A Finnish - Soviet Acid Rain Game: Noncooperative Equilibria, Cost Efficiency, and Sulfur Agreements

This study analyzes cost effectiveness in environmental cooperation between Finland and the Soviet Union. It is assumed that the aim of both countries is to attain a given target deposition level at minimum possible sulfur abatement costs. Cost-effective cooperation is compared to noncooperative equilibrium and to the agreement on sulfur emissions between these two countries. It is shown that the agreement is not cost-effective, implies higher abatement costs than under noncooperation, and is strategically unstable. However, the cost differences and the incentives to cheat are small. The computations reveal that the main source of potential cooperation benefits is not asymmetrical emission transportation or differences in abatement costs but rather different target deposition levels for Finland and the Soviet Union.