Impact of international lobby groups on international environmental agreements

Economists have long argued over the political economy of tradable emission permits, especially the political pressure of lobby groups on international environmental agreements. However, little attention has been paid to the effects of cross-national lobbying on this market. Here, we examine how an international lobby group can affect national and international climate policies concerning international market for emission permits. It extends the common agency model of policy-making to multiple-agency relationships in the context of international environment agreements. The main questions are (1) to what extent are governments’ rent-seeking incentives affected through international lobbying? (2) how do domestic and global emissions change in the presence of an international lobby group? We present a three-stage non-cooperative game in which international and national lobbies try to influence governments both when the governments decide on the formation of the international market and when each country chooses the number of permits. We find the condition under which the formation of an international lobby group can raise the contributions of national lobbies which support an international market and hence bring more benefits to the government. We also show that domestic and total emission levels not only depend on the aggregate levels of organized stakes in all countries but also on the distribution of stakes among individual lobby groups that form an international lobby group.