Production of Chlorofluorocarbons in Anticipation of the Montreal Protocol

Anticipation of an International Environmental Agreement provides an incentive for countries to change their production behavior prior to negotiations in order to gain a favorable bargaining position. Increased historical production figures at the time of negotiations may influence the magnitude of the baseline from which cutbacks will be specified. In this paper we empirically measure the magnitude of such strategic production behavior in the case of the Montreal Protocol on Substances that Deplete the Ozone Layer of 1987. Due to data limitations we specify a two player Nash–Cournot game between the United States and the rest of the world. We find evidence of asymmetric strategic behavior, which resulted in a net increase of aggregate world chlorofluorocarbon (CFC) production.