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How does the design of international environmental agreements affect investment in environmentally friendly technologies?

Basak Bayramoglu

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Abstract: This paper studies the link between the design of international environmental agreements and the incentives for the private sector to invest in cleaner technologies. More specifically, it compares the performance, in the Pareto sense, of two types of agreement: an agreement on a uniform standard with transfers and an agreement on differentiated standards without transfers. To achieve this goal, we use a multi-stage game where the private sector anticipates its irreversible investment given the expected level of abatement standards, resulting from future bilateral negotiations. Our findings indicate that whenever countries are able to partially commit, the agreement on a uniform standard may be preferable, as it creates greater incentives for firms to invest in costly abatement technology. This result relies on the low level of the set-up cost of this technology. If this level is sufficiently high, the announcement and implementation of the agreement on a uniform standard with transfers is not optimal, because it takes away the incentive of all firms to invest in a new abatement technology.

Keywords: irreversible investment; bargaining; transboundary; agreements; standards; transfers; technology adoption; transferts; adoption de technologie; investissement irréversible; accords; normes; négociation; pollution transfrontalière (search for similar items in EconPapers)
Date: 2007-04
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00159563
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Published in 2007

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Working Paper: How does the design of international environmental agreements affect investment in environmentally friendly technologies? (2007) Downloads
Working Paper: How does the design of international environmental agreements affect investment in environmentally friendly technologies? (2007) Downloads
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