Equitable provision of long-term public goods: the role of negotiation mandates

In a one-period model, whether or not individual weights in the welfare function are based on initial endowments dictate who provides public goods. But with long-term public goods, banning wealth redistribution still allows for several equilibriums depending on Parties'willingness to acknowledge changes in negotiating powers over time, and on whether or not they care only for their own descendants. Adaptative and universal mandates lead to far more robust equilibrium. In all cases, a simple rule of thumb for allocating expenditures at first period emerges, independent of both the optimal level of public goods and the second-period distribution of expenditures.Montreal Protocol,Economic Theory&Research,Information Technology,Environmental Economics&Policies,General Technology,Montreal Protocol,Economic Theory&Research,Environmental Economics&Policies,Energy and Environment,Transport and Environment

Equitable Provision of Long-Term Public GoodsThe role of Negotiation Mandates

We examine the international distribution of expenditures for the provision ofa global, long-term and uncertain public goods from the point of view of abenevolent planner. Even assuming a "no-redistribution" constraint, first periodexpenditures are in general progressive with income, and independent both fromtotal level of action, and from future distribution of damages. However, instatus-quo mandates-where current negotiating powers shape both present andfuture allocation-future distributions of efforts are very unequal, andagreement, if any, is at high risk of instability. An adaptative mandate provesnecessary to provide an acceptable solution.Equitable Provision; Long-Term Public Goods; Negotiation Mandates

Decision making under uncertainty and inertia constraints: sectoral implications of the when flexibility

Current debates on climate mitigation emphasize the role of the inertia of the economic system. Our aim in this paper is to study more in depth how sectorally differentiated inertia impacts on optimal C02-emission abatement policies. Using the STARTS model, we show that optimal abatement levels and costs differ sensibly among sectors. Differential inertia is the critical determinant of this trade-off, especially in case of a 20-year delay in the action, or in an underestimation of the growth of the transportation sector. In particular, the burden of any additional abatement effort falls on the most flexible sector, i.e. the industry.Debates on mitigation emphasize the role of inertia of the economic system. This paper aims at studying more in depth how sectorally differentiated inertia should influence optimal CO2 emission abatement policies. Using a two-sector version of STARTS, we show that under perfect expectations, optimal abatement profiles and associated costs differ sensibly between a flexible and a rigid sector (transportation). In a second step, we scrutinize the role of the uncertainty by testing the case of a 20-year delay of action and an underestimated growth of the transportation sector. We do this for three concentration ceilings and we point out the magnitude of the burden which falls on the flexible sector. We derive some policy implications for the ranking of public policies and for incentive instruments to be set up at international level.Inertia; Sectoralization; Climate change

Le taux d'actualisation contre le principe de précaution ? Leçons à partir du cas des politiques climatiques

Date de rédaction : 2003 Le présent texte est de la seule responsabilité des auteurs, et n'engage ni la Banque Mondiale, ni ses Directeurs Exécutifs, ni les pays qu'ils représentent. Une version précédente de ce texte figurait en annexe d'un récent rapport du Conseil d'Analyse Economique (Lecocq et Hourcade, 2003).L'utilisation du calcul économique sur le très long terme fait l'objet de critiques quipeuvent aller jusqu'à un rejet pur et simple, en particulier en raison de la technique del'actualisation qui, en écrasant le poids du long terme, viendrait en contradiction avec leprincipe de précaution. Nous expliquons ici, sur la base de l'expérience des débats autour duchangement climatique, en quoi, appliquée en toute rigueur, l'actualisation est au contraire unpoint de passage obligé pour clarifier les enjeux de la décision. Nous montrons en particulierque, dans un cadre de décision séquentielle avec acquisition d'information, le choix, quirestera toujours controversé, du coefficient de préférence pure pour le présent, importe moinsque les hypothèses sur la croissance, sur la productivité du capital, sur les préférences desagents et sur leurs 'croyances' vis-à-vis des dommages climatiques. Nous concluons sur le faitque le taux de préférence pure pour le présent ne saurait résumer à lui seul les questions desolidarité avec les générations futures. Il convient aussi d'examiner la nature de ce que nousléguons aux générations futures, en particulier les stocks de capital physique et deconnaissance qui déterminent leurs capacités d'adaptation à de futures informations.**********The application of standard cost-benefit analysis to evaluate long-term policies has beenheavily criticized, in particular because of discounting, which is accused of putting too littleweight on the future, thus contradicting the precautionary principle. Based on the example ofclimate mitigation policies, we show why discounting, rigorously applied, is necessary toclarify the issues at stake in the decision. In particular, we demonstrate that, within asequential decision-making framework with increasing information, the value of pure timediscounting matters less than the assumptions we make about future growth, productivity ofcapital, preferences and beliefs about climate change impacts. We conclude thatintergenerational equity issues go beyond the value of pure time preference. We must also payattention to the nature of our bequest to future generations, in terms of stocks of physicalcapital and of knowledge in particular, because it shapes their ability to adapt to newinformation

