Financial transfers to ensure cooperative international
                 optimality in stock pollutant abatement

               M. Germain     Ph. L. Toint     H. Tulkens

                              Report 97/4  


It  is  well  known  that  the  transnational   character   of   many
environmental problems  requires  cooperation  amongst  the countries
involved, if a social optimum  is at all  to be achieved. Most of the
numerous  contributions  dealing  with  the problems  raised  by  the
cooperation  issue  bear only  on pollutants that do not  accumulate:
they are  thus only relevant in a static, or a-temporal, context.  On
the  other hand, many  contributions  which  deal  with  the  dynamic
dimension  of the problem when the  pollutant accumulates leave aside
the  issue  of the  voluntary  implementation  of  the  international
optimum. The aim of the present  contribution is to overtake the  two
above  limitations.  Using  both  cooperative  and  differential game
theories, we design a scheme of financial transfers between countries
such  that aggregate abatement costs are covered in  a way that makes
cooperation both individually rational and strategically stable.