ABSTRACT
During the past several years, the circumstances surrounding aviation sector have changed considerably from the environmental aspects. International aviation sector is included in neither Kyoto Protocol (1997) nor Paris Agreement (2015), although domestic aviation is covered by both. In fact, the international aviation is left to the deliberation at ICAO, a UN specialized agency. In 2016, ICAO has set the first ever global market-based measure for an entire sector, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) in order to achieve the global sector target of 2% annual fuel efficiency improvement and carbon-neutral growth from 2020 onward. Market-based mechanism is also written in Paris Agreement (Article 6) but member states continued to negotiate its details and they are not yet agreed upon as of August 2020. It might be said that the general perception of air travel has been significantly diversified from traditional safety and efficiency only, to include more and more environment and sustainability just as we can see in the terminology of "Fly Shame.” This could be because there have been steadily growing concerns about environmentally negative aspects of aviation congestion at many air travel hubs, social and community levels of adverse effects of over-tourism, and occurrence of more and more severe natural disasters from powerful typhoons or huge wildfires, which many suspect could be caused by climate change stemming from emission of GHGs including from autos or aircrafts. Then came the COVID-19, which could fundamentally change the way of traveling, working, and even communicating in the direction of touchless, remote, or virtual relationships. Its imminent effects are overwhelming worldwide, but the medium-or longer-term effects are yet to be seen. We have now common global target and the basket of measures to achieve it in international aviation sector at ICAO. In the domestic aviation sector, which is now covered in Paris Agreement, parties also agreed on the common global target and started constructing details of the measures to achieve the target, such as market-based mechanism. The effective financial and technical aids, for example, from developed countries to the developing ones, are ever more important to incentivize and execute the necessary efforts of both sides to actually meet the global target. We are going to shed lights on the incentive design problem between developing countries and developed ones with the framework of the game theoretic analysis under asymmetric information structure focusing on the so-called double moral hazard situation of the two sides. The main results show that it is extremely difficult for both sides to achieve common optimal incentive rules about aid payments under the information asymmetry. The measures to drastically mitigate the cost of efforts, to fundamentally reduce risk averse, and to equalize damage effects of temperature anomaly between the two sides through scientific researches and long-term education on the matter are the key for such optimal incentive design. © Springer Nature Switzerland AG 2022. All rights are reserved.