Document Type

Article

Journal/Book Title/Conference

Economics Research Institute Study Paper

Volume

96

Issue

17

Publisher

Utah State University Department of Economics

Publication Date

1996

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

32

Abstract

I analyze the problem faced by an asymmetrically informed supranational government authority (SNGA) with limited financial resources who wishes to design an International Environmental Agreement (lEA). The SNGA cannot contract directly with polluting firms in the various LDCs, but he must deal with such firms through their governments. I study this tripartite hierarchical interaction and focus on the properties of the optimal ex post contracts (lEAs), which can be implemented by the SNGA, in tum, in the case where governments and firms in each nation do not collude and then in the case where governments and firms do collude. I find that the monetary transfers necessary to induce optimal behavior by governments and firms are not very sensitive to the presence of collusion. However, because the optimal contracts satisfy budget balance, and because there is a ceiling on the amount of pollution reduction that an lEA can require, the level and pattern of pollution abatement are never ideal. My analysis suggests that lEAs are not inherently doomed due to a basic monitoring and enforcement problem arising from national sovereignty. However, the success of lEAs is fundamentally contingent on the funds available for environmental protection and the pollution reduction ceiling negotiated by the SNGA and the LDC government.

Download

Share

COinS