Renegotiation-proof equilibria in a global emission game when players are impatient

Michael Finus, Bianca Rundshagen

Research output: Contribution to journalArticle

22 Citations (Scopus)

Abstract

In a two-country model, in which countries differ with respect to the perception of environmental damages and abatement costs, the stability of international environmental agreements is analyzed in a dynamic framework. Three types of agreements are considered: a socially optimal solution, a uniform emission tax (a tax equally applied in both countries) and a uniform emission reduction quota (an equal percentage emission reduction from a base year). Stability is checked for these agreements according to the concept of renegotiation-proofness. It is shown that the stability requirements depend crucially on the parameters defining the interests of the two countries and the type of agreement. Moreover, it is demonstrated that if punishment options are restricted for some reason the stability of an agreement may suffer. One important result of the paper is that if countries exhibit asymmetric interests, stability in the quota regime is higher than in the tax regime and in the social optimum. This might explain why emission reduction quotas have been so popular in international politics despite recommendations of economists to use market-based instruments.
Original languageEnglish
Pages (from-to)275-306
Number of pages32
JournalEnvironmental and Resource Economics
Volume12
Issue number3
DOIs
Publication statusPublished - 1998

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abatement cost
market
tax
emission reduction
Renegotiation
Emission reduction
Tax
environmental damage
parameter
international politics
recommendation
Optimal solution
Social optimum
Environmental damage
Renegotiation-proofness
Economists
Emission taxes
Punishment
Two-country model
International environmental agreements

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Renegotiation-proof equilibria in a global emission game when players are impatient. / Finus, Michael; Rundshagen, Bianca.

In: Environmental and Resource Economics, Vol. 12, No. 3, 1998, p. 275-306.

Research output: Contribution to journalArticle

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