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International environmental agreements among asymmetric nations

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  • Matthew McGinty

Abstract

This paper generalizes the benchmark model of self-enforcing international environmental agreements (IEAs) by allowing for all possible coalitions of n asymmetric nations. Asymmetries introduce gains from trade in pollution permits, reducing the incentive to deviate from a properly designed agreement. Coalitions are stable when the aggregate payoff to members is greater than the sum of individual payoffs from leaving the coalition. A benefit-cost ratio rule is proposed which distributes any remaining surplus after each coalition member receives their payoff as a non-signatory. Simulations of 20 asymmetric nations illustrate that even when the gains to cooperation are large, IEAs can achieve substantial emissions reductions. For example, when the benefit-cost ratio is one, stable coalitions can result in 47% of the difference between the full and no cooperation outcomes, compared with 5% for symmetric nations. Furthermore, 72% of the global payoff difference is obtained, relative to 9% for symmetry. Copyright 2007, Oxford University Press.

Suggested Citation

  • Matthew McGinty, 2007. "International environmental agreements among asymmetric nations," Oxford Economic Papers, Oxford University Press, vol. 59(1), pages 45-62, January.
  • Handle: RePEc:oup:oxecpp:v:59:y:2007:i:1:p:45-62
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    File URL: http://hdl.handle.net/10.1093/oep/gpl028
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