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Global Environmental Agreements and International Trade: Asymmetry of Countries Matters

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  • Thomas Eichner
  • Rüdiger Pethig

Abstract

We investigate the formation of global climate agreements (= stable grand climate coalitions) in a model, in which climate policy takes the form of carbon emission taxation and fossil fuel and consumption goods are traded on world markets. We expand the model of Eichner and Pethig (2014) by considering countries that are identical within each of two groups but differ across groups with respect to climate damage or fossil fuel demand. Our numerical analysis suggests that climate damage asymmetry tends to discourage cooperation in the grand coalition. The effects of fuel-demand asymmetry depend on fossil fuel abundance. If fuel is very abundant, the grand coalition fails to be stable independent of the degree of fuel demand asymmetry. If fuel is sufficiently scarce, low degrees of fuel demand asymmetry discourage cooperation whereas higher degrees of asymmetry stabilize the grand coalition.

Suggested Citation

  • Thomas Eichner & Rüdiger Pethig, 2014. "Global Environmental Agreements and International Trade: Asymmetry of Countries Matters," CESifo Working Paper Series 5051, CESifo.
    • Handle: RePEc:ces:ceswps:_5051
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    References listed on IDEAS

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    1. Eichner, Thomas & Pethig, Rüdiger, 2013. "Self-enforcing environmental agreements and international trade," Journal of Public Economics, Elsevier, vol. 102(C), pages 37-50.
    2. Effrosyni Diamantoudi & Eftichios S. Sartzetakis, 2006. "Stable International Environmental Agreements: An Analytical Approach," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(2), pages 247-263, May.
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    7. Matthew McGinty, 2007. "International environmental agreements among asymmetric nations," Oxford Economic Papers, Oxford University Press, vol. 59(1), pages 45-62, January.
    8. By Thomas Eichner & Rüdiger Pethig, 2015. "Self-enforcing international environmental agreements and trade: taxes versus caps," Oxford Economic Papers, Oxford University Press, vol. 67(4), pages 897-917.
    9. Claude d'Aspremont & Alexis Jacquemin & Jean Jaskold Gabszewicz & John A. Weymark, 1983. "On the Stability of Collusive Price Leadership," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 17-25, February.
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    11. Fuentes-Albero, Cristina & Rubio, Santiago J., 2010. "Can international environmental cooperation be bought?," European Journal of Operational Research, Elsevier, vol. 202(1), pages 255-264, April.
    12. Xiao Chen & Alan Woodland, 2013. "International trade and climate change," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(3), pages 381-413, June.
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    Cited by:

    1. Eichner, Thomas & Pethig, Rüdiger, 2018. "Self-enforcing Biodiversity Agreements with Financial Support from North to South," Ecological Economics, Elsevier, vol. 153(C), pages 43-55.
    2. Soham Baksi & Amrita Ray Chaudhuri, 2020. "Imperfect Competition, Border Carbon Adjustments, and Stability of a Global Climate Agreement," Departmental Working Papers 2020-03, The University of Winnipeg, Department of Economics.
    3. Tibor Besedeš & Erik P. Johnson & Xinping Tian, 2020. "Economic determinants of multilateral environmental agreements," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(4), pages 832-864, August.
    4. Thomas Eichner & Rüdiger Pethig, 2014. "Forging a global environmental agreement through trade sanctions on free riders?," Volkswirtschaftliche Diskussionsbeiträge 171-14, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    5. Balogh, Jeremiás Máté, 2021. "A kereskedelmi megállapodások szerepe a klímaváltozásban. Szakirodalmi áttekintés [The role of trade agreements in climate change. Systematic literature review]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 540-563.

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    More about this item

    Keywords

    fuel demand; climate damage; international trade; asymmetry; stability; grand coalition;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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