Incomplete information and incentives to free ride on international environmental resources

Abstract

This paper studies free-riding incentives on common environmental resources in an incomplete information repeated game where abatements are perishable and perfect substitutes. Two contrasting types of perfect Bayesian equilibria emerge: For high discount factors, or low discount factors but 'pessimistic' prior beliefs, the inclusion of incomplete information has no impact on the pattern of abatements. Otherwise the countries attempt to use their private information strategically and the game becomes a war of attrition. This generates an outcome where the 'pessimistic' country unilaterally abates forever, and another which involves delay until the first abatement if both countries are 'optimistic'.