On the Stability of a Two-Player International Environmental Agreement with Intra-Industry Trade
An international environmental agreement is an unstable coalition by nature, which results in a drive to design mechanisms to provide stability. This note numerically shows that when an international environmental agreement is coupled with intra-industry trade with complementary intermediate goods, then two-player cooperation is a Nash equilibrium. This result may be of interest given that over half the trade between developed countries is intra-industry.
KeywordsInternational environmental agreement Intra-industry trade Cooperative game
The author wishes to thank Michèle Breton, the two anonymous referees, and the co-editors for their comments. Any remaining errors are the author’s own.