QED Working Paper Number
1177

We consider international negotiations on the level of global pollution, and examine the Lindahl solution which determines the distribution of the pollution permits with unanimous agreement. We show various properties to clarify difficulties to achieve a Pareto efficient allocation as an agreement. The Lindahl solution may result in an unfair allocation, and it does not belong to the $\gamma$-core as in other solutions based on emissions trading. On the other hand, we provide mechanisms that implement the Lindahl solution as the subgame-perfect equilibrium. We also consider the market with region-specific prices as a device to induce second-best Pareto efficient allocations.

Author(s)
Yukihiro Nishimura
JEL Codes
Keywords
International emissions trading
Global externality
Lindahl equilibrium
Efficiency
Equity
Core
Implementability
Second-best analysis
Working Paper