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A situation is analyzed in which two countries negotiate the financing of costs that accrue if one of them switches onto a sustainable development path. The other country's incentive to pay arises as it benefits from the developing country's environmental resources, but at an ever declining rate as long as development remains nonsustainable. In an application to the protection of tropical rainforests it is shown that North to South redistribution of welfare would be substantial, yet the North would still gain enormously in efficiency terms. An explanation is given of why the Rio Conference failed in terms of rainforest protection.

We investigate the joint occurrence of international intertemporal trade and international environmentalpermit trade, both of which are subject to country sovereignty. Assuming that side payments cannot be made to keep a debtor country from terminating international environmental cooperation, we analyze the impact of these two trade opportunities on a debtor country's incentive to continue environmental cooperation. We also show how, by way of a suitable strategic linkage between debt and permit trade. the public good of ensuring continued environmental cooperation can be provided by the supply side of private international loans.

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