Environmental Economics and Sustainability

11 ECONOMIC TARGETS AND LOSS-AVERSION IN INTERNATIONAL ENVIRONMENTAL COOPERATION

Doruk riş

Sogang University

Politics is too serious a matter to be left to the politicians.—Charles de Gaulle

1. Introduction

In many economic models, we assume that governments make optimal choices for their country by taking into account the benefits and the costs to the country. However, in reality, governments' objectives often differ from that of their countries, since they have additional incentives to be reelected. In this paper, we argue that similar situation also exists when governments decide on their emission cuts. It is widely known that political parties consider economic benefits to be of greater importance since these benefits are more visible and certain to voters than the results of environmental policies.¹ As a result, they would have additional incentives to introduce some populist policies in order to achieve some economic targets. Political parties could perceive these targets as critical levels and believe economic benefits below these targets would displease voters. Furthermore, political parties would be averse to perform poorly in these economic aspects, since it might cost them the next election. For example, an increase in gasoline tax could be better for the country but not eventually implemented due to such distortionary incentives of the ruling party. In this paper, ...