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International Environmental Agreements with Endogenous or Exogenous Risk

Author

Listed:
  • Fuhai HONG

    (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332.)

  • Larry KARP

    (Department of Agricultural and Resource Economics, University of California, Berkeley, and the Ragnar Frisch Center for Economic Research.)

Abstract
We examine the effect of endogenous and exogenous risk on the equilibrium (expected) membership of an International Environmental Agreement when countries are risk averse. Endogenous risk arises when countries use mixed rather than pure strategies at the participation game, and exogenous risk arises from the inherent uncertainty about the costs and benefits of increased abate- ment. Under endogenous risk, an increase in risk aversion increases expected participation. Under exogenous risk and pure strategies, increased risk aver- sion weakly decreases equilibrium participation if and only if the variance of income decreases with abatement.

Suggested Citation

  • Fuhai HONG & Larry KARP, 2013. "International Environmental Agreements with Endogenous or Exogenous Risk," Economic Growth Centre Working Paper Series 1310, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
    • Handle: RePEc:nan:wpaper:1310
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    References listed on IDEAS

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    Cited by:

    1. Pang, Yu, 2019. "Taxing pollution and profits: A bargaining approach," Energy Economics, Elsevier, vol. 78(C), pages 278-288.
    2. Michael Finus & Pedro Pintassilgo & Alistair Ulph, 2014. "International Environmental Agreements with Uncertainty, Learning and Risk Aversion," Department of Economics Working Papers 19/14, University of Bath, Department of Economics.
    3. Kováč, Eugen & Schmidt, Robert C., 2021. "A simple dynamic climate cooperation model," Journal of Public Economics, Elsevier, vol. 194(C).
    4. Hong, Fuhai & Lim, Wooyoung, 2016. "Voluntary participation in public goods provision with Coasian bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 102-119.
    5. Hong, Fuhai, 2015. "International Environmental Agreements with reference points," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 59(C), pages 68-73.
    6. Mao, Liang, 2020. "Designing international environmental agreements under participation uncertainty," Resource and Energy Economics, Elsevier, vol. 61(C).
    7. Alistair Ulph & Pedro Pintassilgo & Michael Finus, 2019. "Uncertainty, Learning and International Environmental Agreements: The Role of Risk Aversion," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(4), pages 1165-1196, August.
    8. Michael Finus & Bianca Rundshagen, 2015. "Game Theory and Environmental and Resource Economics–In Honour of Alfred Endres," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(4), pages 657-664, December.
    9. Mao, Liang, 2017. "Designing International Environmental Agreements under Participation Uncertainty," MPRA Paper 79145, University Library of Munich, Germany.
    10. Mao, Liang, 2017. "Designing International Environmental Agreements under Participation Uncertainty," MPRA Paper 86248, University Library of Munich, Germany.
    11. Michael FinusAlistair Ulph & Alistair Ulph, 2013. "International Environmental Agreements with Uncertainty, Learning and Risk Aversion," Economics Discussion Paper Series 1329, Economics, The University of Manchester.
    12. Francisco J André & Michael Finus, 2024. "Endogenous learning in international environmental agreements: the impact of research spillovers and the degree of cooperation," Oxford Economic Papers, Oxford University Press, vol. 76(3), pages 877-900.

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    More about this item

    Keywords

    International Environmental Agreement; climate agreement; endogenous risk; exogenous risk; risk aversion; mixed strategy.;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • H4 - Public Economics - - Publicly Provided Goods
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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