International Environmental Agreements and Trading Blocks - Can issue linkage enhance cooperation?

Effrosyni Diamantoudi (), Eftichios Sartzetakis () and Stefania Strantza ()
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Effrosyni Diamantoudi: Department of Economics, Concordia University
Stefania Strantza: Department of Economics, Concordia University

Discussion Paper Series from Department of Economics, University of Macedonia

Abstract: This paper examines the stability of International Environmental Agreements (IEAs) in an economy with trade. We extent the basic model of the IEAs by letting countries choose emission taxes and import tariffs as their policy instruments in order to manage climate change and control trade. We define the equilibrium of a three-stage emission game. In the first stage, each country decides whether or not to join the agreement. In the second stage, countries choose simultaneously - cooperatively or non-cooperatively - tariff and tax levels. In the third stage, taking countries’ decisions as given, firms compete a la Cournot in the product markets. Numerical analysis illustrates that the interaction between trade and environment policies is essential in enhancing cooperation. Contrary to the IEA model, stable agreements are larger and more efficient in reducing aggregate emissions and improving welfare. Moreover, the analysis shows that the size of a stable agreement increases in the number of countries affected by the externalities.

Keywords: Environmental; Agreements. (search for similar items in EconPapers)
JEL-codes: C7 D6 Q5 (search for similar items in EconPapers)
Date: 2018-06, Revised 2018-06
New Economics Papers: this item is included in nep-ene, nep-env, nep-gth and nep-knm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: International Environmental Agreements and Trading Blocks - Can Issue Linkage Enhance Cooperation? (2018)
Working Paper: International Environmental Agreements and Trading Blocks - Can Issue Linkage Enhance Cooperation? (2018)
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