Equitable Provision of Long-Term Public GoodsThe role of Negotiation Mandates

First draft: January 2001 This version: June 17, 2003 The authors are grateful to Roger Guesnerie, Tarik Tazdait, and the participants of a seminar on climate change economics at College de France in April 2002 for helpful comments on an earlier version of this manuscript. Any remaining error are the authors'. The views expressed in this paper do not necessarily represent the views of the World Bank, its executive directors, or the countries they represent.We examine the international distribution of expenditures for the provision ofa global, long-term and uncertain public goods from the point of view of abenevolent planner. Even assuming a "no-redistribution" constraint, first periodexpenditures are in general progressive with income, and independent both fromtotal level of action, and from future distribution of damages. However, instatus-quo mandates-where current negotiating powers shape both present andfuture allocation-future distributions of efforts are very unequal, andagreement, if any, is at high risk of instability. An adaptative mandate provesnecessary to provide an acceptable solution

Le taux d’actualisation contre le principe de précaution?

The application of standard cost-benefit analysis to evaluate long-term policies has been heavily criticized, in particular because of discounting, which is accused of putting too little weight on the future, thus contradicting the precautionary principle. Based on the example of climate mitigation policies, we show why discounting, rigorously applied, is necessary to clarify the issues at stake in the decision. In particular, we demonstrate that, within a sequential decision-making framework with increasing information, the value of pure time discounting matters less than the assumptions we make about future growth, productivity of capital, preferences and beliefs about climate change impacts. We conclude that intergenerational equity issues go beyond the value of pure time preference. We must also pay attention to the nature of our bequest to future generations, in terms of stocks of physical capital and of knowledge in particular, because it shapes their ability to adapt to new information. L’utilisation du calcul économique sur le très long terme fait l’objet de critiques qui peuvent aller jusqu’à un rejet pur et simple, en particulier en raison de la technique de l’actualisation qui, en écrasant le poids du long terme, viendrait en contradiction avec le principe de précaution. Nous expliquons ici, sur la base de l’expérience des débats autour du changement climatique, en quoi, appliquée en toute rigueur, l’actualisation est au contraire un point de passage obligé pour clarifier les enjeux de la décision. Nous montrons en particulier que, dans un cadre de décision séquentielle avec acquisition d’information, le choix, qui restera toujours controversé, du coefficient de préférence pure pour le présent, importe moins que les hypothèses sur la croissance, sur la productivité du capital, sur les préférences des agents et sur leurs « croyances » vis-à-vis des dommages climatiques. Nous concluons sur le fait que le taux de préférence pure pour le présent ne saurait résumer à lui seul les questions de solidarité avec les générations futures. Il convient aussi d’examiner la nature de ce que nous léguons aux générations futures, en particulier les stocks de capital physique et de connaissance qui déterminent leurs capacités d’adaptation à de futures informations.

