LAUSR

Abstract Significant amounts of public spending are allocated towards research on climate change, but considerable uncertainties remain. We analyze the strategic role of information acquisition and the determinants of investments in information in a common pool game. In the first stage, countries can acquire a signal about their own environmental damages caused by total emissions. Because signals are public, there are information spillovers between countries. In the second stage, the countries decide how much pollution to emit. We show that there can be an inefficiently high amount of investments in information in the non-cooperative equilibrium compared to the cooperative solution if the countries are risk averse and the expected emissions are sufficiently large. In addition, we analyze what happens if the countries cooperate in one of the stages but not in the other. We show numerically that if the emissions are decided non-cooperatively, countries might agree not to acquire any information at all. But if the emissions levels are decided cooperatively, investments in the non-cooperative equilibrium are always too low.