International Environmental Agreements, Fiscal Federalism, and Constitutional Design

Abstract

In this paper, we analyze how the prospect of international negotiations over trans-boundary pollution shapes intracountry transfer schemes when the governments of the countries' polluting regions are in charge of environmental policy and negotiations. Federal governments can implement compensation payments between domestic regions and matching grants prior to the international negotiations between the polluting regions. The subgame-perfect transfer schemes fail to fully internalize the environmental externality, leading to an inefficient international environmental agreement. As the international spillover increases, the intracountry compensation rates increase while the matching rates decline, distorting the incentives for the regional governments in opposing directions. We also show that decentralization of environmental decision making arises endogenously.

Make or brake — Rich states in voluntary federal emission pricing

“…In theoretical models, climate change damages were often assumed to be linear or quadratic (e.g. Dietz and Stern, 2015;Buchholz et al, 2013), largely for reasons of analytical tractability. Therefore, we report the sensitivity for γ ranging from 1 to 3. van der Werf (2007), Manne and Richels (1992) and Kemfert and Welsch (2000) find the elasticity of substitution between energy and a composite input with capital to range from 0 − 0.7. in case of log(c i ) the effect of consumption saturation dominates the restriction from capital stock differences (for n large = 2).…”

Interregional negotiations and strategic delegation under government subsidy schemes

“…Eckert (2003) and Buchholz et al (2013) examine the delegation behavior of federal countries in the context of providing international public goods. Buchholz et al (2013) show that the efficiency loss of the negotiation outcome due to the delegation can be mitigated by introducing a fiscal instrument, including a cost‐matching grant, between a public good provider and the beneficiary of the good in each country in the federation. However, their models differ from ours in that they do not include selecting a representative using an election.…”