The Carrot or the Big Stick? A Game-Theoretic Approach to the
Integration of Environmental Policy in CARICOM
Sonja Sabita Teelucksingh1
Abstract
Transboundary pollution is a problem of international externalities resulting from a lack
of property rights in the global commons.
Externalities at a national level can be
internalised by the adoption of relevant policies by a central authority such as a national
government. However, at a supra-national level this cannot be done unless there exists a
supra-national body with the complete authority to internalise the externality. Necessary
conditions for this are the articulation and adoption of a common policy stance on
environmental issues and the incorporation of the mechanisms necessary to achieve these
well-defined common goals.
The geographical characteristics of the CARICOM region mean that there are significant
transboundary externality effects that should be regionally considered, particularly in
terms of marine exploitation and pollution. This paper investigates the issues that arise
from the adoption of a sustainable regional environmental strategy in CARICOM from a
game-theoretic point of view. The literature abounds with theoretical and empirical
investigations of the “carrot” approaches such as subsidies and international transfers,
versus the “big stick” approaches such as trade restrictions and Pigouvian taxes.
However as a regional grouping, CARICOM presents its own special case. CARICOM
as a grouping represents but a subset of the Latin American and Caribbean region (LAC),
and as such only a portion of the nation states that generate, and are affected by, the
transboundary pollution of the region. Thus, while it is imperative to identify the relative
1
Department of Economics
UWI (St. Augustine)
email: [email protected]
tel: 662-2002 x 2017/2018
fax: 662-6555
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advantages and disadvantages of the carrot and the big stick, and the mechanisms and
institutional factors necessary for such a strategy to be self-enforcing and sustaining, the
questions to be answered first are these – what countries hold the carrots? And who are
the potential wielders of the big sticks?
In terms of the harmonisation of environmental policy within CARICOM and
implications of the CSME in this arena, this question has to be addressed on several tiers.
Firstly, within CARICOM itself, given the heterogeneity of the nation states and
asymmetry of characteristics, the question becomes which country should emerge as the
leader of the game? On a second level, what are the possible interactions between
CARICOM and the LAC in terms of the adoption of a truly regional environmental
strategy with respect to transboundary issues? And thirdly, between the LAC and the rest
of the world, would a strong regional LAC grouping be better able than either
CARICOM or a single Caribbean nation state to negotiate the terms and conditions of
international agreements in international games in which the developed world clearly
emerges as the leader?
This paper seeks to investigate the answers to these questions. The outline is as follows:
1. Introduction
2. Marine Pollution in the Caribbean
2.1 Industrial Sources
2.2 Sewage Sources
2.3 Agricultural Sources
2.4 Solid Waste/Marine Debris Sources
3. International Environmental Agreements
4. Carrots versus Big Sticks
5. The Integration of CARICOM Environmental Policy
5.1 Intra-CARICOM
5.2 The Wider Caribbean Region
5.3 The International Arena
6. Conclusions
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1. Introduction
Transboundary pollution is a problem of international externalities resulting from a lack
of property rights in the global commons.
Externalities at a national level can be
internalised by the adoption of relevant policies by a central authority such as a national
government. However, at a supra-national level this cannot be done unless there exists a
supra-national body with the complete authority to internalise the externality. Necessary
conditions for this are the articulation and adoption of a common policy stance on
environmental issues and the incorporation of the mechanisms necessary to achieve these
well-defined common goals.
The geographical characteristics of the Caribbean region mean that there are significant
transboundary externality effects that should be regionally considered, particularly in
terms of marine exploitation and pollution.
The “Caribbean Region” can be
geographically defined in a number of ways. The broadest definition is that utilised by
the 1983 Convention for the Protection and Development of the Marine Environment of
the Wider Caribbean Region (WCR), more commonly known as the Cartagena
Convention (see Figure 1). Here the “Convention Area” was defined as follows –
“....the marine environment of the Gulf of Mexico, the Caribbean Sea and areas of the
Atlantic Ocean adjacent thereto, south of 30’ north latitude and within 200 nautical miles
of the Atlantic coast of the States referred to in article 25 of the Convention” (UNEP
1994)
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Figure 1
The Wider Caribbean Region
(Botello et. al 1997)
This definition encompasses twelve continental States, thirteen island States, the
Commonwealth of Puerto Rico, three overseas departments of France, a Territory shared
by the Netherlands and France (St. Martin) and eleven dependent territories (UNEP
1994).
The Wider Caribbean Region as defined by the Cartagena Convention represents over
forty discrete political entities with a rich and diverse heritage. It is a melting pot of
cultures, languages, societal structure and economic capabilities (Fabres 1996, Montero
2002). The Caribbean Sea of this region is an immense expanse that is downstream from
major continental river systems that generate over 20% of fresh water and 12% of
sediment outflows into the Atlantic Ocean. The region also receives major inflows of
deep water from the Atlantic. The Caribbean sea contains an estimated 9% of global
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coral reef area and a human population of over 230 million people, with over 50 million
living in coastal areas (Fabres 1996).
