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 Northwest, USA
Benteng Zou: DEM, Université du Luxembourg

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: "We study an n-country pollution 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. Within a linear-quadratic framework, we characterize the decentralized equilibrium and compare it to a centralized benchmark that maximizes aggregate welfare. We show that decentralized steady-state pollution is inefficiently high and that its level depends systematically on the distribution of damage sensitivities: intriguingly, holding average damages constant, more evenly distributed damages lead to more long-run pollution. 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: "Transboundary pollution; Differential games; Asymmetric players; International Envionmental agreements" (search for similar items in EconPapers)
JEL-codes: C62 C71 F53 H23 Q53 (search for similar items in EconPapers)
Date: 2026
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Related works:
Working Paper: Revisiting the Theory of International Environmental Agreements with Heterogenous Players (2026)
Working Paper: Revisiting the Theory of International Environmental Agreements with Heterogenous Players (2026)
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:26-08

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