Uncertainty,Learning and International Environmental Policy Coordination |
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Authors: | Alistair Ulph David Maddison |
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Institution: | (1) University of Southampton and CSERGE, Gover Street, WC 1E 6BT London, UK;(2) University College London, CSERGE, Gover Street, WC 1E 6BT London, UK |
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Abstract: | In this paper we construct a simple model of global warming which captures a number of key features of the global warming
problem: (i) environmental damages are related to the stock of greenhouse gases in the atmosphere; (ii) the global commons
nature of the problem means that these are strategic interactions between the emissions policies of the governments of individual
nation states; (iii) there is uncertainty about the extent of the future damages that will be incurred by each country from
any given level of concentration of greenhouse gases but there is the possibility that at a future date better information
about the true extent of environmental damages may become available; an important aspect of the problem is the extent to which
damages in different countries may be correlated. In the first part of the paper we consider a simple model with two symmetric
countries and show that the value of perfect information is an increasing function of the correlation between damages in the
two countries in both the cooperative and non-cooperative equilibria. However, while the value of perfect information is always
non-negative in the cooperative equilibrium, in the non-cooperative equilibrium there is a critical value of the correlation
coefficient below which the value of perfect information will be negative. In the second part of the paper we construct an
empirical model of global warming distinguishing between OECD and non-OECD countries and show that in the non-cooperative
equilibrium the value of perfect information for OECD countries is negative when the correlation coefficient between environmental
damages for OECD and non-OECD countries is negative. The implications of these results for international agreements are discussed. |
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Keywords: | global warming uncertainty learning irreversibility value of information dynamic games international agreements |
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