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Self-enforcing environmental agreements and capital mobility

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  • Thomas Eichner
  • Rüdiger Pethig

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Abstract

In a multi-country model with mobile capital and global pollution this paper analyzes the stability of self-enforcing environmental agreements (IEAs) when the coalition formed by the signatory countries plays Nash. In accordance with previous environmental literature we show that there exists a unique self-enforcing IEA consisting of two or three signatory countries if emissions tax rates are strategic substitutes. However, emissions tax rates are strategic complements if the pollution is not too detrimental. In that case we find very small self-enforcing IEAs, as before, but now the socially optimal agreement among all countries may be selfenforcing as well. Special emphasis is placed on the investigation and interpretation of the conditions which render stable the grand coalition.

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Bibliographic Info

Paper provided by Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht in its series Volkswirtschaftliche Diskussionsbeiträge with number 162-13.

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Length: 28 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:sie:siegen:162-13

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Keywords: capital mobility; self-enforcing environmental agreements; emissions tax; Nash behavior;

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  1. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  2. Michael Hoel, 1992. "International environment conventions: The case of uniform reductions of emissions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 2(2), pages 141-159, March.
  3. Effrosyni Diamantoudi & Eftichios S. Sartzetakis, 2006. "Stable International Environmental Agreements: An Analytical Approach," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(2), pages 247-263, 05.
  4. Alistair Ulph & Santiago J. Rubio, 2004. "Self-Enforcing International Environmental Agreements Revisited," Working Papers. Serie AD 2004-23, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  5. Thomas Eichner & Marco Runkel, 2012. "Interjurisdictional Spillovers, Decentralized Policymaking, and the Elasticity of Capital Supply," American Economic Review, American Economic Association, vol. 102(5), pages 2349-57, August.
  6. d'ASPREMONT, Claude & JACQUEMIN, Alexis & GABSZEWICZ, Jean J. & WEYMARK, John A., . "On the stability of collusive price leadership," CORE Discussion Papers RP -522, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Thomas Eichner & Rüdiger Pethig, 2013. "Self-Enforcing Environmental Agreements and International Trade," CESifo Working Paper Series 4125, CESifo Group Munich.
  8. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
  9. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, vol. 92(1), pages 363-370, March.
  10. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
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