Ralph Winkler, Associate Professor for Microeconomics: Environmental and Climate Economics at the University of Bern, will discuss his paper, Strategic Delegation and Non-cooperative International Permit Markets at this event.

Paper abstract

We analyze a principal-agent relationship in the context of international climate policy in a two-country set-up. First, the principals of both countries decide whether to link their domestic emission permit markets to an international market. Second, the principals select agents who then decide on the levels of emission permits. Finally, these permits are traded on domestic or international permit markets. We find that the principals in both countries have an incentive to select agents that care (weakly) less for environmental damages than they do themselves. This incentive is more pronounced under international permit markets, and in particular for permit sellers, rendering an international market less beneficial to at least one country. This may explain why we do not observe international permit markets despite their seemingly favorable characteristics. More generally, our results suggest that treating countries as atomistic players may be over-simplifying when analyzing strategic behavior in international policy making.

The full version of Ralph’s paper can be found here.

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