Strategic Delegation and International Permit Markets: Why Linking May Fail

36 Pages Posted: 11 Jul 2017

See all articles by Wolfgang Habla

Wolfgang Habla

ZEW – Leibniz Centre for European Economic Research - Environmental and Resource Economics, Environmental Management Research

Ralph Winkler

University of Bern - Department of Economics; University of Bern - Oeschger Centre for Climate Change Research

Multiple version iconThere are 3 versions of this paper

Date Written: June 14, 2017

Abstract

We analyse a principal-agent relationship in the context of international climate policy. Principals in two countries first decide whether to merge domestic emission permit markets to an international market, then delegate the domestic permit supply to an agent. We find that principals select agents caring less for environmental damages than they do themselves in case of an international market regime, while they opt for self-representation in case of domestic markets. This strategic delegation incentive renders the linking of permit markets less attractive and constitutes a novel explanation for the reluctance to establish non-cooperative international permit markets.

Keywords: Non-Cooperative Climate Policy, Political Economy, Emissions Trading, Linking of Permit Markets, Strategic Delegation, Strategic Voting

JEL Classification: D720, H230, H410, Q540, Q580

Suggested Citation

Habla, Wolfgang and Winkler, Ralph, Strategic Delegation and International Permit Markets: Why Linking May Fail (June 14, 2017). CESifo Working Paper Series No. 6515. Available at SSRN: https://ssrn.com/abstract=2999693

Wolfgang Habla

ZEW – Leibniz Centre for European Economic Research - Environmental and Resource Economics, Environmental Management Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim
Germany

Ralph Winkler (Contact Author)

University of Bern - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, 3001
Switzerland
+41 31 631 4508 (Phone)

HOME PAGE: http://www.ralph-winkler.de

University of Bern - Oeschger Centre for Climate Change Research ( email )

Zähringerstrasse 25
Bern, 3012
Switzerland

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