The Caribbean Community (CARICOM) was established in 1973 by the Treaty of
Chaguaramas.
Fifteen states are now a part of CARICOM, which comprises 14
independent states and one overseas territory of the United Kingdom.
There is
considerable heterogeneity within the CARICOM grouping in terms of geographic and
economic characteristics (see Appendix 1). Population ranges from 5,000 persons in
Montserrat to 7.1 million in Haiti, with the population of most of the countries being
below 1 million. Territorial size also differs considerably, ranging from 103 square
kilometers in Montserrat to 214,970 square kilometers in Guyana. Per capita income
ranges from US$610 in Haiti to US$11,214 in the Bahamas (Watson et. al 2003).
The region defined as the Wider Caribbean is clearly characterised by immense physical
and political diversity. Nonetheless, the oceanographic structure of the region means that
despite barriers of physical landscape, political diversity and language barriers,
environmental factors both in terms of the exploitation of the regional marine resources
as well as the pollution must be dealt with at a regional level. As Morrison (1999) states,
“..there are few things as elusive as the concept of territorial waters”
CARICOM theoretically represents a level of regional cooperation and harmonisation
from which steps towards a regional environmental strategy can be taken. This paper
investigates the issues that arise from the adoption of a sustainable regional
environmental strategy in CARICOM from a game-theoretic point of view.
2. Marine Pollution in the Caribbean
In islands where much of the utilised land is in the coastal zone, there exists a strong link
between the terrestrial and marine environments. Over the last ten years these links have
become visible due to the evidence as to the deterioration of the marine environment
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upon which most if not all of the island’s ecosystems are dependent. The oceanographic
features of the Caribbean region in particular make the area particularly prone to toxic
accumulation (Ross and deLorenzo 1997, Rawlins et. al 1998). Long-term protection of
the marine environment requires significant regional and international cooperation
(Morrison 1999), particularly with the notion of the Large Marine Ecosystem Approach
that recognises that marine pollution and marine resources recognise few geographical
boundaries and no political ones (Scheren et. al 2002).
Land-based marine pollution can be defined as the disposal or release of polluting
substances from land-based activities to the coastal and marine waters (Diamante et al,
1991). Pollution from land-based sources is considered to be the most important threat to
the marine environment of the Caribbean (UNEP 1994, Rawlins et. al 1998). As in other
parts of the world, the major sources of land-based pollution vary from country to
country, depending on the nature and intensity of the country-specific development
activities that are undertaken. Nevertheless, discharges of any type and from a wide
range of activities contribute to inshore coastal pollution and can also have significant
offshore effects once they enter into the main oceanic circulatory systems that serve the
region. Also included are less obvious airborne pollutants that are primarily land-based
in nature and are discharged directly or indirectly into the marine environment.
In order to control land-based sources of marine pollution, it is necessary to identify the
types of pollutants, their levels and the specific economic activity that produce the
pollutants.
Many land-based sources are easily recognisable, particularly industrial
outfalls and sewage effluents that are discharged directly into the coastal ocean waters
and inland riverine systems. However, in some islands it is non-point rather than point
sources of land-based pollution that cause the more serious threat to the marine
environment. Sedimentation resulting from soil erosion, nutrient over-enrichment and
toxic contamination from non point sources all constitute serious threats to the integrity
of the marine ecosystem. While less easy to identify than more obvious point sources
and hence almost impossible to regulate and legislate against, non-point sources of landbased pollution can have equally damaging effects.
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The rivers of the region are the means of transport for the introduction of a considerable
amount of particulate material to the marine environment every year. (UNEP 1994).
Agricultural activities and changing land-use patterns in particular are responsible for the
increased riverine loads that overwhelm the natural and geochemical processes
responsible for controlling them (UNEP 1994, Rawlins et. al 1998). Documented effects
of sedimentation and the resulting increase in the turbidity of coastal waters include
increasing siltation of critical coastal ecosystems such as coral reefs (Morelock et. al
1979, Cortes et. al 1985, UNEP 1994).
Nutrient enrichment of coastal waters is also a primary concern.
In particular, the
continuous discharge of nitrogen and phosphorus compounds is a major cause of
eutrophication (UNEP 1994). For coral reef systems in particular, enhanced phosphorus
concentrations can be damaging ((Kumarsingh et. al, 1998). In a study conducted on the
Buccoo Reef of Tobago, researchers found that the phosphorus records preserved by
these corals were consistent with the historical agricultural and tourism development of
the area (Kumarsingh et. al, 1998).
Many coral reefs in the Wider Caribbean are
considered to be suffering from the effects of eutrophication (Rawlins et. al 1998).
