Robin Mason

Nuffield College, Oxford University


April 1997



This paper extends and challenges Mäler and de Zeeuw's (1996) acid rain linear-quadratic differential game. First, it generalises their model to other, degradable pollutants, and as a consequence questions the normative significance of 'critical loads'. Secondly, it contradicts their numerical result in the acid rain game that stead-state pollution stocks in the linear Markovian equilibrium are an order of magnitude greater than the open-loop levels. Instead, it is shown that the difference between the linear subgame perfect and commitment equilibria depends critically on the nature of pollution transportation. Finally, it allows players to use non-linear Markovian strategies, and hence achieve partial cooperation in equilibrium (see Tsutsui and Mino (1990)). A central contribution of the paper is the numerical solution for non-linear equilibria in a model with multiple state variables and asymmetric players.