Unilateral Actions the Case of International Environmental Problems

international agreements for co-ordinated reductions of harmful emissions. The
main findings in Hoel’s paper are that unilateral actions will at its best reduce
the overall emission level (but by less than the unilateral reduction itself), but at
worse, they might actually increase total emissions. Hoel (1991, p.69) con-
cludes that: “it might not be particularly sensible for an environmental group in
a country to try to force its government to unilaterally reduce the countries
emissions”.

Hoel (1991) mentions ‘setting a good example’ as being the reason for unilat-
eral actions, without explicitly modelling how such a good example could be
accomplished. In this paper unilateral actions are re-formulated, not as setting a
good example, but rather as transmitting relevant information. In order for uni-
lateral actions to work they must somehow transmit information that directly
alters the position of the reaction functions of the other countries in a preferred
direction from the initiators’ point of view.¹

This is accomplished by invoking three assumptions. First, the costs are fully
correlated between countries. The second is that a country can be fully (but pri-
vately) informed about the relevant cost parameter, and this incurs a fixed cost.
Finally, it is assumed that no verification technologies exist, which implies that
transmission of information is only possible by making a reduction effort.
Given these assumptions, unilateral actions are indeed profitable. The prospect
or likelihood of unilateral actions depends on the finer details of the informa-
tion-structure, and if the above assumptions are satisfied, unilateral actions are
shown to always be profitable. Two common-sense results are derived: the first
is that the higher the correlation, the more likely that unilateral actions are prof-

1 Our signalling approach resembles the idea of 'leading by example', analysed in Hermalin
(1998). Here the leader is defined on the basis of being better informed, and has to undertake
some costly effort to convince the others that effort is worthwhile undertaking. The difference
between the two approaches is that in our model, the countries are initially uninformed, but can
choose to become informed, which is costly. Hence, the choice of getting informed is deter-
mined endogenously in the model and in this respect resembles the approach of Kessler (1998).
She discusses the idea of undertaking a costly information gathering activity in order to become
(privately) informed.

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