There have been many attempts to identify and categorise the marine pollution problems
facing the region. This can be done in one of two ways - by source of pollution or by
type of pollutant. There are four major categories of land-based pollution by source
(Diamante et al, 1991) (1) industrial sources
(2) agricultural sources
(3) sewage sources
(4) solid waste/marine debris sources
2.1 Industrial Sources
Most of the regional overviews of environmental pollution in the Caribbean produced in
the last twenty years have identified industrial pollution as a major marine environmental
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issue (Siung Chang 1997). This category includes both organic and inorganic pollutants,
pre-treated or otherwise, that are produced as a result of or in conjunction with industrial
processes and mining activities. They find their way into the marine environment either
through direct discharge into coastal waters or indirectly through the various physical
media such as the inland riverine systems, ground waters or the atmosphere.
In the Caribbean region, pollution from the petroleum and petrochemical industries is
being examined as a matter of priority. A UNEP study identifies the Wider Caribbean
Region as one of the largest oil producing areas in the world involving production in
Colombia, Mexico, Trinidad and Tobago, the United States of America and Venezuela.
The risk of oil contamination and pollution is high.
2.2 Sewage Sources
Sewage pollution of the marine environment has long been identified as an environmental
problem in the region. Sewage sources include both human and animal waste, which
when discharged raw or at most inadequately treated into the coastal marine environment,
can result in excessive nutrients, pathogenic bacteria and suspended solids which have
both short and long term ecological implications and at the top of the food chain can
signify risks to human health by consumption of contaminated fish or shellfish. It is
argued that not only is sewage one of the most widespread and significant pollutants in
the Wider Caribbean (UNEP 1994, Siung Chang 1997) but it is also one of the marine
pollution problems least studied or reported on.
A survey conducted by PAHO in eleven CARICOM (Caribbean Community) countries
reported that the total percentage of the population of the study served by sewage systems
ranged from 2% to 16% (Vlugman 1992). There were an inadequate number of sewage
treatment plants, and of those that were functional, many were reported to be poorly
maintained and operated, with the common practice of discharging mostly untreated and
unmonitored wastewater. For the rest of the population not served by a sewage system,
the common practice is the septic tank or cesspit system. Indeed, this system is typical of
a large part of the population of most Caribbean countries. Hence the source of sewage
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pollution in the region comes not only from poorly operating treatment plants but also
often from cesspit and septic overflows.
This overall problem is exacerbated by
demographic growth of the region and the coastal communities in particular, thus
increasing the amounts of poorly treated or untreated wastewaters being discharged
deliberately or accidentally into the coastal marine environment (UNEP 1992).
In addition, pressure is placed on already inadequate sewage systems by high numbers of
tourists that pass through the Caribbean region each year. In the past decade there has
been an increase in the region’s tourism, an industry that is dependent on the pristine
quality of the natural and marine environment. Paradoxically, this exacerbates marine
pollution from sewage. Hotels and other tourist facilities are being built in areas that lack
municipal sewage systems and so require hotels to run their own treatment plants.
Surveys have indicated that most of these are in poor operating condition. Furthermore,
yacht-based and cruise-ship tourism (as opposed to the land-based variety) can also have
poor sewage management practices as a result of lack of port reception facilities, lack of
proper legislation and a general carefree attitude. Their sewage is likely to be disposed of
in or near marinas.
The rearing of livestock also contributes to sewage pollution of the marine environment.
The production of sewage from livestock is significant, with cows and pigs producing
greater per capita volumes of sewage waste than humans (Siung Chang 1997). While a
small amount of this waste is used as organic fertiliser for crops, most of it enters
waterways that then enter the coastal marine environment. A study of Hope Bay in
Tobago found that the high faecal coliform counts resulted from a nearby cattle farm and
not from human sewage (IMA 1987). This, of course, constitutes agricultural pollution
(livestock) of the marine environment as well.
2.3 Agricultural Sources
There are different types of agricultural practices that lead to both point and non-point
pollution of the coastal marine environment.
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The widespread use of fertilisers and
pesticides lead to negative environmental effects when they (inevitably) enter the marine
environment through the runoff of rain and irrigation water and through atmospheric
transport. A considerable amount of suspended and dissolved particulate materials are
also introduced to coastal areas by the rivers of the region due to improper cultivation
practices and land clearance for agriculture. These cause soil erosion and sedimentation
of streams, estuaries and coastal waters.
Fertilisers lead to the nutrient enrichment of coastal waters. In particular, nitrogen and
phosphorous compounds discharged into enclosed coastal waters are a major cause of
eutrophication (UNEP 1994). This is in conjunction with the pollution of coastal waters
by sewage that also has a nutrient enrichment effect. Nutrient enrichment can also
interact with other pollutants such as petroleum hydrocarbons to produce subtle but
significant alterations in the ecological systems of coastal waters.
