Three essays on information and transboundary problems in environmental and resource economics
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The thesis contains three chapters on environmental and natural resource economics and focuses on situations where agents receive private or public information. The first chapter analyses the problem of transboundary fisheries, where harvesting countries behave non-cooperatively. In addition to biological uncertainty, countries may face strategic uncertainty. A country that receives negative assessments about the current level of the fish stock, may become “pessimistic” about the assessment of the other harvesting country, which can ignite “panic-based” overfishing. In such a coordination problem, multiplicity of equilibria is a generic characteristic of the solution. Both strategic uncertainty and equilibrium selection, relatively, have been given less attention in the theoretical literature of common-property natural resources. In this model, in the limit as the harvesting countries observe more and more precise information, rationality ensures the unique “global game” equilibrium, a la Carlsson and van Damme (1993). The improved predictive power of the model helps a potential intergovernmental manager of the stock understand the threshold behaviour of harvesting countries. The global game threshold coincides with the risk-dominance threshold of a precise information model, as if there was no strategic uncertainty, and implies that the countries select the corresponding risk-dominant action for any level of assessment of the stock. Gaining from the risk-dominance equivalence, I derive policy suggestions for the overfishing cost and the property rights in common-property fisheries. The second chapter develops a theoretical framework to examine the role of public information in dynamic self-enforcing international environmental agreements (IEAs) on climate change. The countries choose self-enforcing emission abatement strategies in an infinite-horizon repeated game. In a stochastic model, where the social cost of greenhouse gasses (GHG) is a random variable, a central authority, as an information sender, can control release of information about the unknown state to the countries. In the literature on stochastic IEAs, it is shown that comparison of different scenarios of learning by the countries, depends on ex-ante difference of true social cost of GHG from the prior belief of countries. Here, I try to understand, in a signalling game between the informed sender and the countries, whether the no-learning or imperfect-learning scenarios, can be an equilibrium outcome. It is shown that the equilibrium strategy of the sender, who is constrained to a specific randomisation device and tries to induce an incentive-compatible abatement level which is Pareto superior, leads to full learning of social cost of GHG of symmetric and asymmetric countries. Finally, in the third chapter, I again examine a setting, where a central authority, as an information sender, conducts research on the true social cost of climate change, and releases information to the countries. However, in this chapter, instead of restricting the sender to a specific signalling structure, the sender, who has commitment power, by designing an information mechanism (a set of signals and a probability distribution over them), maximises his payoff, which depends on the mitigation action of countries and the social cost of green-house gases(GHG). The countries, given the information policy (the probability distribution over signals) and the public signal, update their beliefs about the social cost of GHG and take a mitigation action. I derive the optimal information mechanism from the general set of public information mechanisms, in coalition formation games. I show that the coalition size, as a function of beliefs, is an endogenous variable, induced by the information sender. If the sender maximises the expected payoff of either of non-signatories or signatories of the climate treaty, then full revelation is the optimal information policy, while if the sender attempts to reduce the global level of GHG, then optimal information policy leads to imperfect disclosure of the social cost. Furthermore, given any of the specifications of the sender’s payoff, the optimal information policy leads to the socially optimal mitigation and membership outcomes.