International Environmental Agreements with mixed strategies and investment

Fuhai HONG, Larry KARP

Research output: Journal PublicationsJournal Article (refereed)peer-review

27 Citations (Scopus)

Abstract

We modify a canonical participation game used to study International Environmental Agreements (IEA), considering both mixed and pure strategies at the participation stage, and including a prior cost-reducing investment stage. The use of mixed strategies at the participation stage reverses a familiar result and also reverses the policy implication of that result: with mixed strategies, equilibrium participation and welfare are higher in equilibria that involve higher investment.
Original languageEnglish
Pages (from-to)685-697
Number of pages13
JournalJournal of Public Economics
Volume96
Issue number9-10
DOIs
Publication statusPublished - 1 Oct 2012
Externally publishedYes

Funding

We thank Michael Finus, Matthieu Glachant, Teddy Kim, Danyang Xie, participants of 4th WCERE, 2010 EAERE-FEEM-VIU Summer School, and seminars in HKUST, National University of Singapore, and Nanyang Technological University, the editor of this Journal, and two anonymous referees for helpful comments. Larry Karp thanks the Ragnar Frisch Centre for Economic Research for financial support. Fuhai Hong thanks the support provided by Shanghai Leading Academic Discipline Project (Project Number: B801).

Keywords

  • Climate agreement Participation game
  • International Environmental Agreement
  • Investment
  • Mixed strategy

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