Equitable and Efficient International Schemes to Control Carbon Dioxide Emissions
Arthur J. Caplan
Department of Economics
John B. Goddard School of Business and Economics
Weber State University
Ogden, Utah 84408-3807
[email protected]
and
Emilson C.D. Silva
Department of Economics
Tulane University
New Orleans, LA 70118-5698
[email protected]
September 12, 2000
Abstract: We examine three noncooperative “global warming games” where carbon dioxide
emissions and transfers are determined. An international agency implements transfers from rich
to poor nations. In each game, the transfer mechanism obeys a predetermined equity principle –
horizontal, proportional or “green GNP.” Participation in each transfer scheme is voluntary. We
find that implementable horizontal and proportional equity schemes are Pareto efficient. The
green equity scheme, however, is generally inefficient. Unlike the others, our proposed
proportional equity scheme is necessarily implementable – all nations always choose to
participate. We conclude that proportional equity transfer schemes may be powerful instruments
in controlling global warming.
JEL Classification: C72, D62, D78, H41, H77, Q28.
Acknowledgements: Caplan thanks the John B. Goddard School of Business for summer
research support which led to the completion of this manuscript.
1
1.
Introduction
The Kyoto Protocol to the United Nations Framework Convention on Climate Change,
completed December 10, 1997, will probably be remembered most for its innovative use of
emissions trading to control global greenhouse gas emissions.1 However, it will also be
remembered for the promulgation of another type of incentive: international transfers between
rich and lower-income nations.2 As stated in Article 12 of the protocol, transfers should be used
as a means to: (1) “provide new and additional financial resources to meet the agreed full costs
incurred by [lower-income] countries in advancing the implementation of existing
commitments,” and (2) “provide such financial resources, including for the transfer of
technology, needed by [lower-income] countries to meet the agreed full incremental costs of
advancing the implementation of existing commitments.” It is, therefore, apparent that there will
be a significant amount of resources transferred from rich to poor nations and that the
implementation of international transfer schemes will have tremendous effects on the allocation
of global resources. Such international transfers may provide rich and poor nations with
incentives to efficiently abate their carbon dioxide emissions.
1
That emissions trading is a cost-effective means of controlling pollution is not much in
debate. The theory behind its use is generally clear, simple, and favorable: compared to
command-and-control policies, such as uniform quotas, emissions trading induces firms to obtain
the same aggregate level of control at lower total cost (c.f. Tietenberg, 1992; Hanley, et al.,
1997). Moreover, similar types of marketable permit programs in the U.S. used to control water,
lead, and air pollution, have proven effective (Hahn, 1989; Stavins, 1998). All told, an
impressive amount of research and experience underscores the benefits and costs associated with
emissions trading programs (see Maloney and Yandle (1984), Coggins and Swinton (1996),
Burtraw (1996), and references therein).
2
The protocol also introduces a third market mechanism to control greenhouse gas
emissions, known as “clean development mechanisms” (see Article 11). We examine the
efficiency properties of this mechanism in a separate paper.
2
In this paper, we examine how rich and poor nations allocate their resources when they
anticipate that transfers will be made from rich to poor nations in order to satisfy a particular
equity principle. We investigate the efficiency properties of international transfers that emerge
from voluntary participation of rich and poor nations in three types of international schemes
designed to induce the nations to control carbon dioxide emissions. Each scheme obeys a
specific equity principle, namely, horizontal equity, proportional equity and “green equity.”
Under horizontal equity, the amount of the transfer effected follows from a condition that equates
utilities of representative residents of rich and poor nations. This is undoubtedly an extreme
form of international justice, but it provides a useful benchmark for future comparisons. Under
proportional equity, the transfer is determined by a condition that preserves the status-quo
relative ranking of international welfare levels: the welfare of rich and poor nations are equated
as proportions of their respective reservation welfare levels. Under green equity, the transfer is
derived from a condition that equates “green GNP’s” across rich and poor nations.3 Interestingly,
we find that rich and poor nations efficiently curb their carbon dioxide emissions whenever they
participate in the transfer schemes that obey horizontal and proportional equity principles.
