Contingent Trade Agreements

Harstad, BÃ¥rd

No 20037, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: There appears to be a tension between proponents of trade and environmental activists. This paper shows, however, how trade can motivate environmental conservation. I first analyze a standard trade model, where trade-specific investments (e.g., deforestation) causes environmental damage. In this model, a traditional trade agreements will cause more thus deforestation. Next, I investigate the extent to which a contingent trade agreement (CTA), where default tariffs can vary with changes in the production capacity (e.g., forest cover), can motivate conservation. The model permits many products, countries, and collaborators. A numerical example suggests that growth and liberalization can cause Brazil's agricultural area to expand by 27%, but this expansion can be avoided if the EU and the US offer a CTA.

Keywords: International; trade (search for similar items in EconPapers)
JEL-codes: F13 F18 F55 Q37 Q56 (search for similar items in EconPapers)
Date: 2025-03
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