ON SHIBATA'S NEGATION OF LUMP-SUM TRANSFERS IN GLOBAL WARMING CONTROL

When all countries tax domestic emissions of a pure global pollutant at a rate equal to global marginal damage, some of these countries - typically, developing countries - are likely to be worse off. To win the cooperation of such developing countries, it is often advocated that they receive lump-sum compensation from the industrialized countries. To the contrary, Shibata (1996, p.298) argues that it is “not possible to make developing countries any better off by lump-sum transfers of the [tax] revenues.” This pessimistic outlook is challenged in the present paper, which reaffirms the case for international lump-sum transfers. [F02, H23, Q23, Q25]