Interdisciplinary Seminar on Environmental Issues

Professor Urs Luterbacher and Dr. Ellen Wiegandt, with the participation of Professor Richard Blackhurst


Substantive Introduction: Overview of Central Questions

Oil shock of the 1970’s: awareness in resource problems. Green parties beginning 80’s. In the last 15 years, public, scientific and academic interest in environmental issues has increased. Evidence: World Climate Research Program, Geneva; Convention on Bio-Diversity; Intergovernmental Panel on Climate Change with three Assessment Reports so far (1990, 1995, 2001), the latest forecasting a temperature rise of up to 5.7 degrees until 2100. There is now a strong consensus that climate change is partly induced by human activity.

Renewed interest in global environmental problems was sparked by ozone depletion discovered in the middle of the 80’s. Fast political response: Montreal Protocol (1987).

United Nations Conference on Environment and Development (UNCED) in Rio (1992). Framework Convention on Climate Change (FCCC). Stabilize Greenhouse Gas emissions to a sustainable limit. Kyoto protocol: binding limits for Annex 1 countries (industrialized countries), not binding for developing countries. However, the Parties could not agree on how to implement these targets (question of tradable permits, carbon sinks, cooperation with developing countries, etc.) at successive COPs in Buenos Aires (1998), Bonn (1999) and The Hague (2000).

Humans have always interacted with their environment. But today’s problems are more global, and so have to be their solutions.

Time factor

Social system             Natural system
Industrialization                      Climate Change

1500 – 1850: Cooling down of continental Europe; only Inuit’s were able to survive in Greenland. “Modern agriculture” disappeared. Society had time to adapt institutions (but didn’t do it in this case). In other cases, adaptation has to be fast (e.g. deforestation of the Amazon).

Uncertainty factor

Human influence on climate is complex: unevenly divided rise and fall of sea levels and rise in temperatures (Europe colder in the short term), enhancement of the water cycle (precipitation) à turns of water change; extreme events. Models can give very different results when different assumptions are made.

We live in an unsustainable way:

à Tietenberg (1992). Environmental and Natural Resource Economics.

Basic pessimist model: Humans clash with environment, not in control

1) Run-out of non-renewable resources, collapse of economic system
2) Piecemeal approach not able to solve problems
3) Immediate limitation of population, pollution and economic growth necessary

Characteristics: Exponential growth vs. fixed supply; positive feedback loop.

Basic optimist model (Kahn, Boserup, Simon, Tietenberg): Humans rich and in control of environment

1) Population growth = S-shaped curve (induced by scarcity)
2) Economic growth: most better off; interference unethical

Characteristics: Productivity rises more than food demand (technology change, also induced by scarcity; Boserup and Simon)

Economics of the Environment

Environment – economy = closed system (resources, waste)

·        Static efficiency (no time factor): demand curve, opportunity cost; marginal cost = marginal benefit; net benefit maximization

·        Dynamic efficiency (time factor): Static efficiency & timing. Marginal net benefit period 1 = marginal net benefit period 2 (discounted). Discount rate: the higher the less value is given to future consumption. A resource market is dynamically efficient when the present discounted value (PDV) of total surplus is maximized.

à Sustainability: Criterion (Rawls) = future generations at least not worse off than current generation. Dynamic efficiency can satisfy this (saving for future generations).

International Cooperation in Environmental Issues

Common pool resources included in collective goods.

Collective goods                                                Private goods

Unrestricted access                                              Restricted access
Non-exclusive (problem: “free rider”)                   Exclusive (“club good”)
Indivisible (consumption
à same amount)            Divisible (consumption à reduces amount)

Pure public good: e.g. TV; no rivalry in consumption. Rivalry: Consumption reduces benefits to others.

à Taylor (1987), The Possibility of Cooperation

Problem of collective action, Olson. Smaller group can organize itself and profit more directly and more extensively than larger group. Cost of organization / person vs. expected benefit / person.


- Size effect not so simple (Taylor); correlation size – privileged group weak (Hardin)
- Static analysis (Taylor)
- Origin of cooperation not explained

PD = 2 actors, 2 dominant strategies. N person’s PD = tragedy of the commons. Hobbes vs. altruism.