However, under green equity, both types of nations find it desirable to emit more than the
efficient level of carbon dioxide.
The Kyoto Protocol’s promotion of international transfers as a means to reduce global
carbon dioxide emissions is apparently a step in the right direction. As Sandler (1997) points
out, the control of global warming requires stronger effort to bring about collective action than
3
For a comprehensive discussion of various green GNP measures presently in use, see
Hamilton and Lutz (1996) and World Bank (1999).
3
that required to control other types of regional and global externalities, such acid rain and CFC
emissions. For example, both the Helsinki Protocol (1985) to control sulfur emissions and the
Sofia Protocol (1988) to control nitrogen oxide emissions merely codified reductions that the
parties had either already independently implemented or were soon to achieve (Murdoch,
Sandler, and Sargent, 1997). Similarly, the Montreal Protocol (1987) to control CFC emissions
did not impose any new constraints on its signatories. Rather, the protocol served to legitimize
the strategically chosen status quo (Murdoch and Sandler, 1997). Primarily because the benefits
of curbing their carbon dioxide emissions are greatly outweighed by the associated costs, nations
independently have less incentive to abate. Incentives such as transfers are therefore more likely
to be effective in controlling global warming.
It may not be difficult to implement some of the international transfer schemes studied in
this paper. There are already several international schemes that transfer resources from rich to
poor nations. Despite the well-documented decline in foreign aid among OECD-member nations
(measured as percentages of GDP over time), poverty-reduction remains a primary objective of
this aid (OECD, 1995 and 1996). In addition, the widespread movement toward debt relief for
poor nations points up the fact that official foreign aid statistics tend to underestimate the extent
of transfers taking place between rich and poor nations (Phillips, 1999).
Controlling global warming, therefore, may provide yet another rationale for international
transfers. In fact, the Conference of the Parties to the United Nations Framework Convention on
Climate Change, which represents the supreme body of the Convention, has delegated the
responsibility of operating the Convention’s financial mechanism to the Global Environment
Facility (GEF). The GEF was established in 1990 by the World Bank, the United Nations
4
Development Programme (UNDP), and the United Nations Environment Programme (UNEP).
The role of the convention’s mechanism is to transfer funds and technology from rich to poor
nations. The GEF, however, lacks political and economical powers to design and enforce
international mechanisms to control emissions of carbon dioxide. In other words, the GEF is not
capable of punishing regions that do not comply with international standards. The interregional
transfers implemented by the GEF are redistributive, namely, they are effected after the regions
choose their own environmental actions.
Perhaps the best method of measuring the strength of international equity constraints is to
track changes in the ratio of green GNP’s across regions over time. For example, a 1994 World
Bank (1999) estimate of the ratio of aggregate green GNP between South American, Central
American, African, and Asian nations on the one hand, and North American, Pacific OECD, and
Western European nations on the other is approximately 0.43. Transfers from the latter group of
nations might therefore be targeted toward either maintaining or perhaps increasing this ratio
over time.
The paper is organized as follows. Section 2 introduces the basic model and examines
both Pareto efficiency and the Nash equilibrium in absence of transfers. Section 3 explores the
efficiency properties of three transfer schemes, horizontal equity, proportional equity and green
equity. Section 4 concludes the study with a brief summary of our findings.
2.
The Model
We assume two coalitions of countries indexed r (rich) and p (poor), respectively, where
countries are identical within a coalition. We further assume that population sizes across the
5
coalitions are equal and normalized to one, so that a representative agent’s utility may also be
interpreted as regional welfare. Regional welfare is expressed as
Uj = U(xj, yj), j = r, p
(1)
where xj represents a good whose production results in carbon dioxide emissions, and yj
represents a non-carbon dioxide-producing good (e.g. an agricultural good), which will serve as
our numeraire good. We assume that U is increasing in both arguments, quasiconcave and twice
continuously differentiable.
