Anticipated International Environmental Agreements

57 Pages Posted: 21 Dec 2016

See all articles by Omer Acikgoz

Omer Acikgoz

Yeshiva University

Hassan Benchekroun

McGill University - Department of Economics

Date Written: November 24, 2016

Abstract

Consider a situation in which countries anticipate an international environmental agreement (IEA) to be in effect sometime in the future. What is the impact of the future IEA on current emissions after its announcement? We show that the answer to this question is ambiguous. We examine four types of IEAs that aim to reduce pollution stock in the environment. IEA type 1 sets a level of emissions, IEA type 2 and IEA type 3 set a percentage and a uniform cut vis-à-vis the business-as-usual policy respectively. IEA type 4 sets the policy that maximizes future joint benefits of the signatories. We show that all of these agreements reach their goal in the long run, but the intended benefits of these IEAs can potentially be offset by the anticipatory non-cooperative response of the signatories, leading to an environmental degradation in the short run. Which IEA is preferable depends on the targeted level emissions during the phase of cooperation. When this target is above a certain threshold, welfare under IEA type 1 is larger than under IEA type 2 which is larger than under IEA type 3. Moreover, the highest level of welfare that can be attained under IEA type 1 is above the highest level of welfare achieved by any one of the other three IEAs.

Keywords: international environmental agreements, climate agreement, future agreements, transboundary pollution, dynamic games

JEL Classification: Q530, Q540, Q580, Q590

Suggested Citation

Acikgoz, Omer and Benchekroun, Hassan, Anticipated International Environmental Agreements (November 24, 2016). CESifo Working Paper Series No. 6194. Available at SSRN: https://ssrn.com/abstract=2888281

Omer Acikgoz

Yeshiva University ( email )

500 West 185th Street
New York, NY 10033
United States

Hassan Benchekroun (Contact Author)

McGill University - Department of Economics ( email )

855 Sherbrooke Street West
Montreal, QC H3A 2T7
Canada

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