Addressing Global Environmental Externalities: Transaction Costs Considerations

Abstract

Is there a way to understand why some global environmental externalities are addressed effectively, whereas others are not? The transaction costs of defining the property rights to mitigation benefits and costs is a useful framework for such analysis. This approach views international cooperation as a contractual process among country leaders to assign those property rights. Leaders cooperate when it serves domestic interests to do so. The demand for property rights comes from those who value and stand to gain from multilateral action. Property rights are supplied by international agreements that specify resource access and use, assign costs and benefits including outlining the size and duration of compensating transfer payments, and determining who will pay and who will receive them. Four factors raise the transaction costs of assigning property rights: (i) scientific uncertainty regarding mitigation benefits and costs; (ii) varying preferences and perceptions across heterogeneous populations; (iii) asymmetric information; and (iv) the extent of compliance and new entry. These factors are used to examine the role of transaction costs in the establishment and allocation of property rights to provide globally valued national parks, implement the Convention on the International Trade in Endangered Species of Wild Fauna and Flora, execute the Montreal Protocol to manage emissions that damage the stratospheric ozone layer, set limits on harvest of highly-migratory ocean fish stocks, and control greenhouse gas emissions.

Strategic behaviors and governance challenges in social‐ecological systems

“…Next are analyses of many problems relating to specific types of shared resources, for example, fisheries and forests or the waste assimilation capacity of the atmosphere that have been studied extensively [e.g., Clark, 1990Clark, , 2010Nordhaus, 1994]. Finally, there are studies of specific types of governance challenges relating to contracts, scale, and transaction costs [e.g., Johnson and Libecap, 1982;Libecap, 2013]. To the extent that this vast literature can be summarized succinctly, it is focused on characterizing particular institutional arrangements to promote collective action or incentivize individual action that mimics collective action to overcome inefficient use of shared resources and clarify under what conditions such institutions might be expected to work.…”

On a World Climate Assembly and the Social Cost of Carbon

“…In some of these references the question of exactly who collects the carbon tax or price is left somewhat vague. 14 An attempt at an equitable redistribution was done in the Canadian province of British Columbia, which is widely viewed as having a highly successful carbon-tax program. For a balanced evaluation of the B.C.…”

“…emissions, see Libecap (2013). 22 Mas-Collell, Whinston, and Green (1995) contains a textbook treatment of the Black median-voter result and the Arrow impossibility theorem.…”

“…throughout the relevant range 0 E i i . Comparing (12) with (14) shows that the coe¢ cient s i does double duty. In (12), s i is interpretable as a sensitivity-reaction coe¢ cient to price changes.…”

“…In (12), s i is interpretable as a sensitivity-reaction coe¢ cient to price changes. In (14), 1=s i is interpretable as a measure of the marginal cost of emissions reductions. Other things being equal, when s i is large (small) the marginal cost of emissions reduction is small (large).…”