

    1. Mao, Liang, 2017. "Designing International Environmental Agreements under Participation Uncertainty," MPRA Paper 86248, University Library of Munich, Germany.
    2. repec:eee:eneeco:v:78:y:2019:i:c:p:278-288 is not listed on IDEAS
    3. Michael Finus & Pedro Pintassilgo & Alistair Ulph, 2014. "International Environmental Agreements with Uncertainty, Learning and Risk Aversion," Department of Economics Working Papers 19/14, University of Bath, Department of Economics.
    4. Hong, Fuhai & Lim, Wooyoung, 2016. "Voluntary participation in public goods provision with Coasian bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 102-119.
    5. Hong, Fuhai, 2015. "International Environmental Agreements with reference points," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 59(C), pages 68-73.
    6. repec:kap:enreec:v:73:y:2019:i:4:d:10.1007_s10640-018-0295-z is not listed on IDEAS
    7. 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.
    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.
    9. Mao, Liang, 2017. "Designing International Environmental Agreements under Participation Uncertainty," MPRA Paper 79145, University Library of Munich, Germany.

    More about this item

    Keywords

    International Environmental Agreement; climate agreement; endogenous risk; exogenous risk; risk aversion; mixed strategy.;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • H4 - Public Economics - - Publicly Provided Goods
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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