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The value of commitment and delegation for the control of greenhouse gas emissions

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Abstract

We analyze a stylized model of a world consisting of a large number of countries, which derive utility from energy consumption but suffer both from the emission of greenhouse gases (smog, black carbon, etc.) as well as from the external effects caused by climate change. The countries decide individually on investments in clean (i.e., emission free) technologies for energy production, whereas a supranational environmental authority decides for each country on the maximally permitted amount of emissions of greenhouse gases. We demonstrate that the authority faces a dynamic inconsistency problem that leads to welfare losses. Yet these welfare losses can be kept small if the mandate for the authority penalizes the local cost of emissions very heavily but puts little or no weight at all on the cost of climate change.

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  • Paul Pichler & Gerhard Sorger, 2016. "The value of commitment and delegation for the control of greenhouse gas emissions," Vienna Economics Papers vie1604, University of Vienna, Department of Economics.
    • Handle: RePEc:vie:viennp:vie1604
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    More about this item

    JEL classification:

    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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