Pesticide contamination is associated with high toxicity and has a tendency to accumulate
in coastal and marine sediments and biota. Pesticides such as insecticides, herbicides and
fungicides are extensively used in intensive agricultural activity in the region. These can
pose a serious public health risk through the toxic contamination of non-target organisms
such as seafood species. It has been estimated that an average 90% of pesticides applied
in agricultural practices do not reach the targeted species (UNEP 1994).
Pesticide
pollution also has negative environmental implications for marine water quality.
In addition to providing one of the media through which fertilisers and pesticides can
reach the coastal marine environment, sediments or particulate materials can have a
damaging effect on coastal ecological systems.
A certain amount of river borne
particulate material is naturally introduced into coastal areas via the rivers of the region.
There exist natural geochemical processes that control these materials. However, when
these volumes are pushed past their natural boundaries by human activities difficulties
arise. The increased turbidity of coastal waters that results can place severe stress on
critical coastal ecosystems of the regions such as coral reefs.
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Agricultural practices can cause massive sediment overload in coastal waters.
Deforestation of river basin watersheds for agricultural practices also causes concern
(UNEP 1994). Onshore and inland mining operations, such as the mining of bauxite in
Jamaica and the mining and processing of ores in Cuba and the Dominican Republic, can
also increase sediment loads through the disposal of particulate wastes.
Suspended
materials are also introduced into coastal areas through the practice of ocean dumping,
that is, waste disposal at sea.
These materials are usually dredge spoils, including
contaminated sediments containing toxic heavy metals and organic pollutants that
originate from industrial sources. Ocean dumping also includes sewage disposal at sea,
which is promoted by multilateral lending agencies in the absence of domestic sewage
systems to treat the waste, and as an alternative to coastal dumping (Siung Chang 1997).
The assumption is that while the problems of bacterial, sediment and nutrient
contamination remain, they remain further offshore.
However due to the nature of
current patterns in the region, most of these pollutants find their way back to inshore
areas instead.
2.4 Solid Waste/Marine Debris Sources
Solid waste and marine debris pollution of the coastal environment is a growing problem
in the Caribbean (Siung Chang 1997) and one of which experts have become increasingly
aware. Solid waste is generally taken to be the land-based litter of society while marine
debris is the ocean-based litter that reaches the coastal areas through the patterns of
currents and tides. These types of pollution of the marine environment can injure and kill
marine animals through collision, entrapment and entanglement.
Materials such as
plastic can cause slow starvation of marine animals that mistakenly treat such substances
as food sources. In addition to such deleterious environmental impacts, these sources of
pollution are also of particular concern due to their immediate impact on the visible
physical environment of a region heavily dependent on aesthetic quality for its income.
Solid waste sources of pollution cover a wide range of discarded materials that are the
result of the activities of a modern society.
The disposal practices of solid waste
determine whether or not this waste becomes a marine pollution issue. Well-managed
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landfills should not constitute a source of marine pollution to the coastal environment.
However, the fact is that there exist poorly managed landfills in many coastal areas of the
Caribbean. This means that instead of being a preventive pollution measure, landfills
become an important source of floating solid wastes in the sea (UNEP 1994). In many
areas of the region, and in the insular Caribbean in particular, land space is very limited,
particularly for use as disposal sites for solid waste. In some instances where adequate
disposal sites are lacking, wastes are deposited into rivers or wetlands or are dumped
straight into the sea (Diamante et. al 1991). This practice is evident in many countries of
the Caribbean.
Marine debris sources can originate from shipping, commercial fisheries, and general
offshore activities involving disposal at sea of solid wastes. This can occur in the
absence of effective legislation or the necessary policing to enforce the existing
legislation. It is exacerbated by the absence of the port facilities necessary to deal with
the offloading, storage, collection, treatment and final disposal of waste generated
shipping activities. These ocean-based sources are then transported to inshore areas by
the prevailing winds, tides and currents, sometimes at great distances from their original
sources. Based on oceanographic features such as these, there exist various identified
repositories of marine debris such as the Florida Keys and coastal areas of the Gulf of
Mexico (UNEP 1994). Through these characteristics of the marine environment, the
solid waste pollution of one area can also become the marine debris pollution of another beach marine debris pollution surveys undertaken in the Caribbean since 1984 suggest
that the majority of such wastes reaching beaches are land-based in origin, rather than
ocean-dumped by offshore activities (Siung Chang 1997).
3. International Environmental Agreements
The most well known argument for governmental intervention in market processes is the
failure of the market to correctly equate private and social costs of economic activities
and the resultant inefficiency of resource allocation. Environmental goods and services
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that are traditionally non-marketed are the best examples of market failure (Chang 1997,
Farmer et. al 2001) and it is in the area of environmental policy that the state is called
upon the most to intervene. Within national boundaries, this intervention via marketbased instruments (such as tradeable permits) non-market based instruments (such as
taxes based on the ‘polluter pays’ principle) or a combination of the two (Bailey 2002)
can be effectively accomplished.
