New Horizons in Environmental Economics series
Chapter 8: Issue Linkage
INTRODUCTION So far we have considered only single-issue games. However, relations between governments may also concern several issues. For instance, governments may negotiate on the reduction of sulfur emissions and on the reduction of greenhouse gases at the same time, or talk about the creation of a free-trade area and disarmament issues simultaneously. Issue linkage may be able to stabilize an agreement in three respects: ﬁrst and most importantly, issue linkage may lead to a more symmetric distribution of the gains from cooperation; second, issue linkage may ease the enforcement of an agreement – a government can threaten to withdraw from all treaties if a country free-rides with respect to one issue; third, an agreement regulating a public good, like a global pollutant, may be linked to an agreement regulating the provision of a club good. Since the beneﬁts of the ‘club good agreement’ can be made exclusive to its members, requiring participants to hold a simultaneous membership in both agreements may be able to stabilize the public good agreement. The ﬁrst aspect is the most frequently treated in the literature and is referred to in the following as the ‘enlargement of payoﬀ space’ (Section 8.2). The typical framework is that of a supergame and the following exposition draws on work done by Cesar and de Zeeuw (1996); Folmer et al. (1993); Kroeze-Gil and Folmer (1998); and Ragland et al. (1996). The eﬀect of issue linkage in the context of ﬁnite games will be treated in Section 8.3. Whereas...
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