Publication

This paper analyzes the general negotiation processes between two countries, or regions, that seek to make agreements in order to internalize externalities. The author explains how conditions are derived for when it is efficient to restrict the attention to policies that are uniform across regions - with or without side payments - and when it is optimal to forbid side payments in the negotiations. The paper states that while policy differentiation and side payments allow policies to be tailored to local conditions, they may also create conflicts between the different regions and countries, and thus cause delay.