INTERNATIONAL POLLUTION PROBLEMS - UNILATERAL INITIATIVES BY ENVIRONMENTAL GROUPS IN ONE COUNTRY

International pollution involving two (groups of) countries is modelle d as a two-player game. Each country is characterized by specific pref erences for consumption goods and the environment. Both countries prod uce a single consumption good with a given technology that determines pollution per unit output. Each country is economically isolated excep t for the presence of a global pollutant. Within a static framework, M . Heel [J. Environ. Econom. Management 20, 55-70 (1991)] shows that un ilateral actions to reduce harmful emissions, advocated by environment al groups in one country may result in higher total emissions. I chara cterize cooperative and noncooperative emission strategies for the two countries using welfare functions that, within a static framework, yi eld total emissions without cooperation always higher than those with cooperation. When both governments choose linear closed-loop strategie s and one country is not sensitive to the environmental condition, the unique equilibrium exhibits less pollution than the cooperative equil ibrium only if the other country cares a great deal about the well-bei ng of future generations and has relatively low bargaining power in th e negotiations. Equilibria that result from nonlinear closed-loop stra tegies are also characterized. (C) 1998 Academic Press.