Carlos Luis Martínez 🇨🇺🇺🇸

Very cool paper. Under the Coase theorem, if transaction costs are low and property rights are well defined, you can get a Pareto efficient solution to negative externalities through a deal/payment. This is the case regardless of how the property right is allocated. In the case of global emissions, the disputed rights are a 'right to pollute' (i.e. the beneficiary must pay to get fewer emissions) or a 'right to no pollution' (i.e. the polluter must pay to emit more). This is the tricky political economy problem, which I also raised in my Coasean Bargaining at Scale blog post last year! The paper looks at how different rights allocations affect different countries. Some takeaways: 1. Standard climate models tend to use "Negishi weights," which assume zero international cash transfers under the guise of neutrality. The authors show this "no-transfer" rule isn't neutral at all and leaves certain polluters worse off. 2. Once the well-defined property rights are agreed upon, bargaining to the efficient outcome makes every country better off - unlike standard climate-economic models, which assume zero transfers. 3. Under “right to pollute,” the efficient allocation features total annual transfers of $190 billion, whereas under “right to no pollution,” total transfers amount to $1.03 trillion, which actually maps quite nicely to the sums negotiated at COP29. 4. As the largest emitter, China would have to pay ~$850B under the 'right to no pollution' regime, but would otherwise receive ~$95B under a 'right to pollute' regime. 5. Counter-intuitively, the US and EU+ would both be net recipients of transfers under "right to no pollution" given their low emissions relative to the size of their economies. 6. Some countries who emit more would effectively be worse off under a 'right to no pollution' regime (relative to doing nothing): South Africa (-7%), Russia (-4.5%), Eurasia (-4%), China (-4%), and Canada (-0.5%). 7. While switching property rights can be very significant for some regions (e.g. Sub-Saharan Africa would have to either pay ~$15B/year or actually receive $175B/year), ultimately there would be little impact on global inequality. nber.org/papers/w35971