We demonstrate the advantages of a climate treaty based solely on rules for international permit markets when there is uncertainty about abatement costs and environmental damages. Such a ‘Rules Treaty’ comprises a scaling factor and a refunding rule. Each signatory can freely choose the...

After twenty years of global negotiations, the world is still far from a comprehensive climate agreement. The "top-down" approach embodied by the Kyoto Protocol has all but stalled, chiefly due to disagreements over levels of ambition and objections to financial transfers. To avoid those...

In this paper, we discuss the endogenous formation of climate coalitions in an issue-linkage regime. In particular, we propose to build a link to the issue of preferential free trade. Trade privileges exclusively granted to members of the climate coalition work as an incentive mechanism for...

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...

We develop a two-country (North and South), two-good, general equilibrium model of international trade in goods and explore the effects of domestic and international emission trading under free trade in goods. Whereas domestic emission trading in North may result in carbon leakage by expanding...

We study international free-riding-proof coalitions to solve trans-boundary environmental problems such as global warming. We show that the free-riding problem is rather serious so that a free-riding-proof coalition can consist of only a small number of countries. In the optimal coalitional...