Environmental policies along these lines must be able to be effectively monitored and
enforced. Within a nation-state, this is accomplished by the fact of the overriding legal
authority of the state to which the society has delegated all such responsibilities (MullerFurstenberger and Stephan, 1997).
It is a well-recognised fact, however, that
environmental issues possess a strong international dimension (Petrakis and Xepapadeas
1996, Lange and Vogt 2003).
Transboundary pollution in particular is a case of
international externalities that has to be dealt with on an international policy scale – a
high degree of interdependence among countries in the environmental sector can
jeapordise unilateral policy and calls for multilateral action instead (Silva and Caplan
1997, Carraro and Siniscalco 1998, Thia-Eng 1999). With transboundary externalities, no
nation has incentive to regulate its activities that generate environmental harm within
another’s borders (Chang 1997). Furthermore, the Tragedy of the Commons ensures that,
in the global commons, activities taken by one nation or a group of nations can affect the
interests of other nations in the global scene.
Unless activities such as these are
monitored on some supra-national level at the global scale, Pareto-inefficiencies arise.
In the absence of a supra-national authority to assume a role in international
environmental policy analogous to that of the state in the national arena, there is the need
for a collective response on an international level to environmental problems (Kraus
1997, Carraro and Siniscalco 1998). According to Levy (1996), “…humans commonly
respond to collective problems by creating institutions”. It is not surprising, therefore,
that the growing concern over environmental issues the world over has led to a host of
international regimes (agreements, conventions, protocols and institutions) designed to
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regulate the growing environmental exploitation and destruction. The main conventions
and the CARICOM countries that have acceded to them are summarised in Appendix 2.
There has been very little formal research conducted on the design and study of
international environmental agreements and the institutions that necessarily accompany
them (Batabyal, 1996). Post-hoc, it is also essential that the effectiveness of existing
regimes be analysed so that future regimes may be informed. Levy (1996) suggests that
effectiveness can be analysed on three levels – compliance, behavioural change and
policy suitability. Regimes specify rules, and there clearly needs to be compliance by
members with these rules if the regime is to be effective. It is also vital to examine the
extent to which the regime changes the behaviour of its members with the result that the
problem around which the regime was created either diminishes or disappears. Finally, it
is important to ascertain the policy suitability of a regime – even if compliance is
obtained and behavioural change engendered, inappropriate policy targets may result in
the regime’s failure to meet its objectives in any meaningful way.
Game theory has emerged as a tool of analysis for environmental negotiations and
responses. By modelling the international bargaining process as a series of games,
theoretical models can be developed to analyse outcomes in a variety of settings that
include cooperation by member states, non-cooperation, complete information,
asymmetry of information, a small number of members and larger numbers of members
(Barrett 1994, Petrakis and Xepapadeas 1996, Silva and Caplan 1997, Carraro and
Siniscalco 1998, Frisvold and Caswell 2000, Barrett 2001, Rubio and Casino 2002,
Eckert 2003, Lange and Vogt 2003).
The biggest threat to the efficacy of international environmental regimes is the incentive
that exists, above and beyond any compliance incentive structure that may be established,
for a nation to free-ride (Barrett 1994, Petrakis and Xepapadeas 1996, Carraro and
Siniscalco 1998, Barrett 2001). This means that a nation can withhold cooperation from
the agreement and so bear none of the costs, but due to the non-excludability of benefits
will reap the same rewards as the complying states that consequently bear all of the costs.
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This is as a result of rational behaviour by governments, and if enough states free-ride
this will lead to, at best, a lack of effectiveness of the international regime and, at worst,
its eventual demise. An international agreement needs to be self-enforcing in order to be
effective (Barrett, 1994), and free-riding presents the main obstacle to this.
The
challenge for international regimes therefore becomes the balance between the
establishment of effective compliance structures and the creation of disincentives to freeride.
4. Carrots and Big Sticks
Unless free-riding can be deterred, global environmental goods will be under-provided
(Barrett, 2001). Deterrence can be either in the form of the threats of punishment to the
free-riders or the creation of incentives to facilitate voluntary cooperation. A cooperative
setting is a necessary precursor for effective functioning of an environmental regime in
terms of the achievement of its initial objectives, but it is also one of the more elusive
settings to attain. The international environmental agreement setting is an inherently
non-cooperative one due to the state sovereignty that must be respected and the
incentives that do exist to free-ride on the compliance of others. One of the primary
objectives of a supra-national regime must therefore be to establish structures that will
either encourage and facilitate voluntary cooperation by making it profitable for states to
do so (“carrots”), or force compliance among the dissenting states by reprisals or the fear
of reprisals (“sticks”).
