This analysis explores subgame perfect Nash equilibrium in emission markets, indicating feasible cooperative outcomes in non-cooperative contexts.
This study develops a strategic environmental policy model with linked emission permit markets. We examine whether a cooperative outcome can emerge when exporting countries act non‐cooperatively. We endogenize the participation decision through a specific permit revenue‐sharing scheme. This allows the cooperative outcome to be sustained as a subgame perfect Nash equilibrium. Asymmetries across countries regarding abatement technologies and environmental preferences affect the optimal distribution of the permit revenue. Whenever these asymmetries remain within a certain range, the cooperative outcome in the non‐cooperative solution is implementable.
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Antoniou et al. (2025) studied this question.
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