Given normalized populations and equalized rates of diffusion and absorption, we assume
that the total flow of carbon dioxide emissions, G, is given by
G = 3 j x j = xr + xp .
(2)
Region j’s resource constraint is as follows:
(3)
where the unit of the industrial good is chosen so that its price equals 1. While on the left-hand
side of (3) we have the region j’s consumption expenditure, on the right-hand side we have the
region’s net income. The quantity Ij > 0 represents region j’s exogenously-given initial
endowment in absence of carbon dioxide emissions. We assume that each unit of carbon dioxide
emitted depletes the region j’s endowment at a rate "j 0 (0, 1), so that region j’s net income
equals Ij !"jG. We assume that 1 > "p > "r in order to capture the common belief that a greater
proportion of poor nations are more sensitive than rich nations to the negative effects of global
warming, as a result of both geographic location and economic structures (Poterba, 1993). For
future reference, it is important to note that the terms Ij ! "jG, j = r,p represent the respective
6
regions’ green GNP’s, since these quantities should equal the regions’ national incomes net of
damages caused by the global externality. 4
By adding the individual resource constraints, we obtain the global resource constraint:
(4)
A Pareto efficient allocation can be determined by choosing {xj, yj,; j = r,p} in order to
maximize Ur subject to (2), (4) and Up = K, where K > 0 is some constant. By varying K, we can
derive the entire Pareto frontier. In addition to (4) and Up = K, the first order conditions that
characterize the Pareto efficient allocation are as follows:5
(5)
Equations (5) show that the marginal rates of substitution – left-hand side – should be set
equal to the common marginal social rate of transformation – right-hand side. The marginal
social rate of transformation between industrial and agricultural goods is the sum of the added
4
This is an obvious abstraction from how green GNP is actually defined for individual
nations. For instance, degradation of the environment due to local externalities and the depletion
of non-renewable natural resources is also netted out of the standard GNP measure in calculating
a nation’s green GNP or “genuine savings” measures (see Hamilton and Lutz, 1996). However,
holding constant these types of more localized deletions from GNP, our representation of green
GNP allows for an accurate measure of the global externality’s relative effects on initial
endowments.
5
Throughout the paper, we assume that interior and locally unique solutions and that the
first order conditions are not only necessary but also sufficient for a maximum.
7
value of agricultural good forgone and of the (negative) externality effects on available resources
in each region.
For the purpose of comparison, consider the simultaneous Nash game played by rich and
poor regions in absence of international transfers. In this game, region j independently chooses
{xj, yj} in order to maximize Uj, subject to (2) and (3). The resulting first order conditions for the
Nash equilibrium without transfers are as follows:
(6)
Equations (6) indicate that the regions equate their marginal rates of substitution to their
respective private marginal rates of transformation, rather than the social marginal rate. This
follows because the regions neglect the external effects of their carbon dioxide emissions. This
fact provides a rationale for some form of intervention to improve global welfare.
Let Uj0 denote the utility level obtained by region j in the simultaneous Nash equilibrium.
In what follows, this will represent region j’s reservation utility level. It is important to note that
since Ir - "rG > Ip - "pG, Ur0 > Up0. See Figure 1.
[INSERT FIGURE 1 HERE]
3.
International Equity Constraints
Henceforth, let J denote the amount of nonnegative income, in terms of the numeraire
good, that is transferred from the rich region to the poor region in order to satisfy a
predetermined equity principle. These transfer instruments are controlled by an international
8
agency, say the Global Environment Facility (GEF). In the presence of international income
transfers, we obtain the following resource constraints for the rich and poor regions, respectively:
(7a)
and
(7b)
Our benchmark equity principle is horizontal equity. Under horizontal equity, the rich
region transfers income to the poor region in an amount that equates regional welfare levels (i.e.,
Ur = Up). This is an extreme form of equity, which might be feasible when initial resource
endowments are approximately equal across regions. Under proportional equity, the transfer
amount follows from equalization of the proportions of regional welfare levels to respective
noncooperative Nash welfare levels (i.e., Ur / Ur0 = Up / Up0). Finally, under green equity, the
transfer is determined so as to equate regional green GNP’s.