Carrots in an international environmental regime setting involve the creation of economic
incentives to compliance. The GATT Secretariat describes a carrots regime as follows
(GATT Secretariat, quoted in Chang, 1997):
“When cooperation is not voluntarily forthcoming, positive incentives are the best way to
achieve sustained inter-governmental cooperation. Positive incentives can include offers
of financial assistance and transfers of environmentally friendly technology directly
15
related to the problem at hand, as well as more broadly based offers, for example, to
increase foreign aid, to lessen debt problems and to make non-discriminatory reductions
in trade barriers”
Carrots can therefore include international financial transfers, transfers of technology, the
opening of hitherto closed markets for trade, increased foreign aid and the reduction of
foreign debt. However, realistic application of this principle means that there exists an
incentive for nation states to (1) play “chicken” within the international arena until
someone takes the mantle (and bears the cost) of the carrot-dangling responsibility and
(2) to distort their activities within the environmental sector so as to ensure a greater
collection of carrots.
Some state or group of states must take the lead in the supra-national scene in terms of
the construction of the environmental agenda and the laws of compliance. However in a
carrots-only regime the cost of ensuring compliance among the affected states is high.
The incentive to take such responsibility is therefore small and the benefits of waiting for
another to bear those costs are high.
The interactions between states in a pre-
international regime setting can therefore be seen as a game of “chicken”, where
activities detrimental to the shared environmental commons continue to take place and
nations strategically wait to see if another takes the lead in the game. The existing
international agreements show that, many times, the developed nations take the role of
leader and the developing nations the role of follower. Intuitively this is an appealing
concept since the leader must have both the financial power to offer carrots and the
political power to threaten with sticks.
Once an international regime is established, it then becomes the responsibility of the
leader of the game to ensure the sustainability and effectiveness of the agreement by
ensuring compliance among the affected states. In a carrots-only regime, this means that
the leader must choose a combination of carrots in order to change the international
setting from a non-cooperative to a cooperative one. The problem that arises here is that
the states being so wooed have an incentive to distort their environmental activities so as
16
to ensure greater payoffs and a greater collection of benefits. This distortion can come
either in terms of communication of environmentally-degrading activities or in terms of
an actual thrust towards greater environmental damage.
In the face of asymmetric
information, these are plausible scenarios that, in the end, can result at best in
misallocation of resources towards the countries that communicate dishonestly and away
from the genuine polluters, and at worst in environmental damage that is worse than preagreement levels.
A sticks-only regime involves the threat of punishment to free-riders and the enforcement
of that threat should it become necessary to do so. Sticks can include trade restrictions,
decreased foreign aid and a reduction in the transfer of technology. However the sticks
needed to deter free-riding altogether are often not credible (Barrett, 2001). While a wide
range of trade restrictions have been used or proposed towards the protection of
environmental interests, trade restrictions in particular have been condemned by the
GATT Secretariat, as made clear in their 1991 and 1994 rulings against the United States
for the ban imposed on tuna from countries whose fishing methods endanger dolphins
(Chang 1997, Lenschow 2002).
Sometimes, however, the threat of trade restrictions is enough to force compliance, and
the actions may not actually have to take place. But threats such as this need to have a
credible base in order for this to be so, and threats without teeth will not result in the
desired outcome of compliance. Furthermore, the carrying out of the threat can, in the
bargain, harm not only the dissenting countries but also the countries being called upon to
impose the punishment (Barrett, 2001).
It may be that in some cases a policy mix of carrots and sticks is needed, depending on
factors such as the environmental issue under consideration, the nature of the
international agreement, the characeteristics of the leader, the characteristics of the
followers and the time horizon over whichnthe game is being played. Romstad (2003)
identifies a combination carrot/stick approach in the regulation of non-point source
pollution.
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5. The Integration of CARICOM Environmental Policy
Environmental coordination at a regional level poses significant challenges (Bille and
Mermet, 2002). The adoption of a sustainable regional environmental policy in the face
of significant regional transboundary pollution can be seen as analogous to international
regime creation and sustainability. The challenge facing both objectives is the facilitation
of inter-governmental cooperation in the absence of a supra-national body with the
necessary legal authority, and in the presence of significant incentives to non-compliance
and free-riding behaviour. The issues of the mantle of leadership, the carrots versus
sticks approaches and the problems created by asymmetry of information in a regional
setting are all issues that need to be addressed if a regional policy is to be unilaterally
adopted.
