Environmental negotiations under uncertainty: Can they improve welfare?

Ana Espinola-Arredondo; Felix Munoz-Garcia

These studies show that more countries decide to participate in international agreements when the difference between the net global benefit in the noncooperative and the full-cooperative outcomes is small (i.e., free-riding incentives are small).4 International negotiations, nonetheless, usually operate under uncertainty, a setting often ignored by the existing literature. This chapter contributes to the literature by analyzing incomplete information in international negotiations. For instance, Iida (1993) examines international agreements using a repeated bargaining game. Specifically, he assumes that a country is uninformed about other countries’ status quo, and therefore it cannot perfectly anticipate whether or not its offers will be accepted in the negotiation. In contrast, we consider that countries are uninformed about each other’s technological dissemination, and hence cannot accurately infer whether other signatories will fully comply with the terms of the agreement. In addition, we allow for both unilateral and bilateral uncertainty. Martin (2005) also analyzes the signaling role of the signature of a treaty. Her paper considers two types of agreements – executive treaties and international agreements – which imply different degrees of compliance. Unlike her study, we investigate a case in which not only the follower but also the leader is uninformed, we allow for a more general payoff structure, and compare the welfare properties of different information contexts.5 Furthermore, our conclusions are also related to those of Kreps et al. (1982), who consider the role of informational asymmetries about players’ types in the Prisoner’s Dilemma game. Specifically, in their model, players assign some probability to their opponent playing a conditionally cooperative, tit-for-tat strategy. They show that there is a sequential equilibrium in which players choose to cooperate with positive probability. Similarly, we demonstrate that the presence of incomplete information about countries’ types may lead to cooperation in situations in which such equilibrium outcome would not exist among perfectly informed countries. Finally, this chapter provides an intuitive discussion of the theoretical results developed in Espinola-Arredondo and Munoz-Garcia (2010, 2011), henceforth EM. The next section describes the model under incomplete information. Section 4.3 examines the set of equilibria in the case of unilateral uncertainty, whereas section 4.4 analyzes equilibrium predictions under bilateral uncertainty. In section 4.5, we evaluate the welfare properties of our results, section 4.6 extends our analysis to N followers, and section 4.7 concludes.

Environmental negotiations under uncertainty: Can they improve welfare?

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