Transfers are implemented by the GEF after the regions choose their resource allocations.
We postulate that each region’s participation in the transfer scheme is voluntary. To be
implementable, the transfer scheme must satisfy participation constraints for both regions,
namely, it must provide each nation with a utility level that it is at least as large as each nation’s
reservation utility level. The games examined below are three-stage games (see, e.g., Caplan, et
al. (1999), Caplan and Silva (1999) and Silva and Caplan (1997) for examples of similar
multistage games involving transboundary externalities). In the first stage of each game, both
regions decide whether or not to participate in the particular transfer mechanism. In the second
9
stage of the game, the rich region chooses xr while the poor region chooses xp, taking the choices
of each other as given. In the third stage of each game, the GEF determines the amount of the
transfer that should be implemented in order to satisfy the underlying equity principle. Both
regions anticipate the transfer and its effects on resource allocation when they “move” in the first
two stages of the game. The games are solved by backward induction, and the equilibrium
concept used is subgame perfect equilibrium.
3.1
Horizontal Equity
In the third stage of this game, the GEF chooses {yj, J; j = r,p} to maximize Ur subject to
(7a), (7b) and Ur = Up, taking {xj, j = r,p} as given. It is important to note that since the
agricultural good is our numeraire and income is measured in terms of the numeraire, the transfer
instruments essentially endow the GEF with the ability of determining the allocation of the total
endowment of agricultural good available at the beginning of the third stage of the game between
the two regions. Furthermore, since by adding up equations (7a) and (7b) we get equation (4),
the GEF problem simplifies to choosing {yj; j = r,p} to maximize Ur subject to (4) and Ur = Up.
The solution to this problem is given by:
(8)
.
(9)
10
In writing (8) and (9), we have already utilized the fact that the solution equations can be used to
define the implicit functions yj1(xr, xp), j = r,p.6 Differentiating the equations above yields:
(10a)
(10b)
(10c)
(10d)
Equations (10a) and (10c) tell us that the sum of the marginal responses to an increase in
industrial production should equal the negative of the marginal transformation rate. Equations
(10b) and (10d) show us how the utilities have to be adjusted when industrial production is
increased in order to satisfy the horizontal equity property.
In the second stage, region j chooses {xj} to maximize Uj subject to yj = yj1(xr, xp), j = r,p.
The first order conditions are as follows:
(11)
6
For the remainder of the paper, superscript k, k = 1,2,3, will be used to distinguish
functions and equilibrium quantities of the three different games.
11
As the marginal utilities of agricultural consumption are positive, equations (10b), (10d) and (11)
imply that:
(12)
(13)
Rewrite equations (11) as follows:
(14)
Now, note that equations (13) and (14) together imply equations (5). Since, as we have already
seen, the transfer scheme also satisfies equation (4), we obtain the following result:
Proposition 1: The transfer scheme based on the horizontal equity principle is Pareto efficient.
This is a powerful result. Because each region finds it desirable to produce and consume
the industrial good at an amount that satisfies the efficient conditions (5), we may conclude that
each region unilaterally realizes that non-internalization of the global externality will only harm
itself – regional utilities are equated in the third stage of the game in spite of the actions taken in
the second stage. In a sense, the incentives introduced by the transfer scheme are powerful
enough to nullify each region’s potential gain in ignoring the externality that its carbon dioxide
emission generates.
Such a “perfect equivalence” reasoning was first derived by Boadway (1982) and later
extended by Myers (1990), but for settings with no interregional externalities. Our Proposition 1
12
extends this perfect equivalence reasoning to a situation involving interregional externalities.
Similar results are available in the fiscal federalism literature (see, e.g. Wellisch (1994), Silva
(1997), Silva and Caplan (1997), Nagase and Silva (2000) and Hoel and Shapiro (2000)). These
works, however, neglect the issue of whether or not it is individually rational for a region to
participate in a interregional scheme (or federation) designed to internalize externalities and
implement transfers.
