Trade and Environment: Bargaining Outcomes from Linked Negotiations

Some recent literature has explored physical and policy linkages between trade and the environment. This paper explores linkage through leverage in bargaining, whereby developed countries can use trade threats to achieve improved developing‐country environmental management, while developing countries can use environmental concessions to achieve trade discipline in developed countries. A global numerical simulation model is used to compute bargaining outcomes from linked trade and environment negotiations. Results indicate joint gains from expanding the trade bargaining set to include the environment. However, compared with bargaining with cash side‐payments, linked negotiations on policy instruments provide significantly inferior outcomes for developing countries.