The potential of trade sanctions to overcome the small coalition paradox: a review of the literature

Since there is no global authority that can enforce an agreement whereby countries commit to abate climate-altering emissions, such an agreement must be self-enforcing. An agreement does not have to include all countries in the world, however‚Äía subset of countries may create a coalition and agree to abate emissions. We review the non-cooperative literature on climate coalitions and mechanisms to support them. A well-established body of knowledge indicates that the size of a self-enforcing coalition is likely to be small and, thus, ineffective. But a growing literature is systematically studying mechanisms that can expand the size of the self-enforcing coalition. Our review reveals that positive and negative incentives may expand the size of the coalition and that, among those, trade sanctions seem to be a particularly promising instrument. Yet, our review uncovers a dearth of information on how trade sanctions may interact with other incentives and, particularly, in the context of repeated games. Papers studying repeated games, on the other hand, do not consider sanctions in the context of networks such as the structure of international trade. This underscores the need to study the use of multiple incentives in a repeated game played in the context of a trade network.