We now turn our attention to the first stage of the game. Is the transfer scheme based on
the horizontal equity principle implementable? To be implementable, the transfer scheme must
be individually rational, that is, each region must find it desirable to participate. Let Uj1 denote
the utility level of region j in the subgame perfect equilibrium for the last two stages of the game.
Formally, the transfer scheme under horizontal equity is implementable if and only if:
(15)
Figure 2 demonstrates the potentially large area of non-implementability corresponding to
the horizontal equity solution. Point C on the Pareto frontier is the horizontal equity solution. A
move to point C from any Nash solution located within box OABC is Pareto improving, while a
move to point C from anywhere inside the area ADB is not (region r's welfare will decrease).7
[INSERT FIGURE 2 HERE]
7
Ur0 > Up0 implies that a noncooperative Nash solution will never lie below the 45o line,
thus ruling out area BCE as a non-implementation area.
13
3.2
Proportional Equity
This game follows the same pattern as that presented for the horizontal equity scheme,
except that the equity constraint faced by the GEF in the third stage is now Ur / Ur0 = Up / Up0.
The solution to the GEF's problem is given by (4) and
(16)
Inserting the implicit functions yj2(xr, xp) into (4) and differentiating the implied equation
together with (16) yields:
(17a)
(17b)
(17c)
(17d)
In the second stage of the game, region j chooses {xj} to maximize Uj subject to yj =
yj2(xr, xp). The first order conditions are:
(18)
14
It is now easy to see that equations (17a) - (17d) and (18) together imply equations (5). Since the
proportional equity transfer scheme also satisfies equation (4), the subgame perfect equilibrium
for the last two stages of the game is Pareto efficient. Similar to the horizontal equity principle,
the incentives introduced by the proportional equity transfer scheme are powerful enough to
nullify each region’s potential gain in ignoring the externality that its emissions generate. In
sum, the proportional equity scheme also leads to perfect incentive equivalence.
Our result clearly demonstrates that it is possible to obtain perfect incentive equivalence
without the equal utility condition. That is, the equal utility condition is sufficient but not
necessary for perfect incentive equivalence. Our analysis enlarges the set of circumstances under
which the perfect incentive equivalence reasoning derived by Boadway (1982) and extended by
Myers (1990), Wellisch (1994), Silva (1997), Silva and Caplan (1997), Silva and Nagase (2000)
and Hoel and Shapiro (2000) among others, is applicable. Indeed, it is straightforward to show
that if we replace equation (16) by Ur = f(Up), where f is continuous and differentiable, the
subgame perfect equilibrium for a two-stage game similar to the one investigated above is Pareto
efficient.8 In this new game, the regions independently choose how much of the industrial good
they wish to consume in the first stage and the GEF chooses the allocation of the numeraire good
across both regions in order to satisfy the overall resource constraint and the utility constraint, Ur
= f(Up). When the regions anticipate that the utility constraint will always be satisfied, whether
they behave efficiently or not, they realize that making choices that internalize the interregional
8
This claim assumes that the maximization problems are characterized by interior
solutions and that the corresponding first order conditions in each problem are necessary and
sufficient for a locally unique maximum. For the sake of brevity, we chose not to include the
proof of this claim here. It is, nonetheless, available from the authors upon request.
15
externalities is in each region’s best interest. The Pareto efficient allocation implied by the
subgame perfect equilibrium for this game lies on the intersection of the function f and the Pareto
frontier.
