Revisiting the Theory of International Environmental Agreements with Heterogenous Players

Raouf Boucekkine (), Weihua Ruan and Benteng Zou
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Weihua Ruan: Purdue University [West Lafayette]
Benteng Zou: Université du Luxembourg = University of Luxembourg = Universität Luxemburg

No 2615, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: We study an n-country pollution linear-quadratic differential game in which countries differ in their sensitivity to environmental damages while contributing to a common pollution stock. Such heterogeneity implies that countries value environmental quality differently and disagree on the desirable long-run environmental outcome. Consistently with the rising literature on carbon dioxide removal (CDR), we also allow for (optimal) negative emissions. We characterize the unique linear Markov-perfect (MPE) equilibrium and compare it to a centralized benchmark that maximizes aggregate welfare. We show that the inefficient steady-state pollution level at the MPE depends systematically on the distribution of damage sensitivities: intriguingly, holding average damages constant, more evenly distributed damages lead to more long-run pollution. Optimal negative emissions arise when the distribution of damage sensitives is asymmetric enough. We next show, among others, that while polarized damages reduce equilibrium pollution, they do generate distributional tensions. We therefore suggest a mechanism combining Pigouvian taxation with lump-sum transfers that can found an International Environment Agreement redistributing gains and implementing the first-best allocation despite divergent incentives.

Keywords: Differential games; Asymmetric players; International Envionmental agreements; Transboundary pollution (search for similar items in EconPapers)
JEL-codes: C62 C71 F53 H23 Q53 (search for similar items in EconPapers)
Date: 2026-06-09
Note: Working paper AMSE 2026-15
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