Self-Enforcing International Environmental Agreements with Endogenous Uncertainty

Abstract: In this paper I study the effect of uncertainty on the incentives countries face to participate in an international environmental agreement using a two-stage single-coalition model. One important innovation is that uncertainty is modelled endogenously, which provides additional opportunities for strategic interaction among nations. For example, this may lead signatory countries to undertake emission reductions in excess of those that are socially optimal, a behavior that reflects risk-reducing considerations. Although recent studies have indicated that persistent and endogenous uncertainty may be beneficial in a strategic setting, I find that uncertainty may only affect participation in an agreement negatively. This conclusion is likely robust to altering the assumption that countries are symmetric. I also find that the level of participation varies inversely with the ratio of marginal damage parameters to marginal benefit parameters, consistent with a core theoretical result.