Trade = PD problem because of possibility of retaliation (Pareto-optimum: optimal tariff)
Pool of fish = Chicken problem because fewer or no means of retaliation (Pareto-optimum: avoiding disaster!)
à rational individual action can lead to strictly pareto-inferior outcome


- Spontaneous/internal: iterated chicken; no use of sanctions
- External: centralized or decentralized. Community, state. Also persuasion for changing attitudes.

Private Property rights: Effects of each individual’s action internalised (& benefits). But discount rate might be high à private proprietor might knowingly destroy the resource. à Also private property needs sanctions. (Norms without sanctions don’t work) Sanctions = solution to collective action problem.


Luterbacher (2001), International Relations and Global Climate Change


The Physical System: “Global Climate Change: What we know/don’t know”. Martin Beniston, University of Fribourg.

Greenhouse gases keep atmosphere warmer. Too much of them means different systems are affected in a complex way:

·        Atmosphere: warms up

·        Cryosphere: Ice caps melt; glaciers retrieve; snow reflects less light back

·        Hydrosphere: sea level rise up to 1 m; availability of fresh water

·        Biosphere: Vegetation changes; “moisture pump” (amount of precipitation); desertification

Greenhouse Gases

CFC’s  25%     Refrigeration, sprays (Phasing out since 1987)        200 ; 1 (lifetime, efficiency)
NO2    7%       Burning of fuels                                                 150 ; 280!
CH4     15%     Rice fields, life stock
(Big increase)                      10 ; 56!
CO2    55%     Industry, transportation, energy conversion, biomass burning
(Increase) 80-140

HFC-42, even no not yet used on any noticeable scale, also listed in the Kyoto protocol because of the efficiency of 490-9’100

Global Warming: Conclusions of the Third Assessment Report (TAR) of the IPCC, 2001.

·        Global average surface temperature increased over the 20th century by about 0.6 C. Rate and duration of warming in the 20th century much greater than any century of the millennium. Likely that 1990’s = warmest decade of the last 140 years; and 1998 = warmest year of the millennium.

·        Temperatures have risen during the past four decades in the lowest 8 kilometres of the atmosphere.

·        Snow cover and ice extent have decreased.

·        Global average sea level has risen and ocean heat content has increased.

·        Emissions of greenhouse gases and aerosols due to human activities continue to alter the atmosphere in ways that are expected to affect climate.

·        Confidence in the ability of models to project future climate has increased. Further action is required to address remaining gaps in information and understanding.

·        “There is new and stronger evidence that most of the warming observed over the last 50 years is attributable to human activities” (SAR: “The balance of evidence suggests a discernible human influence on global climate”).

·        Human influences will continue to change atmospheric composition throughout the 21st century

·        Global average temperature is expected to increase by 1.4 to 5.8 C during the 21st century

·        Sea levels are projected to rise by 0.09 to 0.88 metres.

·        Anthropogenic climate change will persist for many centuries.

All temperatures in the late 90’s represent temperature records in the last 1’000 years; warming between 10 and 100 times than “natural” warming

Climate Models

Very complex. Different IPCC scenarios with various population growth, economic growth and policy assumptions.

IPCC = Intergovernmental Panel on Climate Change

Founded 1988 by WMO and UNEP; 200+ scientists.

FCCC = UN Framework Convention on Climate Change

Signed in 1992, ratified by around 170 countries

Aim: protocol limiting greenhouse gases
Voluntary measures
Financial incentives
Carbon taxes: polluter pays principle
Joint implementation: buying your share of reduction

Kyoto Protocol (1997)

Reduction target of around 5% of the 1990 levels by 2012
à Necessity to act quickly; precautionary principle, other beneficial side effects


à Grassl (1999). Global Climate Change.

Changing atmospheric conditions & land cover change = largely anthropogenic


à IPCC (1995). Second Assessment Report.

“Discernable human influence on climate”


Disagreement at the COP-6 in The Hague, November 2000

Flexibility mechanisms (ways to reach emission targets without trimming output)

Managing Environmental Risks and Uncertainties

Risk = outcome uncertain or several outcomes possible

Uncertainty = lack of information; can be reduced through learning (Stephens)

People have learned to deal with risks due to nature and due to other human beings (the latter involving decision-making anticipation)

Risk management:

Precautionary Principle

Some uncertainty about CC

Pascale: Believing in God = infinite expected benefits; chances of existence low

Rio Declaration, 1992: “Where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation.”


