Addressing Global Environmental Externalities: Transaction Costs Considerations

92 Pages Posted: 5 Oct 2013 Last revised: 17 Jun 2014

See all articles by Gary D. Libecap

Gary D. Libecap

University of California, Santa Barbara (UCSB) - Donald Bren School of Environmental Science & Management; University of Arizona - Karl Eller Center; National Bureau of Economic Research (NBER); PERC - Property and Environment Research Center

Date Written: October 2013

Abstract

Is there a way to understand why some global environmental externalities are addressed effectively whereas others are not? The transaction costs of defining the property rights to mitigation benefits and costs is a useful framework for such analysis. This approach views international cooperation as a contractual process among country leaders to assign those property rights. Leaders cooperate when it serves domestic interests to do so. The demand for property rights comes from those who value and stand to gain from multilateral action. Property rights are supplied by international agreements that specify resource access and use, assign costs and benefits including outlining the size and duration of compensating transfer payments and determining who will pay and who will receive them. Four factors raise the transaction costs of assigning property rights: (i) scientific uncertainty regarding mitigation benefits and costs; (ii) varying preferences and perceptions across heterogeneous populations; (iii) asymmetric information; and (iv) the extent of compliance and new entry. These factors are used to examine the role of transaction costs in the establishment and allocation of property rights to provide globally-valued national parks, implement the Convention on the International Trade in Endangered Species (CITES), execute the Montreal Protocol to control emissions that damage the stratospheric ozone layer, set limits on harvest of highly-migratory ocean fish stocks, and control greenhouse gas emissions (GHG).

Suggested Citation

Libecap, Gary D., Addressing Global Environmental Externalities: Transaction Costs Considerations (October 2013). NBER Working Paper No. w19501. Available at SSRN: https://ssrn.com/abstract=2336366

Gary D. Libecap (Contact Author)

University of California, Santa Barbara (UCSB) - Donald Bren School of Environmental Science & Management ( email )

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HOME PAGE: http://www.esm.ucsb.edu/people/usernew.asp?user=glibecap

University of Arizona - Karl Eller Center ( email )

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HOME PAGE: http://www.bpa.arizona.edu/~libecap

National Bureau of Economic Research (NBER)

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