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Dynamics and Limited Cooperation in International Environmental Agreements

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Working paper
Larry Karp and Sandeep Satcheti
Issue number: 
The amount of cooperation needed to improve the welfare of signatories of International Environmental Agreements (IEAs), in the presence of market imperfections, depends on the characteristics of pollution. In a dynamic model, the conventional wisdom on the effect of free-riding needs to be modified for certain types of pollution problems. For local pollution problems, a sufficient level of free-riding actually promotes signatories' welfare. For global pollution problems, the conventional wisdom is correct insofar as free-riding makes it more difficult to form a successful IEA. However, for some global pollution problems, free-riding may disappear. A static model may overstate or understate the difficulty of forming a successful IEA. The effect of an IEA is sensitive to differences between the duration of the IEA and agents' planning horizon.
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