An iterative process for international negotiations on acid rain
in Northern Europe using a general convex formulation
Marc Germain Philippe L. Toint
Report 97/2
This paper proposes a dynamic game theoretical approach of
international negotiations on transboundary pollution. This approach
is distinguished by a discrete time formulation 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 from a non-cooperative situation to a Pareto
optimum in a finite number of stages. Furthermore, a financial
transfer structure is also presented, which guarantees that the desired
sequence of states is individually rational and strategically stable if
one starts from a Nash equilibrium. The concepts are applied in a
numerical simulation of the $SO_2$ transboundary pollution problem
related to acid rain in Northern Europe. This simulation shows the need
for an improved formulation of the financial transfers if one starts
from another initial state. Such a formula is proposed and tested
numerically.