The strategy of trade sanctions in international environmental agreements

This paper analyzes the links between policies aimed at supplying a global public good and international trade in segmented markets. I find that the credible threat to impose trade sanctions may be capable of sustaining full cooperation in the supply of the public good, provided the sanctions are accompanied by a minimum participation clause which serves to coordinate government behavior. In equilibrium, trade is not restricted. But if the threat to impose sanctions were not allowed by the rules of the game, supply of the public good would be Pareto-inefficient. (C) 1997 Elsevier Science B.V.