Global Environmental Management: Incentives for Abatement Investment Anticipating an International Bargaining
When future international agreement for global environmental control is anticipated, decisions for controlling current carbon gas emissions by improving the country's abatement capabilities are strongly affected by the likelihood of and the likely outcome of such agreements. We construct a two period two country model were the quality of the atmospheric environment is a global public capital, and countries invest in abatement investments in the first period and engage in production activities in the second period. Applying the incomplete contract approach to this model where (re)negotiation with or without side payment may take place in the second period, we examine the following questions. What are the characteristics of the country that make its investments as well as in ex post incentives for environmental improvement, and what are the characteristics of countries which are prone to these distortions?
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