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Permit Trading and Stability of International Climate Agreements

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  • Juan-Carlos Altamirano-Cabrera
  • Michael Finus

Abstract

We analyze the implication of different allocation schemes of CO2-emission permits for stability and the success of international climate agreements. Our model combines a game theoretical with an empirical module that comprises 12 world regions and captures important dynamic aspects of the climate change problem. We consider seven different permit allocation schemes. Two “pragmatic schemes” allocate permits according to a uniform emission reduction quota, five “equitable schemes” allocate permits based on some normative criteria frequently discussed in the literature permit trading can raise participation and the success of climate agreements, but pragmatic schemes are superior to equitable ones.

Suggested Citation

  • Juan-Carlos Altamirano-Cabrera & Michael Finus, 2006. "Permit Trading and Stability of International Climate Agreements," Journal of Applied Economics, Taylor & Francis Journals, vol. 9(1), pages 19-47, May.
    • Handle: RePEc:taf:recsxx:v:9:y:2006:i:1:p:19-47
    DOI: 10.1080/15140326.2006.12040636
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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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