Expected Value and Utility Models

Value: Average realization of an outcome (destruction of house) x objective value (cost house)

Utility: Subjective evaluation of value. Risk-averse, risk-neutral, risk-taking individuals.

Dynamic Analysis: uncertainty reduced with time. Sequences of decisions and decisions through time (EPV), risk-neutral (Stephens)

Discount rate: Used to compute Expected Present Value (EPV). High à value present; low à value future. Too high: environmental destruction. Too low: too much investment in large projects such as dams.

à Social risks are managed with institutions, which incorporate norms.


à Colin W. Clark (1990). Uncertainty in Economics.

Decisions are taken on Expected Utility Maximization

Human responses to risks are direct (dams) and informal (institutions). Goal: reduce uncertainty.

Optimisation theory (e.g. hunting group); either static or dynamic (decisions today also have effects in future)


à Shackley et al. (1999). Adjusting to Policy Expectations in Climate Change Modelling.

Dealing with uncertainty: Evidence that scientists' perceptions of the policy process do play a role in shaping their scientific practices. Most scientists want to keep discussion over flux adjustments within climate modelling community to avoid adverse public reaction. Epistemic cultures amongst climate modellers.


à D.W. Stephens (1990). Risk and Incomplete Information in Behavioural Ecology.

Risk vs. uncertainty. Direct and indirect (institutions) action. Evidence: Risk-taking people violate utility law.

Risk-sensitivity: Risk in itself has a cost. Animals are risk avoiding but risk-taking if survival is at stake. However, risk sensitivity over getting something vs. risk sensitivity over delaying something à more likely to accept risk

Dynamic programming: optimal size dependent on level of hunger.

Property Rights Theories

Scarcity: Something is said to be scarce when if, at a zero price, more is wanted than is available. Scarcity makes choice unavoidable.



S-shaped line: output


B: maximal surplus

C: Available resources just cover costs

Between A and C: scarcity rent exists


If this is a common, the tragedy of the commons will occur (over-exploitation)

If this is privately owned: production at point B (marginal product = marginal cost)

Prevent TOC if not privately owned: tax to drive up costs until B; or divide into lots/quotas where I determine the amount produced; or arbitrarily limit production at level B. But there is need for an institution to set rules and limit production. Institutions incorporate norms that facilitate the use of new technologies. But: social system must guarantee institution.

Institutions to prevent excessive depletion, to show the “shadow of the future”, to monitor and sanction, and to solve the problem of social costs.


Property Rights

Spatial distribution (justice) and temporal distribution: How to do it in the most efficient way?

Uncertainties: size of the reserve (water, fish); technology change; number of people that constitute demand; preference

“Bundle of rights” and obligations

If PR is poorly defined or lacking, resource degradation may result (distribution, efficiency)

Standard economic literature: well-defined private property rules

à Tietenberg (1992). Property Rights, Externalities and Environmental Problems.

If 1) sufficient demand, unrestricted access will lead to over-exploitation; 2) scarcity rent is dissipated

- Resource = privately-owned (restricted access)
- Universal: all resources privately-owned; all entitlements completely specified
- No ambiguity
- Exclusivity: all costs and benefits to the owner (will anticipate effects of diminishing returns)
- Transferability
- Enforcement of rights

Assumption: market mechanism; no transfer costs; no income effect

Externalities = secondary or unintended consequence (private marginal cost < social marginal cost). Even when externalities are involved, PR can be efficient. Efficiency problems: pay for not causing damage; or pay for the damage. Some say it doesn’t matter which solution.


Other economists: It does matter who gets rights/duties

à Bromley (1992). Making the Commons Work.

It could be that PR are not socially neutral.

Rule 1     A can’t build fence without B’s consent                              B protected

Rule 2     A may build fence but must compensate                              B protected à liability

Rule 3     A may interfere with B; B has to buy off A                          A protected

Rule 4     B may stop A from building fence but has to pay                 A protected à liability

Rule 5     A may not interfere with B under any circumstances             B protected à inalienability

Examples: Forest in Niger; land in Thailand. Exogenous changes in population and market opportunity were combined to make the common property resource more valuable. But then scarcity made new property arrangements necessary.

Privatisation of CPR made sense because:


à Heller (2000). Three Faces of Property.

