Transfers to sustain dynamic core-theoretic cooperation in international stock pollutant control

For international environmental agreements aiming at world efficiency in the presence of trans-boundary flow pollution, it is known that, in a static context, efficiency and stability in the sense of the core of a cooperative game can be achieved using appropriately defined transfers between the countries involved. However, for accumulating pollutants, such as CO2 in the atmosphere, a dynamic analysis is required. This paper provides a transfer scheme for which a core property is proved analytically in a dynamic (closed-loop) game theoretic context. The characteristic function of the cooperative dynamic game yielding this result is discussed and an algorithm to compute the transfers numerically is presented and tested on an example. The transfers are also compared with an open-loop formulation of the model. (C) 2002 Elsevier Science B.V. All rights reserved.