The climate change summit convening in Copenhagen this month is unlikely to produce a binding legal agreement on carbon emissions considering “it is a prisoner’s dilemma, a free-rider problem and the tragedy of the commons all rolled into one” according to The Economist special report on the subject.
An alternative characterization of the complexity of climatic cooperation is in the context of property rights. In his fundamental paper, The Problem of Social Cost, R. H. Coase posits that bargaining between agents can achieve a socially optimal outcome with respect to external damages caused by economic activity as long as property rights are well defined, meaning the responsible party is clearly liable for the damages (1960).
Unlike localized “end-of-pipe” pollution (or in Coase’s illustrative example end-of-cow mastication), the damages from greenhouse gas accumulation in the atmosphere cannot be directly connected to individual sources within the same political jurisdiction. Therefore, an optimal contract between those benefitting and suffering from such pollution remains a “pipe dream” until legal liability is distributed amongst the international community.
R. H. Coase. The problem of social cost. The Journal of Law and Economics, Vol. III, 1960, pp. 1-44.





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