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Strategic Delegation and Non-cooperative International Permit Markets

Author

Listed:
  • Habla, Wolfgang

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Winkler, Ralph

    (Department of Economics and Oeschger Centre for Climate Change Research, University of Bern Schanzeneckstrasse 1, CH-3012 Bern, Switzerland)

Abstract
We analyze a principal-agent relationship in the context of international climate policy in a two-country framework. First, the principals of both countries decide whether to link their domestic emission permit markets to an international market. Second, the principals select agents who then non-cooperatively determine the levels of emission permits. Finally, these permits are traded on domestic or international permit markets. We find that the principals in both countries have an incentive to select agents that care (weakly) less for environmental damages than the principals do themselves. This incentive is more pronounced under international permit markets, particularly for permit sellers, rendering an international market less beneficial to at least one country. Our results may explain why we do not observe international permit markets despite their seemingly favorable characteristics and, more generally, suggest that treating countries as atomistic players may be an oversimplifying assumption when analyzing strategic behavior in international policy making.

Suggested Citation

  • Habla, Wolfgang & Winkler, Ralph, 2015. "Strategic Delegation and Non-cooperative International Permit Markets," Working Papers in Economics 636, University of Gothenburg, Department of Economics.
  • Handle: RePEc:hhs:gunwpe:0636
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    File URL: http://hdl.handle.net/2077/40991
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    References listed on IDEAS

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    Cited by:

    1. Habla, Wolfgang & Winkler, Ralph, 2018. "Strategic delegation and international permit markets: Why linking May fail," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 244-250.
    2. Simon Quemin & Christian Perthuis, 2019. "Transitional Restricted Linkage Between Emissions Trading Schemes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(1), pages 1-32, September.

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    More about this item

    Keywords

    non-cooperative climate policy; political economy; emissions trading; linking of permit markets; strategic delegation; strategic voting;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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