Distributional Conflicts and the Timing of Environmental Policy

Abstract

This paper examines the timing of adopting a policy for tackling an environmental issue such as climate change from a viewpoint of distributional conflicts. A dynamic game of providing public goods (Alesina and Drazen, American Economic Review 81(5), 1170–1118 (1991)) is applied to the argument, modified by including abatement costs as well as the loss in the environment. In this framework, even if the immediate adoption of environmental policy is socially optimal, a disproportionate burden of pollution reduction leads to a delay in policy adoption. This is because the disproportionate burden increases the gain from waiting for each individual hoping that the other will agree to bear the heavier burden. The impact of income distribution on the timing is also examined. The level of averting behavior is assumed to depend on the level of income. If the distribution of income is more dispersed, the regional disparities in environmental degradation become larger because the poor tend to avert less and get more loss than the rich due to their tighter budget constraints. Under asymmetric information on damages, as the disparities in income become more dispersed, each individual expects that his/her opponent’s damage becomes severe; then, he/she gives in first. Thus, each individual holds out longer so that the timing of policy implementation is delayed further. Finally, the theoretical result is empirically tested by both probit and discriminant analyses to examine whether income distribution has an impact on the timing of ratifying the Kyoto Protocol in practice.