Classical distinction obsolete for Heller: private (PP) – common (CP) – state (SP)

Private Property: Initial acquisition & reassignment. “Sole and despotic dominion which one man claims and exercises over the external things of the world, in the total exclusion of the right of any other individual in the universe” (Blackstone)

Common Property: Everyone can use and no one may stop someone else from use (no excludability)

State (collective) Property: material resources answerable to the needs and purposes of society as a whole. No privileges, but excludability.

Liberal Approach (Hardin): privatisation (alternatively: close-knit group to avoid TOC)

Constructive Approach (Anti-Commons) of Heller

Tragedy of the Commons                                     Tragedy of the Anti-Commons

No private owners                                               Multiple private owners
Each privilege to use                                            No one privilege to use
No one right to exclude                                        Everyone right to exclude

                                                                           à When state creates new ownership rights
                                                                           without giving individuals full ownership
                                                                           rights (e.g. socialist systems; biotechnology)


Integrative Approach (Limited common): Limited group of owners à eco & soc benefit from cooperative use of scarce resource; ensuring autonomy to individual members, who retain a secure right to exit (e.g. martial property, trusts). à Limited access – limited purpose.

Definitional Approach: thing-ownership; “bundle of rights”


Coase (1960). The Problem of Social Cost.

The Coase Theorem and the net monetary benefit efficiency criterion

The Tragedy of the Commons Debate

Standard economic argument (Tietenberg): CP à environmental degradation due to Tragedy of the Commons (TOC). A legal framework is needed also for private property. The problem of scale can be solved through two ways: either the state makes an initial investment and enforces PR; or a firm (a form of CP) puts the necessary capital together.

à Hardin (1968), Tragedy of the Commons.

In every individual’s interest not to restrain himself from use of a resource. Result: every individual worse off than if everyone would have restrained himself.

Assumption: finite resources.

Herdsman, oceans, pollution, national parks, etc. Solution: privatise or keep public property but restrict access.


Common Property vs. Open Access

Common propriety: resource well defined bounds, well delineated group of users; included users participate in extraction; rules exist; users share joint, nonexclusive entitlement to the fugitive resource; users compete for the resource; existence of a group of rights holders

Open access:

1) Lack of entry restrictions
2) Lack of limitations on number of inputs that each user uses

BUT: Membership and rules (Stevenson) à CP not such a bad thing; TOC can be avoided.


à Runge (1992). Common Property and Collective Action in Economic Development.

In a village economy, common property may work: Relative poverty, critically dependent on local agriculture and natural resources, uncertainty of income streams. Free-rider problem can be socially controlled in villages.


à Stevenson (1991). Common Property Economics: A General Theory and Land Use Applications

Open access resource = depletable, fugitive characterized by rivalry in exploitation


(Limited access)

(Limited access)

Open Access

Open Access


Private Property

Common Property

Limited User

Unlimited Users

Group limitation

One person

Members only

Members Only

Open to anyone

Extraction Limitation

By individual decision

By rules



- Well-defined bounds
- well-delineated group of users
- included users participate in extraction
- rules exist amongst users
- users share joint, non-exclusive entitlement
- users compete for the resource
- existence of a group of right holders

History of Property Rights

Viability of CP: Swiss Alps. Mix of CP (pasture land, forest, water) and individual exploitation. Why successful:

Better time/resource management; possible to equilibrate difference between poor and rich.

Pre-Middle Age (before 14th century): PP dominant. Plague à drop in population à rise in resource per capita à rise in wealth. After plague, some transformation to pasture land (less manpower, adjust better to demand). Valleys: Need for irrigation (collective action) à maintaining CP; state used to create necessary scale to build the canals.
No TOC because limit in the numbers of animals and users
à New rights (institutional arrangement) as a response to shift in population
à Same would be required now because of a shift in climate

Exhaustible, Renewable and Sustainable Resources

What is an exhaustible resource (for the mid-term future) depends on present knowledge (e.g. oil reservoirs) and technology. So ER are a relative concept. There is also endogenous (demand-driven) technology development.

The net price (market price minus extraction costs) should increase exponentially with the interest/discount rate. (Schelling). Price evolution is consistent with i. Substitution possibility.


If present is valued over the future, i is high.

If future is valued over the present, i is small.

If the population is big, i is bound to be high in order to consume.


