The Carrot or the Big Stick? A Game-Theoretic Approach to the Integration of Environmental Policy in CARICOM

Transboundary pollution is a problem of international externalities resulting from a lack of property rights in the global commons. Externalities at a national level can be internalised by the adoption of relevant policies by a central authority such as a national government. However, at a supra-national level this cannot be done unless there exists a supra-national body with the complete authority to internalise the externality. Necessary conditions for this are the articulation and adoption of a common policy stance on environmental issues and the incorporation of the mechanisms necessary to achieve these well-defined common goals. The geographical characteristics of the CARICOM region mean that there are significant transboundary externality effects that should be regionally considered, particularly in terms of marine exploitation and pollution. This paper investigates the issues that arise from the adoption of a sustainable regional environmental strategy in CARICOM from a game-theoretic point of view. The literature abounds with theoretical and empirical investigations of the “carrot” approaches such as subsidies and international transfers, versus the “big stick” approaches such as trade restrictions and Pigouvian taxes. However as a regional grouping, CARICOM presents its own special case. CARICOM as a grouping represents but a subset of the Latin American and Caribbean region (LAC), and as such only a portion of the nation states that generate, and are affected by, the transboundary pollution of the region. Thus, while it is imperative to identify the relative 1 Department of Economics UWI (St. Augustine) email: [email protected] tel: 662-2002 x 2017/2018 fax: 662-6555