Think locally, act locally: Can decentralized planning really achieve first-best in the presence of environmental spillovers?
AbstractStrikingly, Ogawa and Wildasin (2009) find that in a model with heterogenous jurisdictions, interjurisdictional capital flows, and interjurisdictional environmental damage spillovers, decentralized planning outcomes are equivalent to that under a single centralized planner. Taken to its extreme this result renders international agreements such as the Kyoto Protocol irrelevant. We first show the critical importance of two key assumptions (no retirement of capital, fixed environmental damages per unit of capital) in obtaining this result. Second, we consider a more general model allowing for capital retirement and abatement activities and show that generally the outcome of a decentralized market differs from the solution of a centralized planner's social welfare-maximizing problem.
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Bibliographic InfoPaper provided by Colorado School of Mines, Division of Economics and Business in its series Working Papers with number 2013-07.
Length: 18 pages
Date of creation: Aug 2013
Date of revision:
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CESifo Working Paper Series
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CESifo Working Paper Series
2142, CESifo Group Munich.
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