Viticulture and Adaptation to Climate Change

International audienceThe aim of this article is to lay out a series of issues of current concern to researchers in the social sciences, regarding the impact of climate change on the vine and wine sector. The challenge lies in evaluating the cost of transition from one system to another through an integration of the direct and indirect effects of climate change. This adaptation, whether reactive or anticipatory, combines technical and organisational innovations with localisation strategies and institutional changes. Such actions could either try to maintain the existing situation as much as possible or could try to bifurcate towards deep changes, entailing very different costs. Given the multitude of uncertainties at play, not to mention the necessity for continuous adaptation to an ever-changing climate, these costs are hard to quantify. This article will illustrate two sets of measures for wine cultivation adaptation: 'no regrets' measures, which offer immediate benefits, and 'reversible and flexible' measures, which limit the inertia of wine-cultivating systems. In spite of the challenges, what stands out is the evident re-enforcement resulting from the collaboration between researchers and political and economic actors. In the field of wine cultivation, these collaborations can follow two paths: the study of the diversity of existing wine-growing systems and genetic resources or the possibility of more radical technological and social experimentation

Dynamic consistency problems behind the Kyoto protocol

International audienceThis paper examines the economic rationale behind both the quantitative targets and the flexibility mechanisms adopted in the Kyoto Protocol. It synthesises some theoretical dimensions of the debate about the so-called "when flexibility" of climate policies, explaining the importance of the interplay between uncertainty and technico-economic inertia. Numerical results shows that the aggregate Kyoto abatement target is consistent with a stochastic dynamic optimum in which a 450 ppm concentration ceiling is seriously considered. Turning to the EU-US debate about the interpretation of the "supplemental to" condition in Article 3 of the Kyoto Protocol regarding the articulation between international trading systems and domestic policies and measures, this text illuminates the risk of dynamic inconsistencies due to the heterogeneity of capital stocks in the economy, if price signals do not emerge in due time from GHGs trading systems because of the ''hot air'' in some countries and the discovery of low costs abatement potentials in Annex B countries. Numerical simulations show that a delay of action on sectors with large inertia of capital stocks and of the consumption styles may under such circumstances ultimately undermine the economic viability of climate policies beyond 2012. Some lessons are derived for the future of climate policies and negotiations about the implementation of the Kyoto Protocol

Optimal control models and elicitation of attitudes towards climate damages

This paper examines the consequences of various attitudes towards climate damages through a family of stochastic optimal control models (RESPONSE): cost-efficiency for a given temperature ceiling; cost-benefit analysis with a "pure preference for current climate regime" and full cost-benefit analysis. The choice of a given proxy of climate change risks is actually more than a technical option. It is essentially motivated by the degree of distrust regarding the legitimacy of an assessment of climate damages and the possibility of providing in due time reliable and non controversial estimates. Our results demonstrate that a) for early decades abatement, the difference between various decision-making frameworks appears to matter less than the difference between stochastic and non stochastic approach given the cascade of uncertainty from emissions to damages; b) in a stochastic approach, the possibility of non-catastrophic singularities in the damage function is sufficient to significantly increase earlier optimal abatements; c) a window of opportunity for action exists up to 2040: abatements further delayed may induce significant regret in case of bad news about climate response or singularities in damages.Cost-efficiency; Cost-benefit; Climate sensitivity; Climate change damages; Uncertainty; Optimal climate policy; Decision making frameworks

Decision making under uncertainty and inertia constraints: sectoral implications of the when flexibility

International audienceCurrent debates on climate mitigation emphasize the role of the inertia of the economic system. Our aim in this paper is to study more in depth how sectorally differentiated inertia impacts on optimal C02-emission abatement policies. Using the STARTS model, we show that optimal abatement levels and costs differ sensibly among sectors. Differential inertia is the critical determinant of this trade-off, especially in case of a 20-year delay in the action, or in an underestimation of the growth of the transportation sector. In particular, the burden of any additional abatement effort falls on the most flexible sector, i.e. the industry.Debates on mitigation emphasize the role of inertia of the economic system. This paper aims at studying more in depth how sectorally differentiated inertia should influence optimal CO2 emission abatement policies. Using a two-sector version of STARTS, we show that under perfect expectations, optimal abatement profiles and associated costs differ sensibly between a flexible and a rigid sector (transportation). In a second step, we scrutinize the role of the uncertainty by testing the case of a 20-year delay of action and an underestimated growth of the transportation sector. We do this for three concentration ceilings and we point out the magnitude of the burden which falls on the flexible sector. We derive some policy implications for the ranking of public policies and for incentive instruments to be set up at international level