A Two-Country Model of Renewable Resource Sharing

In this paper, I investigate the sustainability of optimal cooperative policies for the replenishment of a renewable resource shared by two countries. If the development of these nations constitutes a threat to the common stock, under what conditions can a social best (a Pareto optimum) be sustainable? The question is addressed within a two-country neo-classical growth model with externality. In the worst scenario, the poorer country leaves the replenishment burden to the rich. International transfers are then non-existent. Nevertheless, in absence of a commitment mechanism, it is still possible to reach a social best provided the countries' patience, expressed by their discount factor, is high enough. The strategies that implement these Pareto optima are self-enforcing trigger-strategies that involve positive transfers of wealth between countries and a threat to autarky in case of defection. Sustainable Pareto optima are then identified in a specific case of environmental resource (clean air) and for a calibration of the model economies to the United States and a country five times poorer. An estimate of the transfers required to implement these social optima is provided.