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Unilateral emission reductions can lead to Pareto improvements when adaptation to damages is possible

Author

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  • Klaus Eisenack

    () (University of Oldenburg, Department of Economics)

  • Leonhard Kähler

Abstract

Policy advocates frequently request for unilateral action to push forward climate protection in international negotiations. It is yet conventional wisdom in environmental economics that unilateral action does not pay for the first mover due to free-riding behavior of the other countries. How does this analysis change if there is a further option at hand: off-setting damages from joint emissions by individual adaptation measures? Adaptation to climate change plays an increasingly role in the international negotiations under the UNFCCC. This paper shows that when adaptation is considered as an explicit decision variable, and unilateral action is framed as a Stackelberg game, the resulting convexity properties imply (when the follower has a specific property) that total emissions are reduced to the benefit of all countries in the game equilibrium. When countries play a game of timing in a period before emission and adaptation decisions – to determine who takes the role of the Stackelberg leader – it is shown that a country with this specific property indeed becomes the follower. The equilibrium of the overall game is Pareto superior to the non-cooperative Nash solution.

Suggested Citation

  • Klaus Eisenack & Leonhard Kähler, 2012. "Unilateral emission reductions can lead to Pareto improvements when adaptation to damages is possible," Working Papers V-344-12, University of Oldenburg, Department of Economics, revised Jan 2012.
  • Handle: RePEc:old:dpaper:344
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    File URL: http://www.vwl.uni-oldenburg.de/download/DP_V-344_12.pdf
    File Function: First version, 2012
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    References listed on IDEAS

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    Cited by:

    1. Wolfgang Peters & Reimund Schwarze & Anna-Katharina Topp, 2017. "Pareto Improvements Induced by Climate Funding in a Strategic Adaptation-Mitigation Framework," World Scientific Book Chapters, in: Anil Markandya & Ibon Galarraga & Dirk Rübbelke (ed.), Climate Finance Theory and Practice, chapter 9, pages 191-212, World Scientific Publishing Co. Pte. Ltd..
    2. Michèle Breton & Lucia Sbragia, 2017. "Adaptation to Climate Change: Commitment and Timing Issues," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(4), pages 975-995, December.
    3. Leonhard Kähler & Klaus Eisenack, 2016. "Strategic Complements in International Environmental Agreements: a New Island of Stability," Working Papers V-393-16, University of Oldenburg, Department of Economics, revised Aug 2016.

    More about this item

    Keywords

    international environemental problems; climate change; Stackelberg game; convexity;

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