A multistage supergame model for the management of a downstream pollution dispute between two neighouring regions is constructed. An important feature of this model is that it allows for renegociation of the contractual terms agreed on up to the current date. The set of Nash equilibria is characterized. It is shown that the Nash bargaining outcomes are strategically stable. A time consistent procedure to share the cooperative outcome between the two players is devised.
Published March 1995 , 22 pages