Efficiency Properties of a Constant-Ratio
Mechanism for the Distribution of Tradable
The world's public opinion has been increasingly alarmed by the dangers posed by carbon dioxide (CO2) emissions. The current level of emissions, if not curbed, could lead to relevant climate changes that might have disastrous effects on humanity. Chichilnisky  and Chichilnisky and Heal  offer a general review of the problem of CO2 emissions. Such a complex issue can be analyzed from several viewpoints. This chapter focuses on the public good aspect. As CO2 tends to distribute itself evenly in the atmosphere over time, in the long run it does not matter where on the earth's surface CO2 originates; what matters is only the global amount of emissions. Carbon dioxide closely approximates a global public good.
To curb or at least slow the growth of CO2 emissions, a mechanism needs to be devised to deal with the public good problem. Two possibilities are direct regulation and discouraging taxation. A third possibility, which forms the object of this chapter, follows the Coasian tradition and consists of distributing tradable emission permits.
I am grateful to Kenneth Arrow, Graciela Chichilnisky, Geoffrey Heal, Michael Smart, Valter Sorana, and David Starrett for their helpful comments.