Unilateral Actions the Case of International Environmental Problems



higher the correlation, the more an increase in beliefs about the informed coun-
try will change expectations about own cost: The higher the correlation, the
higher the response, and the more likely the unilateral move implying that the
level of unilateral actions will be smaller in separating equilibria.

Regarding A2: If a country can only receive an imperfect signal about the costs,
this reduces the profitability of unilateral actions, since the expected benefit of
making the initial assessment decreases. The reason is that since there is now a
risk that a country will mistakenly take unilateral actions although costs turn out
to be high, it is more costly to initiate unilateral actions.

The curse of the initial mover

Result 6: The more likely that unilateral actions will be initiate,
a) The lower the estimated costs of getting informed,
b) The larger the expected response,
c) The higher the expected correlation.

Assumption A3 is needed in order for one country to undertake unilateral ac-
tions. Instead of letting D
i vary between countries, we could have that a country
considering engaging in unilateral actions must form expectations about what
the response of other countries will be. Assuming that countries hold different
assessments about the reactions of the others, we get the following result:

Why do different countries hold different beliefs? Could it be that countries
with high international environmental profiles believe that if they reveal that
costs are not as high as expected, other countries will be convinced of the ne-
cessity to make larger reductions in emissions.
13 If so, then countries with

13 This hypothesis is based more on empirical evidence than on a theoretical foundation. The em-
pirical evidence supporting it is best summarized by this quote from Rabin (1998, page 26): ‘A
range of research suggests that once forming strong hypotheses, people are often too inattentive
to new information contradicting their hypotheses. The form of anchoring does not necessarily
imply that people misinterpret additional evidence, only that they ignore additional evidence.

31



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