The LAC region faces significant transboundary, non-point externalities via the marine
pollution of the Caribbean Sea. This also has negative consequences in terms of joint
exploitation of shared marine resources. A regional policy will not only seek to regulate
both the pollution and the exploitation of the resources (which tend to occur in isolation
and without a policy understanding of the exploitation of common stocks) but can also
strengthen the position of the region at the bargaining table in the international
environmental agreement setting. A cohesive voice of the LAC region is needed, not
only to more effectively manage the regional resource exploitation but also to defend the
developmental goals of the region and to have a significant say in the construction of
international agreements that will govern the sustainable use of the regional resources
(Montero 2002).
Does the CARICOM grouping represent a viable springboard towards this achievement?
Is it possible to move towards more integrated regional environmental policy, can the
mechanisms and institutional factors necessary for such a strategy to be self-enforcing
and sustaining be created, and can the harmonisation of environmental policy within this
grouping result in net benefits for its member states?
While the answers to these
questions can be investigated via the bargaining tools of game theory and the relative
18
advantages of the carrot and the big stick in a regional context, these questions must also
be addressed on several different levels.
As a regional grouping, CARICOM represents but a subset of the Wider Caribbean
Region (WCR) as defined by the Cartagena Convention, and as such only a portion of the
nation states that generate, and are affected by, the transboundary pollution of the region.
In terms of the harmonisation of environmental policy within CARICOM and
implications of the Caribbean Single Market and Economy (CSME) in this arena,
therefore, the issues that arise must be addressed on several tiers.
Firstly, within
CARICOM itself, given the heterogeneity of the nation states and asymmetry of
characteristics, the questions become which country should emerge as the leader of the
game, and what stick/carrot policy combination can be most effectively wielded by this
country? On a second level, what are the possible interactions between CARICOM and
the WCR in terms of the adoption of a truly regional environmental strategy with respect
to transboundary issues? And thirdly, between the WCR and the rest of the world, would
a strong regional WCR grouping be better able than either CARICOM or a single
Caribbean nation state to negotiate the terms and conditions of international agreements
in international games in which the developed world clearly emerges as the leader?
The three players in these games are the CARICOM countries, the rest of the WCR, and
the international community. In each round, a country or subset of countries must
emerge as the leader of the game, a leader that must have enough financial and political
sway to set the agenda and either offer carrots or threaten with sticks to ensure
compliance with that agenda. Within the tiers of CARICOM and the WCR, we can either
consider all countries as homogenous in terms of development, or introduce the concept
of heterogeneity among the nation states. Homogeneity would result in all countries
being considered as developing and as followers of the environmental agenda set by the
international community, and so regional games would not emerge.
To introduce
heterogeneity is to assume inequalities of economic development and regional political
strength, and therefore to allow for a regional leader to bring integrated regional
environmental policy closer to reality.
19
5.1 Intra-Caricom
Within CARICOM, under the relaxation of the assumption of homogeneity, the countries
that would lend themselves to leader of the game would be the economically stronger
ones. This must be so, in order that the leader has the financial power to offer carrots or
wield sticks. The problems alluded to above in terms of carrots-only approaches versus
stick-only approaches remain valid here. There are, however, additional issues to be
considered in the face of free trade within CARICOM and the CSME.
Firstly, the creation of a free trade area with free factor mobility must be accompanied by
a harmonisation of environmental policy at some level. If heterogeneity exists in terms
of tighter national environmental regulations versus more lax ones, free factor mobility
will imply that rational firms will move labour and capital to the countries where
environmental regulations are slacker (Rauscher, 1991). The net effect of this will of
course be greater environmental damage than would have occurred in the absence of the
free trade area, and given the regional transboundary externalities, these negative
consequences will be felt by even those countries who have attempted to regulate
environmental activities within their own borders.
Secondly (and somewhat perversely, given the need for environmental policy
homogeneity within a free trade area), the stick policy of trade restrictions can no longer
be plausible within a regional free trade grouping. This means that compliance, selfenforcement and disincentives to free-riders must be attained via mainly carrots-only
policies, in the absence of credible trade threats.
5.2 The Wider Caribbean Region
CARICOM represents only a subset of the Wider Caribbean Region. This implies that, if
CARICOM successfully adopts a unilateral environmental strategy towards the
sustainable use of marine resources and the regulation of marine pollution, the rest of the
WCR has, theoretically, a choice of one of three strategies. They can (1) implement no
changes in terms of their own environmental policies and so free-ride on the nonexcludable benefits that arise from the CARICOM environmental regulations, (2) join
20
with CARICOM’s environmental regulations or (3) form their own regional policy
grouping with its own internal leader and challenge CARICOM as the leader in regional
environmental policy.
The incentives to free-ride have been clearly outlined.
