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Author: Kornek, Ulrike × End date: 2022 × Start date: 2020 × Subject: Climate change ×

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    The strategic dimension of financing global public goods
    (Amsterdam : Elsevier, 2020) Kornek, Ulrike; Edenhofer, Ottmar
    One challenge in addressing transboundary problems such as climate change is the incentive to free-ride. Transfers from multilateral compensation funds are often used to counteract such incentives, albeit with varying success. We examine how such funds can change the incentive to free-ride in a global public-goods game. In our game, self-interested countries choose their own preferred course, deciding their voluntary public good provision, whether to join a fund that offers compensation for providing the public good and the volume of compensatory payments. We show that (i) total public-good provision is higher when those contributing are given more compensation; and (ii) non-participation in the fund can be punished if the remaining members decrease their public-good provision sufficiently. We then examine three specific fund designs. In the first, the compensation paid to each country is equal to the percentage of above-average total costs for public-goods provision. This design is best able to deter free-riding and can establish the social optimum as the equilibrium. In the second, the compensation paid to each country is a function of the marginal cost of their public-good provision. Here there are significant incentives to free-ride. In the third case, the monetary resources provided by the fund are fixed, a design frequently encountered in international funds. This design is the one least able to deter free-riding. © 2020 The Author(s)
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    The social cost of carbon and inequality: When local redistribution shapes global carbon prices
    (Amsterdam [u.a.] : Elsevier, 2021) Kornek, Ulrike; Klenert, David; Edenhofer, Ottmar; Fleurbaey, Marc
    The social cost of carbon is a central metric for optimal carbon prices. Previous literature shows that inequality significantly influences the social cost of carbon, but mostly omits heterogeneity below the national level. We present an optimal taxation model of the social cost of carbon that accounts for inequality between and within countries. We find that climate and distributional policy can generally not be separated. If only one country does not compensate low-income households for disproportionate damages, the social cost of carbon tends to increase globally. Optimal carbon prices remain roughly unchanged if national redistribution leaves inequality between households unaffected by climate change and if the utility of households is approximately logarithmic in consumption.