Uncertainty, Learning and Heterogeneity in International Environmental Agreements

Charles D. Kolstad, Alistair Ulph

Research output: Contribution to journalArticlepeer-review

Abstract

This paper concerns the formation of International Environmental Agreements under uncertainty about environmental damage with different models of learning (complete learning, partial learning or no learning). The results of the existing literature are generally pessimistic: the possibility of either complete or partial learning generally reduces the level of global welfare that can be achieved from forming an IEA relative to no learning. That literature regards uncertainty as a parameter common to all countries, so that countries are identical ex ante as well as ex post. In this paper we extend the literature to the case where there is no correlation between damage costs across countries; each country is uncertain about a particular parameter (in our case the benefit-cost ratio) drawn from a common distribution but, ex post, each country's realized parameter value is independently drawn. Consequently, while countries remain identical ex ante, they may be heterogeneous ex post. We show that this change reinforces the negative conclusions about the effects of partial learning on international environmental agreements, but, under certain conditions, moderates the negative conclusions about the effects of complete learning. © 2011 Springer Science+Business Media B.V.
Original languageEnglish
Pages (from-to)389-403
Number of pages14
JournalEnvironmental and Resource Economics
Volume50
Issue number3
DOIs
Publication statusPublished - Nov 2011

Keywords

  • Climate change
  • International environmental agreements
  • Voluntary contributions to public goods

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