Spatial Economics Seminar Amsterdam

Torben Mideksa (University of Oslo, Norway)
Thursday, 17 November 2016

Why do countries unilaterally supply abatement to slow climate change? Does leadership enhance efficiency? When does it arise as equilibrium outcome? I find that a country benefits from being a leader to (i) take advantage of commitment and carry lower burden of abatement, (ii) let the follower take advantage of cost-saving spillover effects, or (iii) let the follower acquire a useful information and raise its abatement.  I find equilibrium in which the leader commits to high abatement — to take advantage of the spillover effect when the cost is high, to signal the cost when it is low. However, the leader commits to transparency even when commitment to transparency is socially inefficient.  The theory can rationalize the European Union’s stance on climate policy while also explaining the perceived failure of the Kyoto Protocol.