Strategic uncertainty, indeterminacy, and the formation of international environmental agreements

Narita, Daiju ; Wagner, Ulrich J.

Strategic uncertainty, indeterminay, and the formation of international environmental agreements.pdf - Published

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URN: urn:nbn:de:bsz:180-madoc-424566
Document Type: Article
Year of publication: 2017
The title of a journal, publication series: Oxford Economic Papers
Volume: 69
Issue number: 2
Page range: 432-452
Place of publication: Oxford
Publishing house: Oxford Univ. Press
ISSN: 0030-7653 , 1464-3812
Publication language: English
Institution: School of Law and Economics > Umweltökonomik, Industrieökonomik, Finanzwissenschaft (Wagner 2015-)
Subject: 330 Economics
333.7 Natural resources, energy and environment
Classification: JEL: Q54 , O33 , H87,
Abstract: Since the end of the Kyoto Protocol, global climate negotiations have shifted away from setting binding short-run targets on emissions towards placing long-term limits on global warming. We investigate how this alters the incentives for participation in a technology-centred international environmental agreement (IEA) where countries choose between conventional abatement and a breakthrough abatement technology that exhibits a network externality. When switching technologies is costly, we obtain that equilibrium adoption is indeterminate because the future adoption rate is subject to strategic uncertainty. Participation in an IEA that mandates the adoption of the breakthrough technology will be complete only if countries expect that all other countries will adopt eventually. Long-run temperature targets can be regarded as a device to coordinate countries’ expectations on that outcome.

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