Hotelling’s Principle

HP = Competitive resource-owners will deplete at a socially optimal way. Exploitation comes to a standstill at some point. Market à maximum conservation.

r: rate of return of resource. In equilibrium r = i optimal

Conservationists Dilemma (Lambelet):

If i >> r à resource is transformed (high social discount rate)

e.g. deforestation: income flow from agriculture >> income flow from forests. Problems: agricultural or income subsidies, welfare, cost of PR enforcement or undefined PR, prohibition of trade. Also natural phenomenon and the location of land can drive land use change.
Implications of land use change for climate change: reflectivity (albedo), carbon sink, hydrology

If i << r à resource is underused; more tendency to find oil

HP only valid if

à Monopoly can deal with these assumptions. Monopolist = conservationist’s friend


à Lambelet (1995). A Note on the Issue of Exhaustible Resources.

Technological progress can’t always solve the scarcity problem. Extraction = economic process; costs per unit of extraction go up (e.g. gold mines).

Being careful with recycling: entropy (process of degradation); energy used.

If extraction rate = i à indifference

Problem with HP: production externalities à overexploitation (e.g. underground reservoir); uncertainty; environmental externalities: not all costs internalised (extraction costs too low); no perfect competition in these sectors. Monopoly à slower extraction

If SDR = 0 then Q = 0

à Maybe information gathering and dissemination of trends is enough for authorities
à Tax on energy is bad; tax un undesirable by-products of energy is good (CO2, SO2,)


à Schelling (1994). Intergenerational Discounting.

Discount rate:

1)      “Time preference”, postponing consumption

2)      Lower marginal utility of consumption (higher average future consumption)
Depends on:
- Rate of growth of consumption/capita
- Elasticity of utility with respect to consumption

1) “Impatience” only applicable to individuals. Here about re-distribution of income/consumption into future
2) Transferring income from poor (now, lower consumption) to rich (later, higher consumption). Reason: Resource grows in transit.

à Need to apply “target efficiency”, either CO2 abatement (tax) or public investment. Choice made according to efficiency.


à Solow. Sustainability: An Economist’s Perspective.

Sustainability = distributional equity present – future

Sustainability = moral obligation to conduct ourselves so that we leave to the future the option or the capacity to be as well of as we are now

Obligation of sustainability not represented in markets (discount rate: 5-6%); role of the state: policy actions, taxes, subsidies, regulations.

à Fungibility of inputs and resources: we don’t “owe” the future a particular thing; general capacity to create well being (can also be knowledge).

à Current environmental protection only contributes to sustainability if it comes at the expense of current consumption and not investment; directing rents on non-renewable resources in investment, particularly environmental investment.

à The poor prefer consumption today


The argument that simply the number of people is the problem is more complex. Rwanda and The Netherlands have about the same land / capita ratio.

à Lee and Tuljapurkar. Population Forecasting for Fiscal Planning.

Dynamics of population measurement for social problems (predictive numbers).

As a base: a static evaluation of current population. Totals, age groups, space distribution. Difficult and problematic: sometimes categories not comparable internationally.


Theories of Population

Malthus (1798) studied the relationship between birth, death, and marriage as well as the population – environment link. He held that one couldn’t escape population pressure against the ceiling of resources.


The exponential population increase brings diminishing returns à limited access to resources à higher mortality

Pre-industrial people controlled population through:

There is also the influence of high mortality.

à Not possible to project that to the present

à Birth-spacing necessary (Lestaeghe)


Fertility: controlled within families. Nuptiality (% of people who are unfortunate enough to get married): controlled by institutions. Linkage family – institution properties.

Malthus: only through mortality. Population change endogenous, technological change exogenous (diminishing returns). Reality: Shifts in technology.

Ricardo: Micro-sight of population increase: TOC with childbirth

Malthus & Ricardo: long-term wage = subsistence minimum


Pre-industrial societies: High mortality, high fertility

Malthus: Adapt age of marriage, population can react, acceptable level. For this period, his theory works quite well. However, he leaves out technology and doesn’t explain shifts in demographic regimes.

Industrial societies: Low mortality, low fertility

Malthus: Can’t explain how we got there. Reality: control by marriage; context of control (behaviour)


Boserup-Simon: Other demographic models (non-Malthusian)

Simon: More people à faster technological change

Population change: exogenous. Technological change = endogenous. Growing population à need to feed, wages go up, etc. Pressure on people acts as incentive for technological development.

