Self-Enforcing International Environmental Agreements with a Stock Pollutant

35 Pages Posted: 22 Nov 2003

See all articles by Santiago J. Rubio

Santiago J. Rubio

University of Valencia - Department of Economic Analysis

Begona Casino

University of Valencia

Date Written: October 24, 2003

Abstract

In this paper the stability of an International Environmental Agreement (IEA) among N identical countries that emit a pollutant are studied using a two-stage game. In the first stage each country decides noncooperatively whether or not to join an IEA, and in the second stage signatories jointly against nonsignatories determine their emissions in a dynamic setting defined in continuous time. For this second stage we have studied both the open-loop Nash equilibrium and the feedback Nash equilibrium. A numerical simulation shows that a bilateral coalition is the unique self-enforcing IEA independently of the gains coming from cooperation and the kind of strategies played by the agents (open-loop or feedback strategies). We have also studied the effects of a minimum participation clause finding that for this case a self-enforcing IEA just consists of the number of countries established in the clause. The rationale for the low level of international cooperation that can be expected for controlling pollution is given by the fact that nonsignatories benefit from the emissions control supported by signatories because of the public bad nature of the pollution stock. The result is that signatories always do better by withdrawing from the agreement whenever the number of signatories is higher than two.

Keywords: International Environmental Agreements, stock externalities, differential games, open-loop Nash equilibrium, feedback Nash equilibrium, linear strategies

JEL Classification: C73, D62, Q28

Suggested Citation

Rubio Jorge, Santiago J. and Casino, Begona, Self-Enforcing International Environmental Agreements with a Stock Pollutant (October 24, 2003). Available at SSRN: https://ssrn.com/abstract=461500 or http://dx.doi.org/10.2139/ssrn.461500

Santiago J. Rubio Jorge (Contact Author)

University of Valencia - Department of Economic Analysis ( email )

Avda. de los Naranjos s/n
46022 Valencia
Spain
+34963828219 (Phone)
+34963828249 (Fax)

Begona Casino

University of Valencia ( email )

E-46022 Valencia, Valencia E-46022
Spain

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