On the economics of international environmental agreements

This paper demonstrates that partial cooperation with respect to the use of an international environmental resource can emerge when countries are able to opt to breach an agreement. Although the option of non-compliance restricts the set of coalitions on those which embrace merely two members, broader cooperation can emerge when these two countries compensate a third country for extra reduction efforts. The paper discusses also a reversible anda irreversible technology option and demonstrates that compensating a third country for the introduction of an irreversible technology may be even advantageous for the donors when this technology incurs higher costs than a reversible one (JEL Classification: Q 20). Acknowledgements: This paper originated from a research project about the stability of international environmental agreements. I gratefully acknowledge financial support by the Volkswagen Foundation. I am also indebted to Wolfgang Buchholz, Johannes Heister and Gernot Klepper for very useful discussions which improved the paper significantly. The usual disclaimer applies. * Paper presented on the Annual Meeting of the Verein fur Socialpolitik in Miinster 1993 The authors are solely responsible for the contents of each Kiel Working Paper. Since the series involves manuscripts in a preliminary form, interested readers are requested to direct criticism and suggestions directly to the authors and to clear any quotations with them.