International Environmental Agreements: Doomed to Fail or Destined to Succeed? A Review of the Literature

Abstract

We survey the economics literature on International Environmental Agreements (IEAs). We classify the extant literature into the following categories: pure IEA games without linkages, which focus on a single externality stemming from global pollution; IEA games with side payments and issue linkages, which consider carrot or stick mechanisms to lure cooperators or punish defectors; political economy models, which examine intra-and intergovernmental issues that affect international negotiations; design issues of IEAs; behavioral factors, which affect the willingness of countries to cooperate; and additional externalities resulting from open economy issues and adaptation, which interact with the global pollution externality and affect the free-riding incentives of countries. Based on this classification of the literature, we attempt to identify conditions under which an * We would like to thank Rita Antar for her excellent research assistance. We appreciate insightful comments by two anonymous reviewers and the editors.

Welfare and Trade Effects of International Environmental Agreements

“…This line of argument can contribute to explain the discrepancy [e.g. as highlighted by Marrouch and Chaudhuri (2016)] between the optimal size of environmental agreements predicted by the standard game theoretic literature and the much larger size observed in reality as with the Kyoto Protocol of 1997 and the Paris Agreement of 2015 that were signed by 37 and 196 countries, respectively.…”

“…Alongside the trade theoretic approach within which this paper is developed, a game theoretic approach has primarily focused on environmental agreements' behaviour-from their formation, to participation incentives, and to factors contributing to their effectiveness (for recent reviews of this literature see, among others, Finus and Caparros (2015) and Marrouch and Chaudhuri (2016)). 3 More recently, Al Khourdajie and Finus (2020) focus on the role of trade instruments, in the form of Border Tax Adjustment (BCA), in offsetting countries' incentives to free ride in an IEA.…”

The Two-Stage Game Approach to Coalition Formation: Where We Stand and Ways to Go

“…The roots of this approach can be found in articles such as [3,4] in the context of industrial organisation. However, its further development took place especially in the context of environmental economics, starting with articles such as [5,6]; see [7][8][9] for overviews.…”

On the core of economies with multilateral environmental externalities

“…(Jotzo et al, 2018) Cooperation among countries worldwide in the form of signing and implementing international environmental agreements (IEAs) seems to be an important means in battling against the accelerating environmental and climate problems of the planet. According to Marrouch and Chaudhuri (2016) over 1000 such agreements have been negotiated and signed by countries, ranging from the Geneva Convention on Long-range Transboundary Air Pollution of 1979 to the Paris Agreement of 2016. Clearly, the theoretical analysis of the formation and stability of an IEA calls for the input of game-theoretic models, and in particular, given the nature of the issue at hand, of coalition formation models.…”