Global Climate Change and the Equity-Efficiency Puzzle

Manne, Alan S.; Stephan, Gunter (April 2003). Global Climate Change and the Equity-Efficiency Puzzle (Diskussionsschriften 03-06). Bern: Universität Bern Volkswirtschaftliches Institut

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There is a broad consensus that the costs of abatement of global climate change can be reduced efficiently through the assignment of quota rights, and through international trade in these rights. But there is no consensus on whether the initial assignment of emission permits can affect the Pareto-optimal global level of abatement. This paper provides some insight into the equity-efficiency puzzle. Qualitative results are obtained from a small-scale model, and then quantitative evidence of separability is obtained from MERGE, a multi-region integrated assessment model. It is shown that if all the costs of climate change can be expressed in terms of GDP losses, Pareto-efficient abatement strategies are independent of the initial allocation of emission rights. This is the case sometimes described as “market damages”. If, however, different regions assign different values to non-market damages such as species losses, different sharing rules may affect the Pareto-optimal level of greenhouse gas abatement. Separability may then be demonstrated only in specific cases (e.g. identical welfare functions or quasi-linearity of preferences or small shares of wealth devoted to abatement).

Item Type:

Working Paper

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Economics

UniBE Contributor:

Stephan, Gunter

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

Series:

Diskussionsschriften

Publisher:

Universität Bern Volkswirtschaftliches Institut

Language:

English

Submitter:

Luca Adolf Brugger

Date Deposited:

11 Jun 2020 17:04

Last Modified:

11 Jun 2020 17:04

BORIS DOI:

10.7892/boris.144074

URI:

https://boris.unibe.ch/id/eprint/144074

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