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Forging a Global Environmental Agreement through Trade Sanctions on Free Riders?

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  • Thomas Eichner
  • Rüdiger Pethig

Abstract

This paper studies the formation of self-enforcing global environmental agreements in a world economy with international trade and two groups of countries that differ with respect to fuel demand and environmental damage. It investigates whether the signatories’ threat to embargo (potential) free riders secures all countries’ participation in the agreement. Resorting to numerical analysis, we find that an embargo may be unnecessary, ineffective or even counterproductive - depending on the degree of asymmetry and other parameters. On some subset of parameters, the embargo stabilizes the otherwise unstable global agreement, but the threat of embargo is not credible. However, in some of these cases credibility can be restored by suitable intra-coalition transfers.

Suggested Citation

  • Thomas Eichner & Rüdiger Pethig, 2015. "Forging a Global Environmental Agreement through Trade Sanctions on Free Riders?," CESifo Working Paper Series 5402, CESifo.
    • Handle: RePEc:ces:ceswps:_5402
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp5402.pdf
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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.
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    Cited by:

    1. Thomas Kuhn & Radomir Pestow & Anja Zenker, 2022. "Formation of Climate Coalitions and Preferential Free Trade - The Case for Participation Linkage," Chemnitz Economic Papers 057, Department of Economics, Chemnitz University of Technology, revised Nov 2022.

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    More about this item

    Keywords

    embargo; trade; asymmetry; free rider; fuel demand; climate damage;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • 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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