Sustainable development in a finite world à no problem


Current demographic trends

Replacement scheme: Africa 5.8; Europe 1.6; North America 2.1. Optimal: 2

Why the African trend? Lestaeghe:

à High fertility rate

Some control in Africa: long lactation, gap of sexual relations between birth and next act, diseases.

à Cultural norms are difficult to change – even with influx of technology. In some parts of Africa, fertility is even on the increase. Western culture: some “taboos” are lost.

à Boserup system doesn’t work in Africa

à Disease, ethnic conflicts, and – most importantly – AIDS à life expectancy down (Malthusian type of phenomenon)


à Lestaeghe (1986). On The Adaptation of Sub-Saharan Systems of Reproduction.

Today, Malthus is not sufficient: Technology (as a result of culture or of population pressure) needs to be taken into account.

Demographic transition from high fertility and high mortality to low fertility and low mortality has happened in Western Europe. Latin America and Asia are in transition now. But sub-Saharan Africa corresponds more to Malthus: population grows and food production fall à widening gap. Neither technological adaptation nor other checks of population seem to be found

à Need of fertility control; supportive spacing without interfering with lactation; local institutions must play a greater role


à Simon (1986). Theory of Population and Economic Growth.

Population growth has effects on: consumption, production, public facilities, age-distribution.

Relationship of additional people to given territory: additional knowledge à additional technological development

Trade, Finance, and the Global Environment


Waste remains within national borders

Significant amounts of waste cross (exit) national boundaries






What about psychological spillovers like animal rights?


Competitiveness concern

Use trade policies to make MEAs more effective


GATT/WTO system

1971    GATT committee on environment (EMIT), never convened until beginning 90’s

1995    Committee on Trade and the Environment (CTE);
Good job in educating delegates; but no consensus due to the North-South Divide;
- Amend GATT to provide for MEAs? Environmentalists: MEA > WTO; developing countries WTO < MEA
- Should the rules be revised in order to explicitly allow for PPM discrimination? Industrial countries divided; developing countries against

Two main functions:


Useful to the government


à Anderson and Blackhurst (1992). The Greening of World Trade Issues.

More recognition that trade plays a role in environmental problems through its effects on the volume and location of economic activity.

Free trade improves welfare if accompanied by optimal environmental policy. Liberalization of coal and food à economic and ecological gains. Ex. food: raise incomes of LDC’s (more exports), raise average incomes of IC’s (lower prices); less chemicals used to pollute air, soil and water; increase in chemicals in LDC’s relatively less important than reduction of these chemicals in IC’s. But forest may be cut à empirical studies: land area for agriculture not very responsive to price changes.

1st best policy: attack environmental problem at source (e.g. pollution tax). 2nd best policy: Trade measures (e.g. export tax).

à If externalities not accounted for, trade liberalization may bring environmental damage.

Problem of missing markets: Disputed, ambiguous or non-existing property rights. 1st best policy: multilateral cooperation. Trade policies can bring about the degree of multinational cooperation necessary to deal with transboundary EP. But: efficiency of trade measures?

PPMs: Fear that discrimination based on PPMs is unfair to competitors.

Effects of standards on developing countries: If POOR exports a product that RICH decrees higher environmental standards on, POOR wins because of the terms of trade effect that higher prices bring. If POOR imports a product that RICH decrees higher environmental standards on, POOR looses through the TOT effect.

A polluting country that damages the country to which it exports its goods may raise its welfare by raising environmental standards (TOT effect).

à International competition in pollution-intensive industries combined with appropriate environmental policies that correct market failures.

CO2-reduction: direct costs (cost of tax), indirect costs (distributional effects)

à If resources correctly priced, trade liberalization benefits the environment through a more efficient allocation of resources



Sometimes trade is the only possibility to address environmental problems.

Where to tax? Depends on location of where pollution falls. The victim country may be worse off through setting an optimal tariff (TOT).

à Possible to reduce welfare in B by polluting B less, even no world income rises à TOT gain resulting from tax

à Distributional effect


à Chichilnisky (1994). North-South Trade and the Global Environment.

Differences in property rights create a motive for trade among otherwise identical regions. South = ill-defined property rights on environmental resources; trade makes overuse worse.

