Abstract

This thesis is a study of International Environmental Agreements (IEAs). It examines the formation and stability of self-enforcing IEAs by addressing three important aspects: (i) the impact of heterogeneity among countries on stability, (ii) the effect of transfers among heterogeneous countries on stability (iii) the role issue linkage (environmental and trade policies) can play in enhancing international environmental cooperation.
Chapter 1 investigates IEAs among heterogeneous countries in a two-stage non-cooperative game with quadratic benefit and environmental damage functions and simultaneous choice of emissions. The model is solved analytically, and it is shown that stable agreements cannot be larger with asymmetric than symmetric countries. Their size remains small and their membership depends on the degree of heterogeneity. Moreover, results reveal that introducing asymmetry into a stable, under symmetry, agreement can disturb stability. Therefore, the assumption of homogeneity is not the determining factor driving the pessimistic result of very small agreements.
Chapter 2 is an extension of Chapter 1, implementing policies (transfers) that can increase cooperation incentives among heterogeneous countries. It is shown that in the presence of transfers the size of a stable coalition can be enlarged, due to the contribution of those that are more sensitive to environmental pollution. As the degree of heterogeneity increases, the size of a stable, under transfers, agreement increases as well. However, the analysis demonstrates that reductions in emissions (due to the enlargement of the coalitions) and welfare improvements are rather small, confirming the persistent conclusion in the literature noted as the "paradox of cooperation".
Chapter 3 considers the formation and stability of Global Agreements (GAs). The basic model of the IEAs' literature is extended by letting identical countries choose emission taxes and import tariffs as their policy instruments to manage climate change and control trade. Results illustrate the importance of environmental and trade policies working together to enhance cooperation in effective agreements. Contrary to the IEA model, stable agreements are larger and more efficient in reducing global emissions and improving welfare. Furthermore, the analysis indicates that the size of a stable agreement increases in the number of countries affected by the externalities.