Public Goods in Environmental Economics

Environmental commodities are often characterized by properties of public goods: individuals cannot (or should not) be excluded from consuming a particular commodity (for example, the protective services of the Earth’s ozone layer); moreover, available supply is more or less independent of the number of consumers. These characteristics “drive” the conclusions of the Prisoners’ Dilemma and the Tragedy of the Commons and imply additional difficulties for the allocation of public goods. The resulting “overuse” of environmental commodities is a consequence of individually rational behavior and can be observed even in industrialized countries despite a presumably high environmental awareness. Thus, the private provision of these public commodities can be inefficiently low, necessitating an appropriate modification of the relevant economic framework and the allocation procedures. In this context, this chapter then investigates properties of the Lindahl equilibrium, analyzes cost-share equilibria and the property of core equivalence with an application to the allocation of global public or environmental commodities.