International Environmental Agreements: Incentive Contracts with Multilateral Externalities

Carsten Helm and Franz Wirl

No V-336-11, Working Papers from University of Oldenburg, Department of Economics

Abstract: We consider how one party can induce another party to join an international emission compact given private information. Due to multilateral externalities the principal uses her own emissions besides subsidies to incentivize the agent. This leads to a number of non-standard features: Optimal contracts can include a boundary part, which is not a copy of the no contract outcome. Compared to this, a contract can increase emissions of the principal for inefficient types. Subsidies can be constant or even decreasing and turn negative, i.e., the agent reduces emissions and pays the principal.

Keywords: private information; multilateral externalities; mechanism design; restricted contracts; environmental agreements (search for similar items in EconPapers)
JEL-codes: D82 H87 Q54 (search for similar items in EconPapers)
Date: 2011-06, Revised 2011-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in Oldenburg Working Papers V-336-11

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http://www.vwl.uni-oldenburg.de/download/HelmWirlFinal_WP.pdf First version, 2011 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:old:dpaper:336-11

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