Climate change and the problem of social cost

Abstract

This paper assesses the prospects for climate stabilization from both positive and normative economic perspectives, and with an eye to the conditions necessary for collective action across the three domains: domestic, international, and intergenerational. While it is well-established that international freeriding and transaction costs pose major impediments to successful environmental agreements, this analysis identifies the intergenerational domain as the source of intractability due to long delays between bearing the mitigation costs and enjoying their eventual climate benefits. This lag causes the net benefits for median-aged voters’ to be negative over their expected remaining lifespans. Drawing from several Integrated Assessment Models of the benefits and costs of climate stabilization actions, the analysis concludes that programs of domestic and international climate actions will be hopelessly stymied by the failure of the actions to pass individual and collective rationality tests. However, these dire findings leave the door open to the possibility that some other change in circumstances might undercut this conclusion. In particular, the assignment of rights has that potential. Indeed, these circumstances echo the canonical insights from Ron Coase’s observation in The Problem of Social Cost (1960) that the arrangement of rights can have large effects on welfare when transaction costs for an externality are high. Current climate rights amount to a de facto open access right to pollute the atmosphere. Were a right to a stable climate for both for current and future generations recognized, added weight or leverage would add potency to support for climate stabilization policies and international agreements. These legal changes could represent a counterweight to offset the inadequacy of support from the current self-interested generation. Indeed, some recent climate litigation argues that many nations’ constitutions already encompass an affirmative right to a stable climate, a proposition that could represent a powerful means to break the climate impasse.