Strategic Delegation in the Formation of International Environmental Agreements
29 Pages Posted: 17 Apr 2019
Date Written: March 28, 2019
We analyse a principal-agent relationship in the context of international climate policy. Principals in identical countries first decide whether to join an international environmental agreement (IEA), then delegate the domestic emission choices to an agent. Finally, agents in all countries decide on emissions. In countries not joining the IEA, agents choose emissions to maximize their own payoff, while agents of countries joining the IEA set emissions to internalize some exogenously given fraction γ of the externalities that own emissions cause on all members of the IEA. We find that principals in all countries have an incentive to delegate to agents with lower environmental concerns than they exhibit themselves. This strategic delegation incentive is increasing with the number of countries that joined the IEA for principals in non-participating countries, and decreasing for principals of countries joining the IEA. In addition, principals in countries that joined the IEA delegate such that they not only internalize the fraction γ but all externalities among the members of the IEA, i.e., strategic delegation crowds out all efforts to increase coalition sizes by less ambitious agreements. In summary, strategic delegation leads to lower number of countries joining the IEA and higher overall emissions.
Keywords: international climate policy, coalition formation game, political economy, strategic delegation, strategic voting
JEL Classification: Q54, Q58, C72, D62, H41, P16
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