itable, and second, if a country can only get imperfect information, then unilat-
eral actions are less likely.
To gain further insight into the cause and prospect of unilateral action not found
in Hoel (1991), two additional changes are made. First, the countries differ with
respect to the expected response of the other countries if valuable information is
revealed to these countries. The second change is to introduce a simple model
where the decision about the level of environmental regulation in a country is
determined by the lobbying activities of two pressure groups in that country: An
industrial group lobbying for no reductions and an environmental group lobby-
ing for a high level of reduction. The more pressure a group exerts, the more it
influences the policy outcome. The observation that the political process in a
country is polymorphic is also analysed in e.g. Dijkstra (1999), on basis of an
influential function.
Unilateral actions are most likely when costs are positively correlated, when a
country can be fully informed at low costs and a country can receive a perfect
signal. Unilateral actions are most likely when countries initially are reluctantly
to engage in any significant reduction effort, which could be caused by pressure
from lobby groups. Moreover, the model yields a broader framework for under-
standing the reasons why a country moves first, the initial positions of the coun-
tries and how transmission of information interferes with policy choices in
other countries. Finally, an interesting result emerges regarding which country
initiates unilateral actions: The curse of the country that initiates the unilateral
action is that, since it is the country with the highest estimate of the response of
the other countries in case reduction costs are revealed as low, this country is
likely to over-estimate the actual response of the other countries. This might
explain why unilateral actions are initiated, but as Barrett (1990) claims, initia-
tives of this kind are seldom rewarded.
The paper is organized as follows: In section 2, the basic model is presented,
and in section 3, private information about costs is introduced. Section 4 shows
how Hoel’s (1991) results also carries over to the situation with private infor-