An iterative process for international negociations on acid rain in Northern Europe using a general convex formulation

This paper proposes a dynamic game theoretical approach of international negotiations on trans- boundary 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 avail- able 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 SO2 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.