Transboundary Fire and Haze Games: Local Capture and Common Agency

Abstract

We study how transboundary, intergovernmental fire and haze negotiations interact with local, subnational government collusion and capture in a decentralized country. The local government collusion and capture problem is modelled as a competing principals and common agency problem that interacts with the central government's transboundary game of chicken. The results show that the central government can persuade farmers and prevent burning when the incremental benefits from slashing and burning are lower, the total direct and indirect costs and damages of fire and haze are higher and the required enforcement and abatement costs are not too high. Neighbouring governments can help mitigate the central government's budget constraint and punish violating multinational companies. We develop a multitask multiprincipal framework to expand our solution set to include partial burning outcomes and negative compensations. The results inform on a set of policy strategies to these complex transboundary fire and haze negotiation and local capture problems. Bio: Prof. Dr. Ridwan D. Rusli, SM, MSCEP, Dipl.-Chem. Dr. Rusli is Professor for International Finance and Strategy at Technische Hochschule Köln in Germany. Previously he taught public economics and IO at Nanyang Technological University and the University of Luxembourg, was research fellow at National University of Singapore LKY School of Public Policy and sponsored finance case studies at MIT Sloan School. His research spans SOEs, public finance and decentralization, energy- and environmental policy, platform- and circular economy strategies. Before returning to academia Dr. Rusli co-led the Asian Energy Investment Banking businesses at Lehman Brothers, UBS and Credit Suisse, was senior advisor to Northstar Private Equity and PwC Corporate Finance SE Asia and CEO of a SE Asian Energy Company.