The Greenhouse Debate: Economic Efficiency, Burden Sharing and Hedging Strategies

Abstract

We address the issue of economic efficiency as it relates to climate change. We begin with a classical cost-benefit perspective. That is, we focus on emission trajectories which maximize net benefits. We then examine the consequences of adopting alternative decision making paradigms—for example, those based on limiting atmospheric concentrations so as to achieve an "ample margin of safety." We also consider the regional distribution of costs and benefits under alternative burden sharing schemes. Although the climate issue is often viewed from a global perspective, international negotiators will be acutely interested in how damages and mitigation costs might be distributed among individual regions. Finally, we address the issue of decision making under uncertainty. The challenge confronting today's policy makers is to identify a sensible hedging strategy—one that balances the risks of waiting against those of premature action.