Economic Targets and Loss‐aversion in International Environmental Cooperation

Abstract

In the standard emission problem, each country's ruling party decides on an optimal level of emissions by analyzing the cost and benefit to the country. However, such policy decisions are often influenced by political parties' incentives to be elected. Voters tend to give higher priority to economic issues than they do to environmental ones. As a result, political parties have additional incentives to reach a critical economic benefit level, at a cost of higher emission level, in order to satisfy voters' expectations in economic issues. Therefore, this study explores the implications of political parties being averse to insufficient economic performance relative to a critical economic target level on sustaining an international environmental agreement on emission levels. In doing so, we allow countries to have asymmetric concerns about economic targets, as well as asymmetric technology levels. We find that stronger concerns about economic targets deter the most cooperative emission levels countries could jointly sustain. Furthermore, technological asymmetry could either deepen or offset this impact. These results suggest that efforts on achieving substantial international environmental agreements should be supported at the citizen level to eliminate the adverse effects.

Sustainable Development as an Advantage and Obstacle for Global Automotive Industry

“…Since automotive producers are considered huge polluters, there was some kind of resistance among them about accepting sustainability development concept (Salvado et al, 2015). So far, all automotive producers have started implementation of sustainable solutions in their businesses and with every new environmental regulation or market change producers are adjusting their sustainable development policy (De Stefano et al, 2016;Iris, 2016). In some cases transition to new technologies implies either production of hybrid or electric cars.…”