This paper analyzes two small open economies that share a natural environment and
consider an environmental agreement between them. The two governments do not merely
maximize general welfare in their respective countries, but also pick a policy partially in
response to their internal “functionally specialized” industrial and environmental lobbies.
This paper provides the conditions under which an International Environmental Agreement
(IEA) between those two countries could be achieved in a subgame-perfect equilibrium
with or without special interests’ pressures.