ABSTRACT
This chapter contributes to and connects two different strands of the literature: the one on strategic environmental policies and the other on international environmental agreements (IEAs). In general, since Conrad and Barrett, the first strand of literature considers that two symmetric countries compete in a third country. The chapter considers a three-country world economy in order to analyse the feasibility of both partial and global international environmental agreements. It focuses on the issue of stability of global and partial environmental agreements between three countries, which are heterogeneous in terms of market size. Tax rates can be negative since they are set to correct for two distortions as the market is characterized by both over-production due to the environmental damage and under-production due to oligopoly pricing. This common pollution tax rate is set to correct for two distortions as the market is characterized by both over-production due to the negative externality and under-production due to oligopoly pricing.
