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Strategic uncertainty, indeterminacy, and the formation of international environmental agreements

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  • Daiju Narita
  • Ulrich J. Wagner

Abstract

Since the end of the Kyoto Protocol, global climate negotiations have shifted away from setting binding short-run targets on emissions towards placing long-term limits on global warming. We investigate how this alters the incentives for participation in a technology-centred international environmental agreement (IEA) where countries choose between conventional abatement and a breakthrough abatement technology that exhibits a network externality. When switching technologies is costly, we obtain that equilibrium adoption is indeterminate because the future adoption rate is subject to strategic uncertainty. Participation in an IEA that mandates the adoption of the breakthrough technology will be complete only if countries expect that all other countries will adopt eventually. Long-run temperature targets can be regarded as a device to coordinate countries’ expectations on that outcome.

Suggested Citation

  • Daiju Narita & Ulrich J. Wagner, 2017. "Strategic uncertainty, indeterminacy, and the formation of international environmental agreements," Oxford Economic Papers, Oxford University Press, vol. 69(2), pages 432-452.
    • Handle: RePEc:oup:oxecpp:v:69:y:2017:i:2:p:432-452.
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    More about this item

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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