“Pollution haven” hypothesis not correct. Distinction between apparent (stirring from property regime) and real comparative advantage.

Taxes in the South may be ineffective because consumption demand is inelastic to price.

Trade and Environment: Production and Processing Methods (PPM)

PPM = process and production methods; generally aim to reduce or control negative externalities either originating during the production processes or transmitted by products; before the product gets to the retail stage

Product standards (“product-related PPMs”, Charnovitz) = intended to deal with consumption externalities in the country of destination à GATT/WTO accepts legitimacy (see TBT Agreement)

Process standards (“non-product related PPMs”) = intended to deal with the production externalities in the country of origin. à great controversy amongst WTO members (outside TBT Agreement)

PPMs can address:



à OECD (1995). Further Analysis on PPM: Trade Measures and Alternatives.

Whether PPM-based trade measures are OK should be analysed according to feasibility, effectiveness and efficiency. In certain cases (shared resources, global concerns), PPM-based trade measures may be effective when trade itself impedes an MEA’s goal.


à Marceau (1999). A Call for Coherence in International Law – Praises for the Prohibition Against “Clinical Isolation” in WTO Dispute Settlement.

Need for coherence within multilateral trade system; and between trade, development and environmental policies.

Article XX: Recognition of tensions between market access rights and other legitimate policies (such as environment). Also SPS and TBT Agreements. Dispute settlement panels narrow interpretation.

Tuna Dolphin: PPMs not allowed.

Gasoline case: Against environment.

Shrimp-Turtle: PPMs considered as Article XX exceptions, but found not conform to chapeau of XX (unjustifiable discrimination).

à PPM issue not clear

à MEA/GATT issue not clear

Solutions: Guidelines and Prescriptive Decisions, waivers, formal interpretation by the General Council, Amendment of WTO Agreements (e.g. DSU), An Understanding, Plurilateral or Multilateral Agreement, World Environment Organization.


à Charnovitz (2000). Solving the PPM Puzzle.

PPMs are not excluded per se (see Shrimp-Turtle) by case law, but distinction:

Sometimes trade measures good 2nd best policy to address the problem of free riders, and/or if international cooperation is not possible.


Migration is linked to the environment in 2 ways:

1)      Change in environment (drought, etc.) à migration

2)      Migration à environment (urban concentrations in developing countries, etc.)

Basic theoretical notions about migration: Harris & Todaro: Migration = voluntary action by individuals; & Zollberg: Migration = forced expulsion


à Harris and Todaro (1970). Migration, Unemployment and Development: A Two-Sector Analysis.

Full employment flexible wage model can’t explain Third World urbanization; e.g. Mexico City 20-40 mio.

Migration = voluntary individual decision, mainly based on wage differential (rational utility optimisation)

Why do people move to cities even no there is high unemployment?

RURAL                    URBAN
expected utility wage lower  expected utility wage higher because of politically determined wages (signal quality) significantly higher

Expected value

Lottery: 1st price = 100 $. Expected value of a ticket = 1/100 = 1 $.

Expected utility

Subjective interpretation of expected value; risk avoiding, risk,

Taking, risk-neutral individuals
U(G) x PG


First mover advantage à technology might not be best, but most widespread

Importance of signals like wages

à Solution according to H&T: Partial payroll subsidies (marginal products have to be equal) & measures restricting migration


à Zollberg (1981). International Migrations in Political Perspective.

Some migration bound to occur according to economic micro- and macro-theory doesn’t happen; some migration happens for other than economic reasons. Solution to puzzle: Formal sovereignty/equality of states (entry/exit control).

Migration = deviant behaviour from the prevailing social organization at the world level; interest of individuals vs. interest of societies.

Refugees (involuntary migrants): conspiracy between country of origin and destination

Cultural homogeneity = indivisible public good; free riders unwanted

à Sharp differences in availability of universally desired conditions (not only economic)

à Solution: Massive move of populations from less to more desirable countries
(Equally rationale: keep entry and exit barriers)


International Cooperation and Conflict

Origin of scarcity

Discrepancy size resource – possibilities of adaptation (institutional adaptation) Usually, the adaptive capability of humans can prevent the eruption of resource conflicts. Human adaptation has not taken place in instances where there is inequality/asymmetry of access.

Middle East:

Sometimes it is difficult to adapt institutions à unsustainability prevails:

Possible adaptation: technology, property structures, population control.


