Nota di Lavoro, Fondazione Eni Enrico Mattei 58.1997
In this paper, the problem of negotiating an abatement agreement is approached from the perspective of the theory of public goods in a general equilibrium context. Such an approach has the appeal of simultaneously dealing with both equity and efficiency issues. Three major difficulties in negotiating an agreement under such an approach are discussed. First, there is the problem of obtaining some measure of agreement about the welfare impacts of abatement on different economies. Second, there is the problem of obtaining agreement about the likely need to allocate side payments to address differential welfare impacts. Finally, in a partial abatement agreement, there is the problem of dealing with impacts on non-abating countries and the possible response of such countries. In a general equilibrium context, it is unlikely that there is a simple rule that could be used to approximate the appropriate public goods solution concept. Nevertheless, negotiations based on the use of indicator variables may provide a rough approximation.