 Environmental agreements under asymmetric informationNo 95042257, Working Papers from Lancaster University Management School, Economics Department Abstract: In a two-country model, I analyze international environmental agreements when a country's emission abatement costs are private information and participation to an agreement is voluntary. I show that the presence of asymmetric information may prevent countries from reaching a first-best agreement if this information asymmetry is too high. I propose a new channel to restore the feasibility of the first-best agreement: pre-play communication. By revealing its abatement cost through a certification agency in a pre-play communication stage, a country commits not to misreport this abatement cost during the negotiations of an agreement. Hence, following certification by at least one country, information asymmetry is reduced. Certification restores the feasibility of the first-best agreement except for intermediate levels of information asymmetry. For those levels, one country undergoing certification is not always sufficient to restore the feasibility of the first-best but it is impossible to find transfers between countries such that they both optimally accept to undergo certification. One country has always an incentive to free-ride on the other country's certification. Keywords: environmental agreements; Asymmetric information; certification; information disclosure (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:lan:wpaper:95042257 Access Statistics for this paper More papers in Working Papers from Lancaster University Management School, Economics Department Contact information at EDIRC. |
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