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International Adaptation Funding and the Donor’s Welfare Maximization

In: Climate Finance Theory and Practice

Author

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  • Oliver Schenker
  • Gunter Stephan

Abstract

In a recent paper, Schenker and Stephan [2014] have shown that adaptation funding in the range as envisaged in international climate policy negotiations can be Pareto-improving. Not only will the funded developing world, which does not own sufficient resources for adapting optimally, profit from receiving adaptation funding. Terms-of-trade improvements dominate the transfer costs and hence lead to welfare gains in almost any developed region except North America. However, funding of adaptation has a public good character. It improves the production technology, reduces the production prices and improves terms-of-trade for all netimporters of vulnerable goods. Having a simple analytical model and a numerical model at hand, we show that despite its public good character Nash equilibria exist which include positive amounts of North-South adaptation funding. However, the resulting transfers are much smaller than the aspired amount of international climate finance.

Suggested Citation

  • Oliver Schenker & Gunter Stephan, 2017. "International Adaptation Funding and the Donor’s Welfare Maximization," World Scientific Book Chapters, in: Anil Markandya & Ibon Galarraga & Dirk Rübbelke (ed.), Climate Finance Theory and Practice, chapter 8, pages 157-190, World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789814641814_0008
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