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Transfers and the Samuelson Rule in Stock Externality Provision¡ªWhy Do We Need Them Both?

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  • Zili Yang

    (Department of Economics, State University of New York at Binghamton, Binghamton, NY 13902, USA)

Abstract

This paper examines the relationship between the Samuelson rule for efficient provision of stock externality and unilateral transfers for equalization of mitigation costs among the agents. Using a generic model of stock externality provisions, we proved that the revised Samuelson rule that allows transfers is a necessary and sufficient condition for efficient provision of stock externalities. In addition, selection of social welfare weights of the agents plays a key role in directions and magnitudes of the transfers. We discuss the implications of the revised Samuelson rule in economic modeling of climate change, an empirical case of stock externality, through numerical simulations in the RICE model.

Suggested Citation

  • Zili Yang, 2016. "Transfers and the Samuelson Rule in Stock Externality Provision¡ªWhy Do We Need Them Both?," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 11(1), pages 88-103, March.
    • Handle: RePEc:fec:journl:v:11:y:2016:i:1:p:88-103
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-005-016-0006-0
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    Keywords

    Samuelson rule; transfer; stock externality; mitigation cost equalization;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • Q59 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Other

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