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International Environmental Agreements with Endogenous or Exogenous Risk

Fuhai Hong and Larry Karp
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Fuhai Hong: Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332.

No 1310, Economic Growth Centre Working Paper Series from Nanyang Technological University, School of Social Sciences, Economic Growth Centre

Abstract: We examine the effect of endogenous and exogenous risk on the equilibrium (expected) membership of an International Environmental Agreement when countries are risk averse. Endogenous risk arises when countries use mixed rather than pure strategies at the participation game, and exogenous risk arises from the inherent uncertainty about the costs and benefits of increased abate- ment. Under endogenous risk, an increase in risk aversion increases expected participation. Under exogenous risk and pure strategies, increased risk aver- sion weakly decreases equilibrium participation if and only if the variance of income decreases with abatement.

Keywords: International Environmental Agreement; climate agreement; endogenous risk; exogenous risk; risk aversion; mixed strategy. (search for similar items in EconPapers)
JEL-codes: D8 H4 Q54 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2013-10
New Economics Papers: this item is included in nep-ene, nep-env and nep-sea
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Citations: View citations in EconPapers (4)

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Journal Article: International Environmental Agreements with Endogenous or Exogenous Risk (2014) Downloads
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