On the design of international environmental agreements for identical and heterogeneous developing countries

I analyze the problem faced by an imperfectly informed supra-national governmental authority (SNGA) that wishes to design an International Environmental Agreement (IEA). The SNGA cannot contract directly with polluting firms in the developing countries (DCs), and it must deal with such firms through their governments. I find that the transfers necessary to induce optimal behavior by governments and firms are sensitive to the timing of the underlying game and to the existence of collusion. This analysis suggests that IEAs are nor doomed due to a monitoring and enforcement problem arising from national sovereignty. However, the success of IEAs is contingent on the funds available for environmental protection.