Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/232444 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 8847
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
We explore the possibility of achieving a cooperative outcome when governments act non-cooperatively in a strategic environmental policy model where emission permit markets are linked. We introduce a specific distribution scheme of the permit revenues between the exporting countries so as to sustain the cooperative outcome as a subgame perfect Nash equilibrium. Participation in the scheme is endogenized and we show that it constitutes a subgame perfect Nash equilibrium as long as the countries are not too asymmetric. Our results are robust once we allow for multiple pollutants, different modes of competition and market power in the permits market.
Subjects: 
strategic environmental policy
internationally tradable permits
cross-border pollution
imperfect competition
welfare
JEL: 
Q58
F12
F18
Document Type: 
Working Paper
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