Supply-Side Climate Policy: On the Role of Exploration and Asymmetric Information.

In the world economy with interdependent markets for fossil fuel deposits and extracted fossil fuel, a coalition of countries may fight climate change by purchasing fossil fuel deposits for preservation. Harstad (J Polit Econ 120:77–115, 2012) has shown that the coalition's supply-side climate policy implements the first-best. The present paper focuses on the role exploration and asymmetric information with respect to climate damage plays for the efficiency of unilateral supply-side climate policy. Under the assumption of non-strategic exploration and truthful reporting of climate damage, the deposit policy turns out to be efficient. If exploration is used strategically or the coalition misreports its climate damage, however, the deposit policy becomes inefficient. [ABSTRACT FROM AUTHOR]