In an n-country intra-industry trade model we study the formation and stability of various designs of climate change agreements in the context of international trade. In the first paper we introduce two new features to the literature. Firstly, firms produce a horizontally differentiated good, i.e. the same good but in different varieties where each firm produces one unique variety. Secondly, consumers can have various degrees of taste for the varieties of this good. Our results in this paper show that if consumers have a low taste for variety (TFV) agreement formation fails. Only with a sufficiently high TFV, strategic interaction among governments is sufficiently mitigated such that small agreements are stable.In the second paper we analyse the effects of instrumenting climate change agreements with a trade policy called border tax adjustment (BTA) in order to assess its ability of mitigating the free riding incentives. Our results show that when varieties do not matter to consumers, BTAs lead to a global agreement on climate change if coalition membership is open to all countries. If membership is exclusive, then fewer countries form an agreement and do not allow other countries to join. When consumers have high TFV, large, but not global, agreements are stable.In the third paper we analyse the case where governments have to deal with two issues: climate change and trade. We examine coalition formation and stability under three scenarios where governments are either cooperating on one issue only or on both issues at the same time. Our results show that whenever governments cooperate on trade, either individually or with climate change, the grand coalition is always stable. More interestingly, we find that when governments cooperate on climate change only the grand coalition is also stable. However, this holds only when varieties are perfect substitutes.
|Date of Award||5 Oct 2017|
|Supervisor||Michael Finus (Supervisor) & Javier Rivas Ruiz (Supervisor)|