International Negotiations on Acid Rains in Northern Europe : A Discrete Time Iterative Process

This paper proposes a dynamic model of international negotiations on transboundary pollution. This approach is characterized by a discrete time formulation ( at variance with the continuous model of Kaitale et al.(1995)) and by a suitable formulation of the local information assumption on cost and damage functions: at each stage of the negotiation, the parties assign the best possible cooperative state, given the available information, as an objective for the next stage. It is shown that the resulting sequences of states converges to a Pareto optimum in a finite number of stages. Furthermore, a financial transfers structure is formulated, which guarantees that the desired sequence of states is rational for the involved parties, at the individual as well as the coalition level.The concepts are applied in a numerical simulation of the SO2 transboundary pollution problem related to acid rains in Northern Europe.