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Global environmental agreements and international trade: Asymmetry of countries matters

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Abstract

We investigate the formation of global climate agreements (= stable grand climate coalitions) in a model, in which climate policy takes the form of carbon emission taxation and fossil fuel and consumption goods are traded on world markets. We expand the model of Eichner and Pethig (2014) by considering countries that are identical within each of two groups but differ across groups with respect to climate damage or fossil fuel demand. Our numerical analysis suggests that climate damage asymmetry tends to discourage cooperation in the grand coalition. The effects of fuel-demand asymmetry depend on fossil fuel abundance. If fuel is very abundant, the grand coalition fails to be stable independent of the degree of fuel demand asymmetry. If fuel is sufficiently scarce, low degrees of fuel demand asymmetry discourage cooperation whereas higher degrees of asymmetry stabilize the grand coalition.

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  • Thomas Eichner & Rüdiger Pethig, 2014. "Global environmental agreements and international trade: Asymmetry of countries matters," Volkswirtschaftliche Diskussionsbeiträge 170-14, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  • Handle: RePEc:sie:siegen:170-14
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    1. Eichner, Thomas & Pethig, Rüdiger, 2013. "Self-enforcing environmental agreements and international trade," Journal of Public Economics, Elsevier, vol. 102(C), pages 37-50.
    2. 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, May.
    3. Claude d'Aspremont & Alexis Jacquemin & Jean Jaskold Gabszewicz & John A. Weymark, 1983. "On the Stability of Collusive Price Leadership," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 17-25, February.
    4. Fuentes-Albero, Cristina & Rubio, Santiago J., 2010. "Can international environmental cooperation be bought?," European Journal of Operational Research, Elsevier, vol. 202(1), pages 255-264, April.
    5. Hans-Peter Weikard & Michael Finus & Juan-Carlos Altamirano-Cabrera, 2006. "The impact of surplus sharing on the stability of international climate agreements," Oxford Economic Papers, Oxford University Press, vol. 58(2), pages 209-232, April.
    6. Barrett, Scott, 1994. "Self-Enforcing International Environmental Agreements," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 878-894, Supplemen.
    7. Francesco Bosello & Barbara Buchner & Carlo Carraro, 2003. "Equity, Development, and Climate Change Control," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 601-611, 04/05.
    8. Xiao Chen & Alan Woodland, 2013. "International trade and climate change," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(3), pages 381-413, June.
    9. Matthew McGinty, 2007. "International environmental agreements among asymmetric nations," Oxford Economic Papers, Oxford University Press, vol. 59(1), pages 45-62, January.
    10. Barrett, Scott, 2001. "International cooperation for sale," European Economic Review, Elsevier, vol. 45(10), pages 1835-1850, December.
    11. Copeland, Brian R & Taylor, M Scott, 1995. "Trade and Transboundary Pollution," American Economic Review, American Economic Association, vol. 85(4), pages 716-737, September.
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    Cited by:

    1. Thomas Eichner & Rüdiger Pethig, 2014. "Forging a global environmental agreement through trade sanctions on free riders?," Volkswirtschaftliche Diskussionsbeiträge 171-14, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    2. repec:eee:ecolec:v:153:y:2018:i:c:p:43-55 is not listed on IDEAS

    More about this item

    Keywords

    fuel demand; climate damage; international trade; asymmetry; stability; grand coalition;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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