Efficiency Alone The Neoclassical Perspective

A principal objective of the multilateral negotiations is to determine the norms for using the atmosphere, a global common. In a celebrated paper, Coase (1960) cogently argued that, in the absence of transaction costs, the market exchange would lead to efficient resource allocation regardless of the distribution of rights. The neoclassical economic interpretation of Coase's argument, theoretically articulated as the "Coase theorem,'' leads to the conclusion that free markets would minimize total costs, including economic and social costs. The corollary of the "proof" is that equity is immaterial to socially optimal arrangements (or, alternatively, that market efficiency and equity are separate issues). To neoclassical economics, then, market efficiency alone is relevant and equity is irrelevant.

This perspective gained ground over the past decade with emergence of the new world economic order. Under its influence, the climate debate remained restricted to the agenda to develop a cost-minimizing mitigation regime. Market tautologies, such as equalization of marginal costs across nations, sectors, and time periods, gained ascendance as the sole criterion for determining the level of participation of each nation in the regime. Climate negotiations remained confined to defining and refining flexible market instruments like tradable emissions rights. In climate negotiations, as in the world trade negotiations, the "efficiency-alone" perspective was well suited to the interests of industrialized countries, since cost-efficiency suggested locating most mitigation actions in ''technologically backward and inefficient'' developing countries. Furthermore, the absence of equity sidelined the issue of who should pay for these actions.

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