Does scarcity lead to conflict?

Historical evidence is mixed. “Environmental security” is a vague concept, different from the notion of traditional “security”, which involves a threat and decision making anticipation. (Schelling: deterring threat; compelling threat). Resource scarcity rarely acts alone as a source of conflict


A conflict usually arises when property rights limit access to a resource. The decision who has access can be challenged, and enforcement is necessary. So it’s not the scarcity in and by itself, it’s the mechanism of exclusion that is a source of conflict.


Olson, The Logic of Collective Action (60’s)
Olson, The Rise and Decline of Nations (80’s): e.g. rise of apartheid in SA; protectionism of white working class
à this sort of mechanism could also be used in environmental affairs


à Gleick (1993). Water and Conflict.

Access to water = matter of national security of certain states. Shared rivers, lakes and ground water aquifers in the Middle East, in India, Rio Grande, …

The Geopolitics of Shared Water Resources

Water resources as political and military goals (access)

Water resource systems as instruments of war (cutting off supply)

Resource Inequities and the Impacts of Water Developments

Inequitable distribution: North-South problem; no substitutes; difficult to transport.

Likelihood of conflict higher in some cases, e.g. sources for irrigation water; joint hydroelectric dams. (Also: migration, economic destruction)

Future Conflicts over Water

Climate change:

à More evaporation (Nile –25%)
à Availability of fresh water (rising sea levels)
à Extent to which source is shared

Most water-limited nations are in Africa and Asia.

Reducing the Risks of Water-Related Conflicts

International Law: No satisfactory water law acceptable to all nations / some individual treaties over rivers exist

Principles of International Law: International Law Commission drafted a Law on the Non-Navigational Use of International Waters: equitable utilization, no harm, information, cooperation, management of international rivers.



à Luterbacher (1994). International Cooperation: The Problem of the Commons and the Special Case of the Antarctic Region.

1959 Antarctica treaty: preserves the continent for non-military scientific purposes.
Territorial claims not abrogated; new claims prohibited
à powerful retaliatory instrument to all parties interested in territory

Why do nations cooperate without authoritative structures and institutions?

à Axelrod and Olson combined by Luterbacher: perspective that can account for Axelrod and common good

à Incentive structure exists that induces emergence of cooperative arrangements even if only (outside and inside) trade offs between coalition are present

à Antarctica = “common”; underlying threat structure prevents overuse; powerful can threaten defectors


à Luterbacher and Wiegandt (2000). Water and Property Rights: An Analysis of the Mid-East Situation.

Linkages between economic, socio-cultural, political and demographic parts of the social system and water, which is an important resource sector.

Complexity of social and climate systems. à Combined physical-social models: Combine simulation and game theory (differential game)

Symmetrical Access

Hardin, 1968.

Privatisation efficient

Sequential PD à both can retaliate

Asymmetrical Access

Heller and Eisenberg, 1998

Privatisation inefficient

Sequential Chicken à Blockage after first mover acts






Climate Change à


Drought à


Demand Water up


Climate Change à

Hydro cycle à

Supply Water down



Israel (controls Jordan river basin), Jordan, Palestine: differential game, sequential PD (retaliation possible) à solutions easier, e.g. trading through market mechanisms; however, differences in PR definitions could lead to environmental damage (Coase, Chichilnisky)

Turkey (controls source of Euphrates), Syria, Iraq upstream-downstream problem: sequential Chicken game à more difficult to solve


Environmental Cooperation

Common pool resource problems: Competition for first move (better off in the short run). No possibility to retaliate. Trunctuated chicken game à no cooperation, because retaliation makes second mover worse off than no retaliation.
à CPR need strong institutions: carrot and/or stick. Example: Montreal Protocol: developing countries rewarded; non-participants face trade-measures.
à Task for Kyoto protocol: Transferring Chicken into PD game. More complicated because more than 2 actors, and each actor effectively has veto power.

International trade: If non-cooperation à retaliation (for a big country) possible through optimal tariff, at the expense of the rest of the world.


Environnemental slide shows: (Professor Luterbacher)



© 2001 by Marcel Stoessel (marcel (at) All Rights Reserved. This document may only be copied by women, aged 23 to 30, who are intelligent and nice; and who have sent me at least three flattering Emails or SMS containing offers for candlelight dinners (or equivalent).