Potential Failure of an International Environmental Agreement under Asymmetric Information

Norimichi Matsueda

No 22, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: The free-riding issue is generally considered to be the biggest obstacle in the success of an international environmental agreement. Even without free-riding incentives, however, asymmetric information can pose a potentially significant threat in establishing a cooperative relationship. In this study, we examine perfect Bayesian equilibria of a simple signaling game between a polluter country and a victim country over an agreement to mitigate unidirectional transboudary pollution. Our results indicate that the stalemate in addressing an international environmental issue can be partly explained by the incentive conflict due to the asymmetric information on the environmental preference of a polluter.

Keywords: asymmetric information; perfect Bayesian equilibrium; signaling game; unidirectional transboundary pollution; Victim pays principle (search for similar items in EconPapers)
JEL-codes: D82 Q20 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2004-04, Revised 2004-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://192.218.163.163/RePEc/pdf/kgdp22.pdf First version, 2004 (application/pdf)

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Journal Article: Potential Failure of an International Environmental Agreement under Asymmetric Information (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:22

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