The striking and distinguishing feature of the transfer scheme based on proportional
equity relative to the transfer scheme based on horizontal equity, however, is that it necessarily
leads to a Pareto improvement relative to the simultaneous Nash equilibrium allocation. In other
words, it is always individually rational for each region to participate in the current transfer
scheme. To see this, let Uj2 denote the level of utility obtained by region j in the subgame perfect
equilibrium for the last two stages of the game. From Ur / Ur0 = Up / Up0, we obtain Ur = (Ur0 /
Up0 ) Up. The inefficient allocation (Up0, Ur0) is located, on the line of slope Ur0 / Up0 > 1, inside
of the Pareto frontier. See line OA in Figure 3. The point (Up2, Ur2), on the other hand, lies on
the intersection of line OA and the Pareto frontier, since the subgame perfect equilibrium for the
last two stages of the current game is Pareto efficient and Ur2 / Ur0 = Up2 / Up0. In sum:
Proposition 2:The transfer scheme based on the proportional equity principle is both Pareto
efficient and fully implementable.
This result is good news for environmental policy makers who are concerned with abating
carbon dioxide emissions. It should be easier to convince the citizens of rich nations of the
merits of proportional equity, as proposed here, than of the merits of horizontal equity.
3.3
Green Equity
The equity constraint faced by the GEF in the third stage of this game is:
(19)
from which it follows that:
16
(20)
Equation (19) tells us that the exact amount of the income transfer obey the rule that green
GNP’s must be equated. Equation (20) then shows us that this transfer amount equals half of the
green GNP differential between the rich and poor regions.
Substituting equation (20) into equations (7a) and (7b) and rearranging yields:
(21)
Differentiating equations (21) leads to:
(22a)
(22b)
In the second stage of the game, region j chooses xj to maximize Uj subject to yj = yj3(xr,
xp). These maximization problems yield
(23)
Combining (23) with (21a), we obtain:
(24)
Equations (24) reveal that the marginal rates of substitution will be equalized across regions.
However, the marginal rates of substitution do not equal the social marginal rate of
17
transformation, as required by Pareto efficiency. Hence, the scheme is inefficient. Interestingly,
the right-hand sides of (24) correspond to the average of the private marginal rates of
transformation – see equations (6). We infer from this that the scheme induces the regions to
partially internalize the externalities they generate.
Is this scheme implementable? It may or may not be. There is no guarantee that each
region’s payoff from participation in the scheme exceeds its reservation utility level. Hence,
besides being inefficient, the scheme based on green equity may also be non-implementable.
4.
Concluding Remarks
Our results suggest that rich and poor regions may behave efficiently in the presence of
international resource transfers that satisfy horizontal or proportional equity. Because transfer
schemes motivated by horizontal or proportional equity link the welfare levels of rich and poor
regions, they create strong incentives for the regions to internalize the global externality. The
efficiency properties of these transfer schemes are noteworthy in light of the call for international
transfers in the Kyoto Protocol. Further, the proportional equity transfer scheme has the added
advantage of being fully implementable. This full implementability property of the proportional
equity transfer scheme makes it a more attractive scheme for policy purposes than the horizontal
equity transfer scheme.
We also find that a transfer scheme from rich to poor regions motivated by equalization
of green GNP’s not only fails to induce both regions to simultaneously behave efficiently, but
may also fail to induce both regions to participate. By the efficiency criterion, the green equity
scheme is certainly dominated by both horizontal equity and proportional equity schemes. By the
implementability criterion, our proposed proportional equity scheme is undoubtedly the victor.
18
References
Boadway, R., (1982), “On the Method of Taxation and the Provision of Local Public Goods:
Comment.” American Economic Review, 72: 846-851.
Burtraw, D., (1996), “The SO2 Emissions Trading Program: Cost Savings With Allowance
Trades,” Contemporary Economic Policy, 14: 79-94.
Caplan, A.J. and E.C.D. Silva, (1999), “Federal Acid Rain Games,” Journal of Urban
Economics, 46(1), July 1999, 25-52.
Caplan, A.J., R.C. Cornes, and E.C.D. Silva, (2000), “Pure Public Goods and
Income Redistribution in a Federation with Decentralized Leadership and Imperfect
Labor Mobility,” Journal of Public Economics, 77, 265-284.
Coggins, J.S. and J.R. Swinton, (1996), “The Price of Pollution: A Dual Approach to
Valuing SO2 Allowances,” Journal of Environmental Economics and Management, 30:
58-72.
