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International Environmental Agreements: Incentive Contracts with Multilateral Externalities


  • Carsten Helm

    () (Department of Economics, University of Oldenburg)

  • Franz Wirl

    () (University of Vienna, Center of Business Studies, Brünnerstr. 72, 1210 Wien, Austria,)


We consider how one party can induce another party to join an international emission compact given private information. Due to multilateral externalities the principal uses her own emissions besides subsidies to incentivize the agent. This leads to a number of non-standard features: Optimal contracts can include a boundary part, which is not a copy of the no contract outcome. Compared to this, a contract can increase emissions of the principal for inefficient types. Subsidies can be constant or even decreasing and turn negative, i.e., the agent reduces emissions and pays the principal.

Suggested Citation

  • 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.
  • Handle: RePEc:old:dpaper:336-11

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    References listed on IDEAS

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    Cited by:

    1. Martimort, David & Sand-Zantman, Wilfried, 2011. "A Mechanism Design Approach to Climate Agreements," TSE Working Papers 11-251, Toulouse School of Economics (TSE), revised 30 Apr 2013.

    More about this item


    private information; multilateral externalities; mechanism design; restricted contracts; environmental agreements;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods


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