Abstract
This paper investigates the sustainability of Pareto optimal policies for the replenishment of renewable resources shared by two countries with asymmetrical wealth. It does so within a two-country neoclassical growth model with externality. In the absence of commitment, it identifies simple self-enforcing mechanisms that implement social optima for a typical international resource (clean air) and a parametrization of the model to the United States and a country five times poorer. Such mechanisms are trigger strategies involving transfers of wealth between countries and threats of economic isolation in case of defection. Necessary transfers can represent up to 2.6% of U.S. wealth. Journal of Economic Literature Classification Numbers: Q20, C73, C68
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