Unilateral Actions the Case of International Environmental Problems

following out-of-equilibrium signals, i.e., any beliefs are admissible if an out-
of-equilibrium outcome is observed.

Separating equilibrium

In a separating equilibrium, the high cost type succeeds in separating from the
low cost type, and is, therefore, always recognized as a high cost type, while the
low cost type is revealed as a low cost type. In order to fully describe the set of
possible separating equilibrium outcomes, it is assumed that out-of equilibrium
signals are followed by the most unfavorable beliefs seen from the informed
country’s point of view, i.e., if q_θ ≠ qH then ρ(q_θ) = 1.

Given these beliefs, a sufficient condition for a strategy pair to form a separat-
ing equilibrium is that the following conditions for a separating equilibrium be
satisfied:

NBi(Η,q^,Η 0) ≥ NB,(H,q(Hfi)J)

NBi(L,q^,H,0) ≤ NB,(L.q(LJ)J)

In order to describe the set of separating equilibrium outcomes, it will be useful
to define the following two sets:

R_i^H = {q_i^* ∈ Q_i | NB_i(H,q_i^*,0) ≥ NB_i(H,q(H,0),1)}, which describes the set of q_i
that satisfies (4.a) and Ri^L = {qi^* ∈ Qi | NBi(L,qi^*,0) ≤ NBi(L,q(L,1),1)}, which is
the set of qi that satisfies (4.b). The intersection of these two sets is given by
R^SL ={q_i | q_i ∈ R^L ∩R^H } .

The set of separating equilibrium outcomes is given by:

qiH ∈ R^sl                                                                        (5.a)

qL = qi(Li)                                                               (5.b)

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