Formation of Climate Coalitions and Preferential Free Trade - The Case for Participation Linkage

Thomas Kuhn, Radomir Pestow and Anja Zenker
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Thomas Kuhn: Faculty of Economics and Business Administration, Chemnitz University of Technology

No 57, Chemnitz Economic Papers from Department of Economics, Chemnitz University of Technology

Abstract: We study the endogenous formation of climate coalitions linked to a preferential free trade arrangement. In a multi-stage strategic trade and participation game, coalition and fringe countries dispose of a discriminatory tariff on dirty imports as well as emission permits imposed on domestic producers and traded on a common permit market inside the coalition, or respectively local markets outside. The participation game is solved by Monte-Carlo simulation, while the general equilibrium and the policy game are solved analytically. We find that preferential free trade can create effective climate coalitions in terms of depth and breadth.

Keywords: Climate Change; International Environmental Agreements; Preferential Free Trade; Issue Linkage; Emission Permits (search for similar items in EconPapers)
JEL-codes: F15 F18 Q54 Q56 Q58 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2022-11, Revised 2022-11
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