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Potential Failure of an International Environmental Agreement under Asymmetric Information

Author

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  • Norimichi Matsueda

    (School of Economics, Kwansei Gakuin University)

Abstract

The free-riding issue is generally considered to be the biggest obstacle in the success of an international environmental agreement. Even without free-riding incentives, however, asymmetric information can pose a potentially significant threat in establishing a cooperative relationship. In this study, we examine perfect Bayesian equilibria of a simple signaling game between a polluter country and a victim country over an agreement to mitigate unidirectional transboudary pollution. Our results indicate that the stalemate in addressing an international environmental issue can be partly explained by the incentive conflict due to the asymmetric information on the environmental preference of a polluter.

Suggested Citation

  • Norimichi Matsueda, 2004. "Potential Failure of an International Environmental Agreement under Asymmetric Information," Discussion Paper Series 22, School of Economics, Kwansei Gakuin University, revised Apr 2004.
    • Handle: RePEc:kgu:wpaper:22
    as

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    References listed on IDEAS

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    1. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, April.
    2. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, September.
    3. Fanny Missfeldt, 1999. "Game‐Theoretic Modelling of Transboundary Pollution," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 287-321, July.
    4. Kennan, John & Wilson, Robert, 1993. "Bargaining with Private Information," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 45-104, March.
    5. Claus Huber & Franz Wirl, 1996. "Optimal incentives to reduce transboundary emissions: Theory and empirical illustration to sulphur emissions in Austria and (former) Czechoslovakia," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 23(2), pages 149-172, June.
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    Cited by:

    1. Michael Jakob & Kai Lessmann, 2012. "Signaling in international environmental agreements: the case of early and delayed action," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 12(4), pages 309-325, November.
    2. Fuhai Hong, 2014. "Technology transfer with transboundary pollution: A signalling approach," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(3), pages 953-980, August.

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    More about this item

    Keywords

    asymmetric information; perfect Bayesian equilibrium; signaling game; unidirectional transboundary pollution; Victim pays principle;
    All these keywords.

    JEL classification:

    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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