09 Sep 2008

Working Paper on Market Responses to Climate Change

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Here is my working paper (pdf) on a a framework for understanding how a truly free market (the world over) would deal with dangerous global warming, if the IPCC consensus turns out to be right and humans really are responsible. This is an extension to my earlier op ed claim that cap & trade is not the “market solution” as advertised. I know some of my readers actually have real jobs, so below I reveal the paper’s conclusion.

Economists should deal with the theoretical case of catastrophic anthropogenic global warming, if only to better understand the operation of market mechanisms. However, the standard libertarian reliance on property rights enforcement as a solution to pollution, should not be construed as an endorsement of cap and trade as a “market solution.” It is unlikely that a decentralized, market-based legal order would produce separate property titles in greenhouse gas emissions, in order to deal with large negative externalities that are caused by the majority of humans and also impact the entire planet cumulatively. Consequently, under the current system of government monopoly on legal rules and enforcement, if politicians decide to pick a number of tons of carbon that can be legally emitted each year, that approach can at best be described as market socialism.

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