Equilibrium and Efficiency:
International Emission Permits Markets
Climate change poses potential serious problems for our global community. The Intergovernmental Panel on Climate Change (IPCC)  predicts that the global mean temperature will rise as much as 3° C above the present value before the end of the twenty-first century if the current trend of greenhouse gas emissions persists.1 Global warming, experts believe, could cause severe detrimental economic and ecological effects, among them being decreases in agricultural productivity, more frequent storms, and alterations of ecological systems. Although uncertainties2 still remain in terms of both scientific evidence of the greenhouse effect and the consequences of global warming, the scale, inertia, and possibly irreversible nature of climate change has caught the attention of 157 world leaders, who gathered in Rio de Janeiro in June 1992 to sign the Framework Convention on Climate Change (FCCC), which commits parties to immediate action on the issue.
The greenhouse effect is a typical public goods problem. Gases emitted mix quite uniformly over time in the atmosphere. On the other hand, unlike other
The authors thank Graciela Chichilnisky, Duncan Foley, Bruce Greenwood, and Alex Pfaff for their valuable comments.