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.