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This paper illustrates that an international permit trading system may hurt relatively poor countries by making associated economic activities una¤ordable. A model is constructed in which the free market solution is Pareto ine¢cient as a result of pollution. The introduction of tradable permits allows pollution to be internalised, and brings about an increase in the total social surplus. But when incomes vary, this may not lead to a Pareto improvement; those in poor countries stop the polluting activity because they cannot a¤ord to do otherwise. Only those in relatively rich countries are made better o¤. This may explain why poor countries are reluctant to ratify the Kyoto Protocol, itself advocating a permit trading scheme. The politico-economic implications of permit trading are also examined. We show that the democratic requirements for rati…- cation impose a lower bound on pollution reduction that can be achieved through a system of pollution permits with trade

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  • Leech, Dennis

Abstract

This paper examines the system of Qualified Majority Voting, used by the Council of the European Union, from the perspective of enlargement of the Union. It uses an approach based on power indices due to Penrose, Banzhaf and Coleman to make two analyses: (1) the question of the voting power of member countries from the point of view of fairness, and (2) the question of how the threshold number of votes required for QMV should be determined. It studies two scenarios for change from 2005 onwards envisaged by the Nice Treaty: (1) no enlargement, the EU comprising 15 member countries, and (2) full enlargement to 27 members by the accession of all the present twelve candidates. The proposal is made that fair weights be determined algorithmically as a technical or routine matter as the membership changes. The analysis of how the threshold affects power shows the trade-offs that countries face between their blocking power and the power of the Council to act. The main findings are: (1) that the weights laid down in the Nice Treaty are close to being fair, the only significant discrepancies being the under-representation of Germany and Romania, and the over-representation of Spain and Poland; (2) the threshold required for a decision is set too high for the Council to be an effective decision making body.

Suggested Citation

  • Leech, Dennis, 2001. "This paper illustrates that an international permit trading system may hurt relatively poor countries by making associated economic activities una¤ordable. A model is constructed in which the free mar," Economic Research Papers 269358, University of Warwick - Department of Economics.
    • Handle: RePEc:ags:uwarer:269358
    DOI: 10.22004/ag.econ.269358
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