However this assumes that
CARICOM will be large enough in terms of environmental power to effect positive
regional environmental changes without the cooperation of the rest of the WCR. If the
rest of the WCR adopts a lax environmental strategy, would CARICOM enjoy any net
benefits from the adoption of stringent measures or would they instead suffer the
consequences of the negative environmental externalities from the policy stance of the
rest of the WCR over and above any environmental benefits that result from stricter
CARICOM environmental measures? Given CARICOM’s place as a small subset of the
WCR that includes some of the large continental countries of South and Central America,
it seems that the answer to this is clear. Strategy 1 is therefore an infeasible one for the
rest of the WCR to adopt in the face of CARICOM environmental harmonisation – lack
of regulation in the WCR will result in negative consequences to the entire region. This
can also act as a disincentive to CARICOM’s internal harmonisation – in the absence of
cooperation with the rest of the WCR, the benefits of harmonisation become unclear and
the incentive to free-ride even greater (Lange and Vogt 2003).
This leaves the rest of the WCR with Strategies 2 or 3.
Either they can follow
CARICOM’s already established plan, or form a plan of their own and invite/force
CARICOM to comply by carrots and sticks of their own. Given the relative size of the
rest of the WCR in relation to CARICOM, it is unlikely that they will passively follow an
external agenda.
This means that the negotiations will then take place between
CARICOM as a group and the rest of the WCR, either with their own sub-groups or
themselves as an environmental policy-harmonised body. The issue then becomes who
emerges as the leader of the game in terms of setting the tone for the regional
environmental policy agenda. If the leader that emerges is a non-CARICOM country or
group of countries, the incentive may then be for CARICOM to free-ride on the
harmonisation of environmental regulations of those bodies, and so the issues of carrots
21
and big sticks in terms of the leader of the game ensuring compliance and selfenforcement become relevant once more.
5.3 The International Arena
In the international arena of environmental negotiations, the agenda is clearly set by the
developed world that emerge as the uncontested leaders of the game. The issue then
becomes how strong is the regional voice in terms of defending regional developmental
goals and having an input into the exploitation of the regional environmental resources
that are so necessary for the provision of goods and services to regional communities. It
can only strengthen the regional position to have a clear, articulated and harmonised
policy towards international environmental issues.
6. Conclusions
This paper discusses some of the issues that arise when considering the integration of
environmental policy within CARICOM using a game-theoretic approach. There are
relative advantages and disadvantages of carrots and sticks within a free-trade grouping
to ensure compliance with supra-national conventions and agreements. However within
CARICOM the issues to be addressed first must be who is the leader of the game, who
dangles the carrots and wields the big stick, and what policy option can best be offered by
these countries to ensure compliance with and self enforcement of a truly regional
environmental strategy that will not only ensure the regulation of transboundary
externalities but will also give greater strength to the regional voice at the international
bargaining table.
22
Appendix 1
CARICOM: Selected Geographic and Economic Statistics (1999)
Country
Population
Real per Capita Income
Area
1999
(US$ 1999)
(sq. km.)
Antigua and Barbuda
69,747
9,410
442
Bahamas
288,000
11,214
13,864
Barbados
269,350
8,660
431
Belize
240,000
2,730
22,966
Dominica
76,000
3,170
750
Grenada
99,500
3,450
345
Guyana
775,143
760
214,970
Haiti*
7,180,000
621
28,000
Jamaica
2,540,500
1,980
10,991
Montserrat
5,000
n.a.
103
St. Kitts and Nevis
42,600
6,420
269
St. Lucia
149,621
3,946
616
St. Vincent and the Grenadines
111,000
2,941
389
Suriname
418,921
1,660
163,820
1,270,000
4,230
5,128
Trinidad and Tobago
Notes: * Provisional Member; n.a. – not available
Adapted from Global Development Finance and World Development Indicators, CARICOM (2000)
23
Appendix 2
International Environmental Agreements of CARICOM
Country
CBD
CITES CMS
Basel
Montreal
L
Antigua and Barbuda
Bahamas
Barbados
Belize
Dominica
Grenada
Guyana
Haiti*
Jamaica
Montserrat
St. Kitts and Nevis
St. Lucia
St. Vincent and the Grenadines
Suriname
Trinidad and Tobago
Adapted from GEO Regional Report 2000 (www.unep.org)
24
C
UNFCC
UNCDC Ramsar
Heritage UNCLOS
KEY:
Abbreviation
CBD
CITES
Convention on Biological Diversity
Convention
Convention on the International Trade of Endangered Species
CMS
Convention on the Conservation of Migratory Species of Wildlife,
Basel
Basel Convention on the Cross-boundary Movement and Disposal of Hazardous Waste
Montreal
UNFCC
Montreal Protocol on Ozone-Depleting Substances
L: London Amendment
C: Copenhagen Amendment
United Nations Framework Convention on Climate Change
UNCDC
United Nations Convention on Desertification in Countries with Severe Draught and/or Desertification
Ramsar
Convention on Wetlands of International Importance, Especially as Habitat to Sea Birds
Heritage
Convention on the Protection of World Cultural and Natural Heritage
UNCLOS
United Nations Convention on the Law of the Sea
25
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