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Norimichi Matsueda
 
''Potential Failure of an International Environmental Agreement under Asymmetric Information''
( 2004, Vol. 17 No.4 )
 
 
The free-riding issue is generally considered to be the biggest obstacle in the success of an international environmental agreement. Even without free-riding incentives, however, asymmetric information can pose a potentially significant threat in establishing a cooperative relationship. In this note, we examine perfect Bayesian equilibria of a simple signaling game between a polluter country and a victim country over an agreement to mitigate unidirectional transboudary pollution. We show that the stalemate in addressing an international environmental issue can be explained partly by the incentive conflict due to asymmetric information on the environmental preference of a polluter. We also identify several conditions that allow such a stalemate to occur more easily.
 
 
Keywords: asymmetric information
JEL: Q2 - Renewable Resources and Conservation: General
D8 - Information, Knowledge, and Uncertainty: General
 
Manuscript Received : Aug 26 2004 Manuscript Accepted : Aug 26 2004

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