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Abstract

Theoretical analyses of international environmental agreements (IEAs) have typically employed the concept of self-enforcing agreements to predict the number of parties to such an agreement. The term self-enforcing, however, is a bit misleading. The concept refers to the stability of cooperative agreements, not to enforcing these agreements once they are in place. Most analyses of IEAs simply ignore the issue of enforcing compliance by parties to the terms of an agreement. In this paper we analyze an IEA game in which parties to an agreement finance an independent enforcement body with the power to monitor the parties' compliance to the terms of the IEA and impose penalties in cases of noncompliance. This approach is broadly consistent with the enforcement mechanism of the Kyoto Protocol under the Marrakesh Accords. We find that costly enforcement limits the circumstances under which international cooperation to protect the environment is worthwhile, but when IEAs do form they will involve greater participation than IEAs that do not require costly enforcement. Consequently, costly enforcement of IEAs is associated with higher international environmental quality. Moreover, under certain conditions, aggregate welfare is higher when IEAs require costly enforcement. These conclusions are accentuated when monitoring for compliance to IEAs is inaccurate.

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