International agreements to limit pollution can lead to:
A)a Nash equilibrium where no countries face the full cost of pollution that they generate.
B)a Nash equilibrium where countries that regulate pollution gain more than countries that do not regulate pollution.
C)a Nash equilibrium where countries that regulate pollution lose more than countries that do not regulate pollution.
D)a Nash equilibrium where no country regulates pollution.

Question

Quizplus · Accepted Answer

International agreements to limit pollution often involve creating a system of emissions trading, in which countries are allocated a certain allowable level of pollution and can buy or sell emissions permits to each other. In such a system, it is possible for some countries to face lower costs of pollution while others face higher costs, leading to an unequal distribution of the burdens of reducing pollution. Furthermore, even when all countries are in compliance, there may still be spill-over effects or other externalities that affect each other's pollution levels, leading to a situation where no country is facing the full cost of pollution that they generate. This creates a Nash equilibrium in which no country has an incentive to unilaterally reduce its pollution levels.

International Agreements to Limit Pollution Can Lead To