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Week 10 notes

by: Erica Evans

Week 10 notes Polisci110G

Erica Evans
GPA 3.9

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Notes from 3/8 and 3/10
Governing the Global Economy
Kenneth Scheve
Class Notes
25 ?




Popular in Governing the Global Economy

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This 5 page Class Notes was uploaded by Erica Evans on Monday March 14, 2016. The Class Notes belongs to Polisci110G at Stanford University taught by Kenneth Scheve in Fall 2016. Since its upload, it has received 13 views. For similar materials see Governing the Global Economy in Political Science at Stanford University.


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Date Created: 03/14/16
3/10/2016     Polisci110G         News:       ECB  –  policy  to  stimulate  the  economy  and  increase  spending,  to  help  recover  from   financial  crisis.  First  the  value  of  the  Euro  fell  negative  to  the  dollar,  and  then  it  went   back  up  again.  Why?  President  promised  not  to  go  into  negative  interest  rates,   which  gave  the  market  a  little  more  confidence  that  interest  rates  would  not   decrease  more.    There  was  more  confidence  about  holding  Euros  in  the  future.       Case  Study:       Our  Group’s  Proposal:     • Pros:  More  likely  to  get  passed.  It’s  more  attractive  to  Republicans.  Least   likely  to  be  shut  down  by  judicial  system.  It’s  more  efficient.    Generates   revenue.  Can  incorporate  regional  cap  and  trade  systems.  Allows  for  concrete   goals  and  progression  over  time.     • Cons:  raises  prices  for  consumers       We  want  to  implement  a  federal  cap  and  trade  system  that  would  incorporate   existing  regional  cap  and  trade  programs  that  have  been  successful.  This  would  set  a   limit  for  ghg  emissions  and  allow  companies  to  buy  and  sell  emissions  permits   based  on  their  needs.  This  system  is  really  efficient  because  industries  that  can   reduce  emissions  cheaply  can  do  so  immediately,  and  those  that  have  more  difficulty   can  still  continue  to  operate,  but  they  would  retain  the  incentive  to  reduce  emissions   over  time.  The  last  part  of  our  plan  is  that  we  would  use  government  revenue  from   this  program  to  invest  in  clean  energy  development  and  gradually  reduce  the  cap   over  time  for  continuous  progress.       1)  Politically  feasible  –    based  on  a  market  system  and  allows  more  freedom     2)  Cost  effective  as  opposed  to  Carbon  Tax.  Doesn’t  hurt  consumers  as  much.  Reduce   emissions  drastically  in  places  where  there  is  little  cost  to  do  so.     3)  Government  revenue  invest  in  renewable  energy     4)  Can  incorporate  regional  cap  and  trade  programs,  RGGI,  CCX     5)  Can  set  concrete  goals.  Can  improve  over  time       US  Carbon  Tax:     •     US  Cap  &  Trade:     •     US  Sectoral  Regulation:     • International  treaties  by  sectors.     Polisci110G     10/8/2016       Environmental  Policy     • Environmental  Treaties  have  increased  dramatically  over  the  last  few   decades     • Climate  change,  acid  rain,  loss  of  biological  diversity,  fishing  etc.     • Usually  there  is  a  trans-­‐boundary  element  (international  dimension)  to  the   problem.  It  becomes  a  transnational  negative  externality.     • IEAs:  International  Environmental  Agreement:  “Contract  that  says  pay  if  you   pollute”     • Governments  allow  some  pollution  that  is  necessary  to  produce  the  goods   people  want.  But  they  don’t  consider  negative  consequences  of  production  in   other  countries.     • Clean  air  is  non-­‐excludable.  Non-­‐rival.  It  is  a  pure  global  public  good.     • Ocean  fishing  –  a  resource  that  is  rival  in  consumption  in  use.  But  it’s  also   non-­‐excludable.  It  has  international  externalities  that  require  international   cooperation  à  an  international  problem.  But  we  will  focus  on  global  public   goods.       Why  do  we  need  IEAs?     • Consider  a  bilateral  environmental  problem:  Classic  prisoner’s  dilemma     • We  are  presuming  there  are  many  environmental  problems  that  take  this   form.  The  world  would  be  better  off  if  everyone  took  action,  but  any  one   individual  country  has  no  incentive  to  do  that.     • With  an  IEA,  there  is  a  punishment  imposed  so  the  incentives  to  abate  or   pollute  become  balanced.     • So  what  is  hard  about  IEA’s?     • Biggest  problem  is  enforcement.  In  International  politics,  there  is  no  world   government,  and  there  is  no  one  to  enforce  the  contract.     • Incentives  to  fulfill  the  contract  might  change  as  world  prices  change   • Now  consider  a  100  player  game…  the  same  problem  as  before  basically.     • Cooperation  problem:  ongoing  repeated  interactions.  Reduces  risk.     • Changes  how  countries  make  decisions:     • Stage  1:  everyone  country  decides  whether  or  not  to  sign     • Stage  2:  If  you  sign  the  agreement,  the  treaty  obligates  you  to  choose  jointly.   What  is  the  best  decision  for  everyone  who  signed  the  treaty?     • Stage  3:  If  you  didn’t  sign  the  treaty,  you  choose  independently  to  play  abate   or  pollute.     • IEA  –  equilibrium  if  it’s  self-­‐enforcing.  If  I’m  a  signatory  country,  I  can’t  gain   by  withdrawing,  and  non-­‐signatory  countries  can’t  gain  by  joining.     • Assume  that  countries  comply  with  Pollute  or  Abate  choice  that  they  make.     • Stage  2  is  modeled  by  the  signatories  maximizing  their  aggregate  payoff.     Countries  are  not  giving  up  sovereignty;  they  are  exercising  their   sovereignty.     2-­‐Country  Model:     • Stage  3:  You  are  not  a  signatory,  so  you  do  what  is  rational  for  you.  You   Pollute.     • Stage  2:  Everyone  who  signed  it  is  trying  to  maximize  their  payoffs.  Whether   the  group  decides  to  pollute  or  abate  depends  on  how  many  people  signed   the  treaty.  If  only  one  country  signed  it,  they  will  just  pursue  their  own   incentives  and  they  will  pollute.  If  two  countries  are  signatories,  both   countries  abate.       • Stage  1:  Deciding  whether  to  sign  the  treaty  or  not:  the  signatory  signing  the   treaty  weakly  dominates  not  signing  the  treaty  for  both  of  these  countries.  If   there  are  only  2  countries,  it  is  in  their  interest  to  both  sign  this  treaty.       5-­‐Country  Model:     • Stage  3:  Every  non-­‐signatory  will  Pollute     • Stage  2:  Depends  on  number  of  signatories.  If  only  one  country  signed,  they   will  pollute.  If  2  or  more  countries  are  signatories  then  they  do  better  by   playing  abate.     • If  you  add  up  the  payoffs  of  2,3,4  or  5  countries,  then  the  biggest  payoffs  are   to  abate.     • The  treaty  will  say  this:  “The  treaty  is  not  in  effect  until  at  least  2  countries   sign  up”     • Stage  1:  do  countries  sign  up  or  not?  If  there  is  exactly  one  country  already   signed  up,  then  the  second  country  is  decisive.  If  two  other  people  have   signed  up,  then  it’s  not  worth  it  for  the  third  country  to  sign  on,  because  they   are  not  better  off  by  doing  it.     • IEA  generates  more  cooperation,  but  not  FULL  cooperation.     Climate  Change:     • Greenhouse  Gases  have  played  a  big  role  in  global  warming     • We  need  to  reduce  CO2     • In  order  to  fix  this  problem,  we  need  to  cooperate  for  decades.  We  can’t  just   solve  it  in  one  year.     • Location  of  damages  are  independent  of  emissions  –  so  this  is  a  global   problem.       IEAs  in  Climate  Change:     • Generating  scientific  consensus  that  there  is  a  problem     • It’s  only  a  prisoner’s  dilemma  if  you  believe  the  scientific  consensus     • Old  model:  repeated  interaction  and  information,  allows  countries  to  punish   each  other  enhances  cooperation     • New  model:  maybe  what  needs  to  happen  is  a  new  set  of  rules  for  deciding   whether  to  join  the  agreement.  Then  once  they  are  in  the  agreement,  there  is   a  different  set  of  rules  for  deciding  whether  to  reduce  greenhouse  emissions   or  not.     • Paris:  every  country  is  coming  with  its  promise.  You’re  bringing  your   decision  to  this  international  forum.     • The  Paris  agreement  made  a  lot  of  progress,  but  scientists  don’t  expect  that   the  agreements  people  made  will  achieve  the  2  degree  goal.   • Countries’  citizens  don’t  want  to  address  climate  change.  Politicians  have  to   solve  this  problem,  keeping  in  mind  what  their  citizens  want  to  do.       Two-­‐Level  Game   • Level  1:  bargaining  between  countries/negotiations     • Level  2:  ratifying  the  agreement  in  each  country.     • Define  a  “win-­‐set”  for  a  given  Level  2  constituency  as  the  set  of  all  possible   Level  1  agreements  that  would  have  majority  support       Exam:     5  short  answer  and  2  essays.  Distribution  is  50/50     Covers  the  whole  quarter,  but  more  of  a  focus  on  the  second  half        


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