Who Gains from Learning about Global Warming?

Abstract

In this paper we bring together two previously separate strands of literature dealing with global warming — the literature on the analysis of strategic interactions between independent national governments confronted with a dynamic problem of the the global commons, which has ignored issues of uncertainty and learning, and the literature on uncertainty, learning and irreversibility, which has assumed a single decision-making authority. The integration of these two literatures changes significantly the predictions derived from the separate literatures, especially the predictions about the impact of uncertainty and learning. Thus we show the following: (i) in situations where a single decision-maker would use the prospect of learning to delay cutting emissions, strategic interactions can cause countries to accelerate the cutting of emissions; (ii) while a single decision-maker is always better off when there is the possibility of learning, countries can now be worse off with the possibility of learning, and would not be prepared to pay anything for better information; this has the further implication that there is now an important additional source of gains from international agreements, or at least international coordination. There are two sources for these reversals of the conventional wisdom. One is that there may be states of the world where some countries have much higher damage costs than their expected values while others have much lower than expected damage costs; the strategic response in such states impose significant costs on all countries. The other source is significant asymmetries between countries, in particular cases where some countries face much higher uncertainty about potential damages than others. Both these sources of difficulty are plausible features of the global warming problem.

Paper presented at conference on “The Economics of Global Environmental Change” University of Birmingham, May 9th – 11th, 1994, and at workshop on “Designing Economic Policy for the Management of Natural Resources and the Environment”, Crete, September 7th – 9th 1994. We are grateful to participants and to two anonymous referees for comments on earlier versions of this paper.