International Environmental Commodities and the Principal-Agent-Approach

The increasing relevance of cross-border environmental issues is mirrored in the quest for effective allocation mechanisms for international environmental commodities. More or less detailed cost sharing proposals are part of the international climate agreements and thus become relevant “mechanisms”. For strategic goals the negotiations, which precede these international agreements, are gaining increasing importance. For example, a country wants to help or motivate others to participate effectively in activities to reduce transboundary environmental pollution. In contrast to the classic principal-agent approach, it is not so much the unobservable effort of the agent that is the main obstacle to an efficient outcome, but the question of appropriate instruments to achieve the goal. In this chapter, therefore, tools in this context are examined and their practical relevance analyzed. After a brief survey on the role of international environmental agreements as an allocation mechanism, the principal-agent approach is used to investigate stable and efficient allocations resulting from international negotiations. Mitigation strategies and adaptation strategies in relation to climate change are addressed in particular, also in a formal model.