Essays in the political economy of environment and agreement

This thesis consists of three substantive chapters on the impact of externalities on policy outcomes in selected contexts. Chapter 2 develops a theoretical model of international environmental agreements between the high-income countries of the world. It contributes to the literature on carbon leakage by focusing on the investment channel. Three policy scenarios are considered: full agreement, non-cooperative policy and partial agreement. The full agreement is characterised by complete cooperation within the whole high-income bloc, in both deciding the amount of allowed emissions and setting the ad valorem tax on abatement. The non-cooperative policy is characterised by the individual high-income country choosing independently both emissions level and the abatement tax. The partial agreement is characterised by emissions chosen cooperatively within the high-income bloc and the abatement tax set non-cooperatively. Our results show that under full agreement carbon leakage is negative, whilst under the other two policy scenarios it is positive. Indeed, we show that carbon leakage is due to the design of the partial agreement, which leaves the choice of the policy instrument to be implemented to the individual signatory. The aim of Chapter 3 is to explain why a government signs up to an international environmental agreement (IEA), thereby renouncing the freedom to choose its own environmental policy. In a two-period model of probabilistic voting à la Lindbeck and Weibull (1987), the incumbent government decides on the level of commitment to the IEA in the first period. There are two competing political parties, which care about the environmental policy implemented in the country and about the rents from being elected. Each party faces a trade-o¤ between implementing its ideal environmental policy and committing to a policy that increases its chances of reelection. The non-green party’s ideal policy requires rejection of the IEA. However, if the electorate is sufficiently green, the party will choose a level of commitment to the IEA that is greater than zero. The green party’ ideal policy requires full commitment to the IEA. However, if the electorate is sufficiently green, the party will choose a level of commitment to the IEA that is lower than one. Chapter 4 develops a static model where there is a political issue of dichotomous type and agents can either be in favour or against it (e. g. peaceful co-living with the members of the other ethnic community). Our model shows that the evolution over time of the idea depends on the fraction of the population supporting it. Indeed, if the proportion of the population supporting an idea is lower than a certain threshold, then the agents supporting it will change their opinion and switch to the opposite opinion. If the proportions of the population are evenly balanced between the two opposite ideas, then agents on either side will stick with their initial opinion. We apply this model to the Cyprus conflict in order to explain why peace- keeping authorities have unsuccessfully been trying to find a solution since 1974. To that end, we use UNDP-ACT Survey data from the period 2007-2013. These data show that Cypriots are stuck in an impasse, where more than 40% of the population is highly concerned about the situation of the island, but nonetheless the fraction of the population who desires to reach a solution is quite low and the proportion of the population who supports peaceful co-living is stagnant. The aim of the paper is to give a theoretical explanation of this impasse and explain the reason why decades of international efforts miserably failed