A NON-COOPERATIVE THEORY OF QUANTITY-RATIONING INTERNATIONAL TRANSFRONTIER POLLUTION

We study the problem caused by international transfrontier pollution. Our re-sults are derived from the analysis of an incomplete information, non-cooperative game model of the determination of emissions in a quantity-rationing setting. We model the emission capping negotiations using the best response dynamic pro-cess and provide natural conditions under which the process has a unique and globally asymptotically stable stationary point. We then analyze the link be-tween type profiles and the stationary points of the negotiation process to derive various comparative statics results and the type-contingent ordering of emission allocations. Finally, we study the investment strategies that nations can use prior to the negotiations in order to manipulate the equilibrium emission caps. The results have implications regarding the political economy of emission capping.