Unilateral Actions the Case of International Environmental Problems

Figure 2. Changes in the equilibrium when costs are revealed

qn^c (H,θ2) q^c (ρθ             q1(θ1, q2(P1)θ2)

Note, however, that if it costs turn out to be low, then county 1 has an incentive
to hide this knowledge. We will come back to these incentives in section 5. But
this is not, however, the end of the story. The low cost country has the same in-
centives as the high cost country to try to persuade the uninformed country that
costs are high. In order for the high cost type to be perceived as having truly
high costs, it must engage in an action that perfectly distinguishes it from the
shadow of the low cost country. The appropriate way to analyse this is by use of
a signalling game model.

4. Signalling game 1: Incentives to signal that costs are
high

In the signalling game 1, we focus on the revelation of one country’s costs. The
other countries could have private information about their costs, be uncertain
about their costs or be fully informed. Country i has private information about
costs, while the others hold a prior belief about its costs. We assume that al-
though it is common knowledge that this country is completely informed about
costs, there exists no verification technology. The reason for this is that no mat-

16

<<   11   12   13   14   15   16   17   >>

More intriguing information