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Tipping Points and Loss Aversion in International Environmental Agreements

Doruk İriş () and Alessandro Tavoni ()

No 232927, EIA: Climate Change: Economic Impacts and Adaptation from Fondazione Eni Enrico Mattei (FEEM)

Abstract: We study the impact of loss-aversion and the threat of catastrophic damages, which we jointly call threshold concerns, on international environmental agreements. We aim to understand whether a threshold for dangerous climate change is as an effective coordination device for countries to overcome the global free-riding problem and abate sufficiently to avoid disaster. We focus on loss-averse countries negotiating either under the threat of either high environmental damages (loss domain), or low damages (gain domain). Under symmetry, that is when countries display identical degrees of threshold concern, we show that such beliefs have a positive effect on reducing the emission levels of both signatories to the treaty and non-signatories, leading to higher global welfare and weakly larger coalitions of signatories. We then introduce asymmetry, by allowing countries to differ in the degree of concern about the threat of disaster. We show that stable coalitions are mostly formed by the countries with higher threshold concern. When enough countries having no threshold concern could cause the coalition size to diminish, regardless of the other countries have strong or mild threshold concerns.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 32
Date: 2016-03-18
New Economics Papers: this item is included in nep-env
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http://ageconsearch.umn.edu/record/232927/files/NDL2016-025.pdf (application/pdf)

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Working Paper: Tipping Points and Loss Aversion in International Environmental Agreements (2016) Downloads
Working Paper: Tipping Points and Loss Aversion in International Environmental Agreements (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ags:feemei:232927

DOI: 10.22004/ag.econ.232927

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