Climate Change, Strict Pareto Improvements in Welfare and Multilateral Income Transfers

28 Pages Posted: 28 Mar 2018

Date Written: January 26, 2018

Abstract

This paper explores the role of multilateral transfers in achieving strict Pareto improvements in welfare, focusing on identifying conditions under which their use is warranted when carbon prices differ internationally and there are impediments to international trade. Using a general equilibrium model of international trade with global emission externalities, it is shown that strict Pareto improvements in welfare may arise from multilateral income transfers when either trade or carbon taxes are constrained away from their Pareto optimal levels. The purpose of transfers is then to account for the impact on emissions of the trade distortions and inappropriate carbon pricing. Such transfers exist if and only if a generalized normality condition is violated. A numerical example illustrates the transfer mechanism.

Keywords: Global emissions, environmental externalities, multilateral income transfers, Pareto-improving reforms

JEL Classification: H23, F18

Suggested Citation

Kotsogiannis, Christos and Woodland, Alan D., Climate Change, Strict Pareto Improvements in Welfare and Multilateral Income Transfers (January 26, 2018). UNSW Business School Research Paper No. 2018-04. Available at SSRN: https://ssrn.com/abstract=3151221 or http://dx.doi.org/10.2139/ssrn.3151221

Christos Kotsogiannis

University of Exeter ( email )

Exeter EX4 4QX, Devon
United Kingdom

Alan D. Woodland (Contact Author)

University of New South Wales ( email )

School of Economics
Sydney, NSW 2052
Australia
61293859707 (Phone)
61293136337 (Fax)

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