Unilateral Actions the Case of International Environmental Problems

figure 1. Although total reductions might be increased by a unilateral move, it
does not seem to be a good idea for country i to engage in unilateral actions, if
its aim of setting a good example will be strategically exploited by other coun-
tries. No rational country will ever find it worthwhile to undertake unilateral
actions under this model.

One shortcoming with Hoel’s approach is that h remains unexplained. It does
not seem to be rational for a country to engage in unilateral actions when it
knows the above relationship. This is why h cannot be a choice variable in
Hoel’s model. The interesting question remains: Can unilateral actions be ra-
tional (i.e. result from optimising behaviour) if Hoel’s (1991) reaction function
approach is used without conditioning unilateral actions on the presence of non-
choice variables?

We turn now to an examination of the way the costs influence the Nash-
equilibrium. Let θi be a shifting parameter in the cost function of country i, such
that:

∂C

C₁ (q_i^,θi ) > Ci(q_i^,θi ) for θi > θi for all q_i ∈ Q₁ and ɪ > 0

∂θ₁

In appendix 1, it is shown that

∂^q1- < 0 and ∂q²- > 0, ∀i,j ∈ I
∂θ₁         ∂θ₁

The intuition behind (3) is that increased costs in country 1 lead to less reduc-
tions by country 1, which increases the marginal benefit to country 2 (as long as
country 2 does not change its emission). Hence, country 2 will respond by in-
creasing its reduction efforts.

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