Document Type

Article

Journal/Book Title/Conference

Economics Research Institute Study Paper

Volume

12

Publisher

Utah State University Department of Economics

Publication Date

1997

Rights

Copyright for this work is held by the author. Transmission or reproduction of materials protected by copyright beyond that allowed by fair use requires the written permission of the copyright owners. Works not in the public domain cannot be commercially exploited without permission of the copyright owner. Responsibility for any use rests exclusively with the user. For more information contact the Institutional Repository Librarian at digitalcommons@usu.edu.

First Page

1

Last Page

38

Abstract

In the 1992 Rio Earth Summit, developing countries (DCs) were adamant that in order to protect the environment for the future, new institutions were needed which would channel resources from the wealthy developed countries to the poor DCs. With this backdrop, I analyze the problem faced by an imperfectly informed supranational governmental authority (SNGA) who wishes to design an International Environmental Agreement (lEA). The SNGA cannot contract directly with polluting firms in the various DCs, and he must deal with such firms through their governments. Further, the SNGA is constrained by limited financial resources available for environmental protection. I study this tripartite hierarchical interaction, first for the case in which the relevant DCs are identical; I then analyze the case of heterogeneous DCs. I find that the monetary transfers necessary to induce optimal behavior by governments and firms are quite sensitive to both the timing of the underlying game and to the existence of collusion. Inter alia, my analysis suggests that IEAs are not inherently doomed due to a basic monitoring and enforcement problem arising from national sovereignty. However, the success of such IEAs is contingent on the funds available for global environmental protection.

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