Altemeyer-Bartscher, Martin Rübbelke, Dirk T. G. Sheshinski, Eytan
CESifo Working Paper No. 2058
Center for Economic Studies and ifo Institute (CESifo), Munich
An effective policy scheme to overcome the suboptimal low provision levels of global public goods is developed in this paper. By suggesting a decentralized approach to raise environmental public good provision levels we take account of the lack of a coercive global authority that is able to enforce efficient international environmental regulations. In our model individual regions voluntarily commence international negotiations on public good provision, which are accompanied by side-payments. These side-payments are financed by means of regional externality-correcting taxes. Side-payments and national tax rates are designed in a mutually dependent way. The decentralized scheme we recommend for approaching Pareto efficient Nash equilibria is based on the ideas of Coasean negotiations and Pigouvian taxes. As it is implementable for a wide class of Nash solutions, it is applicable to various international externality problems.