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Abstract

We study a remedy for the problem caused by international transfrontier pollution. Our results are derived from the analysis of a noncooperative game model of the determination of emissions in a quantity-rationing setting. We model the emission capping negotiations using the best response dynamic process and provide natural conditions under which the process has a unique and globally asymptotically stable stationary point. We then analyze the link between type profiles and the stationary points of the negotiation process to derive various comparative statics results and the type-contingent ordering of emission allocations. These results are used to study the investment strategies that nations can use prior to the negotiations in order to manipulate the equilibrium emission caps.