The implicit objective function of Italian macroeconomic policy

Equity, Development, and Climate Change Control

“…To do this, we analyse the incentives for countries to sign a climate treaty both under the burden sharing implicit in the "Kyoto forever" scenario and under the burden sharing induced by the three "outcome based" equity criteria. To identify the burden sharing implicit in the "Kyoto forever" scenario we use an "inverse optimisation approach" (see e.g., Carraro 1988Carraro , 1989Carraro , 1997, that is, we compute the weights in the joint welfare function in an iterative way until each region's optimal investment and abatement levels are such to yield the emission targets agreed in Kyoto. In this way, the solution of the maximization process can replicate (a) the emission abatement levels for each Annex B country and (b) the share of the abatement costs born by Annex B and by Non-Annex B.…”

Can Equity Enhance Efficiency? Lessons from the Kyoto Protocol

“…2 To identify countries' bargaining power in Kyoto, i.e. the implicit weights in the joint maximisation process which leads to the cooperative outcome, we used an "inverse optimisation approach" (see e.g., [6,8]), that is we iteratively computed the weights in the joint welfare function until each region's optimal investment and abatement levels are such to yield the emission targets agreed in Kyoto (see footnote 1). In this way, the solution of the maximisation process can replicate (a) the emission abatement levels for each Annex 1 country and (b) the share of the abatement costs born by Annex 1 and by Non-Annex 1 countries.…”

“…5 When emission trading is allowed for, given the cost-effectiveness properties of unconstrained emission trading, losses are lower (this result confirms the theoretical analysis in [17]), but the "Kyoto forever" agreement still remains neither weakly nor strongly profitable (see Table 2 again). 6 The reason is that the emission levels attained by Non-Annex 1 countries in the long-run are too high. Hence, signatory countries pay the cost of emission abatement without getting any benefits.…”