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A Lindahl Solution to International Emissions Trading

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  • Yukihiro Nishimura

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    (Yokohama National University and Queen's University)

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    Abstract

    We consider international negotiations on the level of global pollution, and examine the Lindahl solution which determines the distribution of the pollution permits with unanimous agreement. We show various properties to clarify difficulties to achieve a Pareto efficient allocation as an agreement. The Lindahl solution may result in an unfair allocation, and it does not belong to the $\gamma$-core as in other solutions based on emissions trading. On the other hand, we provide mechanisms that implement the Lindahl solution as the subgame-perfect equilibrium. We also consider the market with region-specific prices as a device to induce second-best Pareto efficient allocations.

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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1177.pdf
    File Function: First version 2008
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    Bibliographic Info

    Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1177.

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    Length: 45 pages
    Date of creation: Aug 2008
    Date of revision:
    Handle: RePEc:qed:wpaper:1177

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    Related research

    Keywords: International emissions trading; Global externality; Lindahl equilibrium; Efficiency; Equity; Core; Implementability; Second-best analysis;

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    References

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    1. Arthur Caplan & Emilson Silva, 2007. "An equitable, efficient and implementable scheme to control global carbon dioxide emissions," International Tax and Public Finance, Springer, vol. 14(3), pages 263-279, June.
    2. Marc Fleurbaey & François Maniquet, 2006. "Compensation and responsibility," Working Papers halshs-00121367, HAL.
    3. Tadenuma, Koichi, 2005. "Possibility and Optimality of Agreements in International Negotiations on Climate Change," Discussion Papers 2004-13, Graduate School of Economics, Hitotsubashi University.
    4. John Duggan & Joanne Roberts, 2002. "Implementing the Efficient Allocation of Pollution," American Economic Review, American Economic Association, vol. 92(4), pages 1070-1078, September.
    5. Foley, Duncan K, 1970. "Lindahl's Solution and the Core of an Economy with Public Goods," Econometrica, Econometric Society, vol. 38(1), pages 66-72, January.
    6. Chander, Parkash & Tulkens, Henry, 1994. "The Core of an Economy With Multilateral Environmental Externalities," Working Papers 886, California Institute of Technology, Division of the Humanities and Social Sciences.
    7. Danziger, Leif & Schnytzer, Adi, 1991. "Implementing the Lindahl voluntary-exchange mechanism," European Journal of Political Economy, Elsevier, vol. 7(1), pages 55-64, April.
    8. Helm, Carsten, 2003. "International emissions trading with endogenous allowance choices," Journal of Public Economics, Elsevier, vol. 87(12), pages 2737-2747, December.
    9. Edward Clarke, 1971. "Multipart pricing of public goods," Public Choice, Springer, vol. 11(1), pages 17-33, September.
    10. Moore, John & Repullo, Rafael, 1988. "Subgame Perfect Implementation," Econometrica, Econometric Society, vol. 56(5), pages 1191-1220, September.
    11. Roemer, J.E., 1988. "On Public Ownership," Papers 317, California Davis - Institute of Governmental Affairs.
    12. Arthur J. Caplan & Richard C. Cornes & Emilson C. D. Silva, 2003. "An ideal Kyoto protocol: emissions trading, redistributive transfers and global participation," Oxford Economic Papers, Oxford University Press, vol. 55(2), pages 216-234, April.
    13. Shiell, Leslie, 2003. "Equity and efficiency in international markets for pollution permits," Journal of Environmental Economics and Management, Elsevier, vol. 46(1), pages 38-51, July.
    14. Tian Guoqiang, 1994. "Implementation of Linear Cost Share Equilibrium Allocations," Journal of Economic Theory, Elsevier, vol. 64(2), pages 568-584, December.
    15. Eyckmans, Johan, 1997. "Nash Implementation of a Proportional Solution to International Pollution Control Problems," Journal of Environmental Economics and Management, Elsevier, vol. 33(3), pages 314-330, July.
    16. Guttman, Joel M, 1978. "Understanding Collective Action: Matching Behavior," American Economic Review, American Economic Association, vol. 68(2), pages 251-55, May.
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    Cited by:
    1. Boadway, Robin & Song, Zhen & Tremblay, Jean-François, 2011. "The efficiency of voluntary pollution abatement when countries can commit," European Journal of Political Economy, Elsevier, vol. 27(2), pages 352-368, June.

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