International Cooperation In Pollution Control

In this paper the profitability and stability of an International Environmental Agreement among N identical countries that emit a pollutant are studied using a standard quadratic net benefit function. The static analysis shows that only a bilateral agreement could be self-enforcing independently of the number of countries affected by the externality and the gains coming from cooperation. It is also shown that this result occurs both when the coalition takes as given the emissions of nonsignatories and when it acts as the leader of the game. In the second part of the paper a differential game is proposed in order to analyze the stock externality due to accumulated emissions. Similar results to the ones obtained for the static model are derived both for an open-loop Nash equilibrium and for a feedback Nash equilibrium in linear strategies.