CIAO DATE: 02/2014
January 2014
Belfer Center for Science and International Affairs, Harvard University
It is difficult to resolve the global warming free-rider externality problem by negotiating quantity targets. By contrast, negotiating a single binding minimum carbon price (the proceeds from which are domestically retained) counters self interest by incentivizing agents to internalize the externality. The model of this paper indicates an exact sense in which each agent's extra cost from a higher emissions price is counterbalanced by that agent's extra benefit from inducing all other agents to simultaneously lower their emissions. Some implications are discussed.
Resource link: Can Negotiating a Uniform Carbon Price Help to Internalize the Global Warming Externality? [PDF] - 445K