Efficiency and Distribution in Greenhouse Negotiations

We analyse the international aspects of the greenhouse problem. The equity versus efficiency trade-off is examined by reducing the set of instruments to the allocation of abatement efforts over countries without the possibility of side payments. The traditional cost-effective allocation of abatement efforts is no longer necessarily optimal. The trade-off is illustrated empirically by combining the available cost and benefit estimates in a simplified two-period model with 12 regions in the world. In a second application we follow an inverse optimum approach and compute the power weights implicit in actuel agreements.