British Academy: The UK's National Academy for the Humanities and Social Sciences

Partha Dasgupta: 'The Economics of the Environment'
Copyright © The British Academy, 1996
Printed in Proceedings of the British Academy, Volume 90, pp. 165-221

11. Institutional Failure and the Erosion of Global Commons

Global commons in general pose a different type of problem from that posed by local commons. Free access to the atmosphere, to watersheds, and to the open seas, are a cause of inefficiency in the allocation of resources. Here, Hardin's metaphor is apt. In the case of the atmosphere (for example, over global warming), even the option of "voting with one's feet" is unavailable. [note 31 (go to Notes)]

It appears that the most complicated international environmental problems are characterised by reciprocal interactions: countries both contribute to environmental damages and suffer from them. Emissions of greenhouse gases are an instance of this. Now, a central problem with greenhouse emissions is that, even though reciprocal, countries do not inflict damages on others in equal amounts. Thus, for a cooperative outcome to be achievable, some financial transfers are necessary, if only in an implicit manner. Several alternatives suggest themselves, debt relief for the preservation of the Amazon being one that has most frequently been discussed.

This isn't to say that agreements can't be reached without side-payments; it is only to say that they will tend to be less efficient. Barrett (1990) has argued, for example, that one shouldn't expect all countries to sign the Montreal protocol on emissions of chlorofluorocarbons (CFCs). The reason is that if only a few countries were to sign the protocol, national benefits from further reduction in CFC emission would be high. This would induce more countries to sign. However, if many countries were to sign the protocol, national benefits from further reduction would be small, and it wouldn't then be worth a country's while to sign the agreement.

Direct side payments among countries for solving environmental problems have not been common. When made, side payments have tended to be non-pecuniary; for example, trade and military concessions (Krutilla, 1966; Kneese, 1988). Recently, an agreement has been reached on reducing the production and use of CFCs in developing countries. This has involved the creation of an international fund for technological transfers to these countries. It is a promising development.

One broad category of allocation mechanisms well worth exploring in the international context involves making the global commons quasi-private. The basic idea, which originated in Dales (1968), is similar to the principle currently being experimented with in the U.S.A. The idea, if extended to the international sphere, would have the community of nations set bounds on the total use of the global commons, such as the atmosphere; have it allocate a proper initial distribution of transferable national rights which add up to the aggregate bound; and allow the final allocation among different users to be determined by competitive markets.

To give an example, consider the emission of greenhouse gases. Suppose it is desired by the community of nations that emissions should be reduced to a prescribed global level. Units of the various gases would then be so chosen that all gases have the same (expected) effect on global climate. (In other words, at the margin the emission of one unit of any one gas would have the same expected climatic effect as the emission of one unit of any other gas.) The scheme would allow countries to exchange permits for one gas for permits for any other. Countries would receive an initial assignment of marketable permits. It transpires that under a wide range of circumstances, this scheme has informational advantages over both taxes and quantity controls on individual emissions. Furthermore, if the permits were to refer to net emissions (i.e. net of absorption of carbon dioxide by green plants), the scheme would provide an incentive for countries with fast-growing tropical rain forests to earn export revenue by encouraging forest growth and then selling permits to other countries. The scheme also has the advantage that the necessary side-payments required to induce all (or most) countries to participate in the agreement can be made through the initial distribution of emission permits. Countries that do not expect severe damages from global warming would also wish to participate if they were to be provided initially with a sufficient number of permits.

The sticking point will clearly be over reaching an agreement on the initial distribution of permits among nations. [note 32] But if the bound that is set on annual aggregate greenhouse emissions were approximately optimal, it would always be possible in principle to distribute the initial set of rights in such a way that all countries have an incentive to join the scheme. Having said this, it is important to note that in practice it is difficult to come up with a rule that would accomplish the assignment of initial rights. So progress in this sphere of international co-operation can be expected to be slow. Nevertheless, one cannot overemphasise the fact that there are large potential gains to be enjoyed from international co-operation. A scheme involving the issue of marketable permits in principle offers a way in which all nations can enjoy these gains. The argument that "national sovereignty" would be endangered is in fact no argument, for the point about global commons is precisely that they are beyond the realm of national sovereignty. [note 33]

More: 12, Collective Agreements and the Structure of Authority
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