Climate policies with private information: The case for unilateral action

Carsten Helm and Franz Wirl

No V-378-15, Working Papers from University of Oldenburg, Department of Economics

Abstract: Countries often have private information about their willingness to pay for protecting the climate system and their cost of emission reductions. We use a principal-agent model to re-examine the economic case for unilateral action by individual countries, in our case of the principal. We ?nd that the incentive structure that arises in an incomplete information framework can motivate (i) unilateral action before contract negotiations, (ii) optimal contracts in which the principal accepts higher marginal abatement costs for herself, as well as (iii) overcompliance by the principal after the contract has been negotiated. Multilateral externalities and type-dependent outside options, which are characteristic for climate policies, play a crucial role to explain these results.

Keywords: unilateral action; voluntary action; unilateral commitment; private information; multilateral externalities; international environmental agreements; type-dependent outside options (search for similar items in EconPapers)
JEL-codes: D82 H87 Q54 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2015-04, Revised 2015-04
New Economics Papers: this item is included in nep-cta, nep-ene and nep-env
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Citations: View citations in EconPapers (1)

Published in Oldenburg Working Papers V-378-15

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Related works:
Journal Article: Climate Policies with Private Information: The Case for Unilateral Action (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:old:dpaper:378

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