The Park Place Economist


Global climate change represents a serious im pending issue that must be addressed in the present, not the distant future, in order to avoid irreversible, adverse consequences. Due to externalities— intertemporal and locational—markets will not reach an efficient outcome. Present generations bear the cost of reducing greenhouse gas (GHG) emissions and do not experience the negative repercussions of global climate change, while future generations reap the benefits of avoiding global warming without enduring the initial monetary cost of emission reductions. Also, since the stratosphere is a public good for the entire world, the free rider problem occurs on a global scale (Rao, 2000). Each country has an enticing incentive to allow other nations to reduce GHG emissions without contributing to emission reduction efforts themselves. Due to these inevitable externalities, government intervention and international cooperation is not only justifiable but a necessity.