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This paper examines self-enforcing International Environmental Agreements (IEAs) in an open economy environment. Using an extended model of Barrett (1994), we show that: (i) equilibrium tariff is positive; (ii) the endogenously determined size and the effectiveness of an multilateral IEA are the tradeoff of four effects, i.e., entry effect, level effect, leakage effect and tariff effect. The paper also offers an alternative explanation for the minimum participation clause adopted by most IEAs that is consistent with the mandate of an IEA.
The theoretical claims for eco-tariffs are rigorously analyzed within a unified framework formed of an international trade model enriched with both a domestic and a global externality. During the course of the analysis the model is modified to analyze an array of contexts for which eco-tariffs have been claimed to improve environmental quality or welfare. The circumstances and conditions are characterised under which such tariffs can be shown to improve environmental quality and social welfare, taking account of general equilibrium effects. The theoretical results are applied in a policy analysis of eco-tariffs and other trade instruments in the context of domestic and global environmental policy in order to assess the relevance of the eco-tariffs that have been subjected to the theoretical analysis. Finally, the GATT/WTO rules and regulations are presented, since to date these have banned the use of eco-tariffs. The rules and regulations are mapped against the theoretical results to show which rules ought to be changed.
Trade and the Environment is an important primer for anyone concerned with the impact of trade agreements on the global environment. After examining some of the broader aspects of the debate, the book turns to specific concerns: When is it appropriate for one country to use trade measures to influence industrial behavior in another country? How are international environmental standards set? When are low environmental standards in one country a subsidy to that country's industries? With chapters representing the views of industrial leaders, trade advocates, environmentalists, international organizations, and policymakers from both the developed and developing world, Trade and the Environment provides insight into the full spectrum of issues, concerns, and parties involved in this critical debate.
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.
This paper considers self-enforcing trade agreements among privately informed governments. A trade agreement that uses weak bindings (i.e., maximal tariff levels) is shown to offer advantages relative to a trade agreement that uses strong bindings (i.e., precise tariff levels). Consistent with practice, the theory also predicts that governments sometimes apply tariffs that are strictly below their bound rates. When private information is persistent through time, an enforcement "ratchet effect" is identified: a government reveals that it is "weak," and thus that it is unlikely to retaliate in an effective manner, when it applies a low tariff. This effect suggests that a government with a low type may "pool" at an above-optimal tariff, in order to conceal weakness. It also suggests a new information-based theory of gradualism in trade agreements.
This paper estimates a model of a government making trade policy adjustments under a self-enforcing trade agreement in the presence of economic shocks. The empirical model is motivated by the formal theories of cooperative trade agreements. The authors find evidence that United States' use of its antidumping policy during 1997-2006 is consistent with increases in time-varying "cooperative" tariffs, where the likelihood of antidumping is increasing in the size of unexpected import surges, decreasing in the volatility of imports, and decreasing in the elasticities of import demand and export supply. The analysis finds additional support for the theory that some US antidumping use is consistent with cooperative behavior through a second empirical examination of how trading partners responded to these new US tariffs. Even after controlling for factors such as the expected cost and benefit to filing a WTO dispute or engaging in antidumping retaliation, the analysis find that trading partners are less likely to challenge such "cooperative" US antidumping tariffs that were imposed under terms-of-trade pressure suggested by the theory.
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.