Hahn, R.W., (1989), “Economic Prescriptions For Environmental Problems: How the Patient
Followed the Doctor’s Orders,” Journal of Economic Perspectives, 3(2): 95-114.
Hamilton, K. and E. Lutz, (1996), “Green National Accounts: Policy Uses and Empirical
Experience,” Environmental Economic Series Paper No. 39, Pollution and Environmental
Economics Division, World Bank.
Hanley, N., J. Shogren, and B. White, (1997), Environmental Economics In Theory
and Practice, New York: Oxford University Press.
Hoel, M. and P. Shapiro, (2000), “Transboundary Environmental Problems with a Mobile
Population: Is There a Need for Central Policy?” unpublished paper.
Janssen, J., (1999), “(Self-) Enforcement of Joint Implementation and Clean Development
Mechanism Contracts,” paper presented at the First World Congress of Environmental
and Resource Economists, June 1998, Venice, Italy.
Kyoto Protocol to the United Nations Framework Convention on Climate Change, December 10,
1997
Maloney, M. T. and B. Yandle, (1984), “Estimation of the Cost of Air Pollution Control
Regulation,” Journal of Environmental Economics and Management, 11: 244-263.
19
Murdoch, J. C. and T. Sandler, (1997),“The Voluntary Provision of a Pure Public Good:
The Case of Reduced CFC Emissions and the Montreal Protocol,” Journal of Public
Economics, 63: 331-349.
Murdoch, J. C., T. Sandler, and K. Sargent, (1997), “A Tale of Two Collectives:
Sulfur versus Nitrogen Oxides Emission Reduction in Europe, Economica, 64: 281-301.
Myers, G.M., (1990), “Optimality, Free Mobility, and the Regional Authority in a Federation,”
Journal of Public Economics, 43: 107-121.
Nagase, Y. and E.C.D. Silva, (2000), “Optimal Control of Acid Rain in a Federation with
Decentralized Leadership and Information,” Journal of Environmental Economics and
Management, 40: 164-180.
Organization for Economic Co-operation and Development (OECD), (1996), “Development Coperation Review Series No. 13: Japan,” Development Assistance Committee.
, (1996), “Development Co-operation Review Series No. 14: Norway,” Development
Assistance Committee.
, (1996), “Development Co-operation Review Series No. 19: Sweden,” Development
Assistance Committee.
, (1995), “Efforts and Policies of the Members of the Development Assistance
Committee,” Report by James H. Michel, Chair of the Development Assistance Committee.
Phillips, M. M., (1999), “Debt Relief, Long Ignored, Gets Spotlight,” The Wall Street
Journal, Monday, April 26, page A2.
Poterba, J. M., (1993), “Global Warming Policy: A Public Finance Perspective,” Journal of
Economic Perspectives, 7(4): 47-64.
Sandler, T., (1997), Global Challenges: An Approach to Environmental, Political, and
Economic Problems, Cambridge: Cambridge University Press.
Silva, E.C.D. and A.J. Caplan, (1997), “Transboundary Pollution Control in Federal
Systems,” Journal of Environmental Economics and Management, 34: 173-186.
Stavins, R.N., (1998), “What Can We Learn from the Grand Policy Experiment? Lessons
from SO2 Allowance Trading,” Journal of Economic Perspectives, 12(3): 69-88.
Tietenberg, T., (1992), Environmental and Natural Resource Economics, Third Edition, New
York: HarperCollins Publishers, Inc.
20
Wellisch, D., (1994), “Interregional Spillovers in the Presence of Perfect and Imperfect
Household Mobility,” Journal of Public Economics, 55: 167-184.
World Bank, (1999), “Expanding the Measure of Wealth: Indicators of Environmentally
Sustainable Development,” Environmentally Sustainable Development Studies and
Monograph Series No. 17, Environmental Department, Washington D.C.
21
Figure 1
Figure 2
22
Figure 3