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A Two-Country Model of Renewable Resource Sharing

In this paper, I investigate the sustainability of optimal cooperative policies for the replenishment of a renewable resource shared by two countries. If the development of these nations constitutes a threat to the common stock, under what conditions can a social best (a Pareto optimum) be sustainable? The question is addressed within a two-country neo-classical growth model with externality. In the worst scenario, the poorer country leaves the replenishment burden to the rich. International transfers are then non-existent. Nevertheless, in absence of a commitment mechanism, it is still possible to reach a social best provided the countries' patience, expressed by their discount factor, is high enough. The strategies that implement these Pareto optima are self-enforcing trigger-strategies that involve positive transfers of wealth between countries and a threat to autarky in case of defection. Sustainable Pareto optima are then identified in a specific case of environmental resource (clean air) and for a calibration of the model economies to the United States and a country five times poorer. An estimate of the transfers required to implement these social optima is provided.

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Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 41.

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Length: 23 pages
Date of creation: May 1996
Date of revision:
Handle: RePEc:cre:crefwp:41
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  1. Atkeson, Andrew, 1991. "International Lending with Moral Hazard and Risk of Repudiation," Econometrica, Econometric Society, vol. 59(4), pages 1069-89, July.
  2. Stokey, Nancy L., 1991. "Credible public policy," Journal of Economic Dynamics and Control, Elsevier, vol. 15(4), pages 627-656, October.
  3. Jess Benhabib & Aldo Rustichini, 1991. "Social Conflict," Discussion Papers 937, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
  5. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  6. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  7. Coleman, Wilbur John, II, 1990. "Solving the Stochastic Growth Model by Policy-Function Iteration," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 27-29, January.
  8. Gary D. Hansen & Edward C. Prescott, 1992. "Recursive methods for computing equilibria of business cycle models," Discussion Paper / Institute for Empirical Macroeconomics 36, Federal Reserve Bank of Minneapolis.
  9. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  10. Harris, Christopher J, 1985. "Existence and Characterization of Perfect Equilibrium in Games of Perfect Information," Econometrica, Econometric Society, vol. 53(3), pages 613-28, May.
  11. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
  12. Marcet, Albert & Marimon, Ramon, 1992. "Communication, commitment, and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 219-249, December.
  13. Chari, V V & Kehoe, Patrick J, 1990. "Sustainable Plans," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 783-802, August.
  14. Dutta, P.K. & Sundaram, R.K., 1990. "Stochastic Games Of Resource Allocation: Existence Theorems For Discounted And Undiscounted Models," RCER Working Papers 241, University of Rochester - Center for Economic Research (RCER).
  15. Benhabib, Jess & Rustichini, Aldo, 1996. " Social Conflict and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 125-42, March.
  16. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
  17. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
  18. Dutta Prajit K., 1995. "A Folk Theorem for Stochastic Games," Journal of Economic Theory, Elsevier, vol. 66(1), pages 1-32, June.
  19. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
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