international environmental transfers

International Environmental Transfers

The Case for International Environmental Transfers

• Income effect – Environmental protection as a normal good– Rich countries have more income to devote to

environmental protection

• Lobbying– Rich countries bear the externalities, but don’t

share profits – Protection is underprovided because

environmental interests are diffuse and producer interests are concentrated

• Interest group organization– NGOs are denser, older, wealthier in the North

If concern is so much greater in developed countries, why are

there so few transfers?

Coase theorem revisited

• Without transaction costs, bribery is efficient; property rights don’t matter

• With transaction costs: – search – bargaining – enforcement

suboptimal level of bribes

Aid agency•Commit Don’t commit

••LDC LDC


••LDC LDC

Comply ComplyDon’t comply Don’t comply


••LDC LDC


• •AA AA

Disburse ~Disburse D ~D

C-P-T T+P-

C

C-P P-C

-P-T P+T

-P -P

C -C

0 0

North

South


••LDC LDC


• •AA AA


C-P-T T+P-

C

C-P P-C

-P-T P+T

-P -P

C -C

0 0

North

South

Problem 1: Noncredible recipient commitment


••LDC LDC


• •AA AA


C-P-T T+P-

C

C-P P-C

-P-T P+T

-P -P

C -C

0 0

North

South

Problem 2: Noncredible donor commitment


••LDC LDC


• •AA AA


C-P-T T+P-

C

C-P P-C

-P-T P+T

-P -P

C -C

0 0

North

South

Problem 3: Noncredible conditionality

Conclusions

• Transaction costs can prevent donors from offering aid in the first place

• The credibility problem need not be on the recipient’s side

• The three types of credibility problems are observationally equivalent

Case Study: bargaining problems and the GEF

• Politics of GEF (Global Environment Facility - 1990 -)– 1990-1993, $1 bil; 1993, $2 bil

• North-South conflict

North

• Global problems, additionality, incremental cost

• “Green” conditionality (“integration”)

•World Bank control

South

•Obtain new funds but avoid new conditionality

•Sustainable development

•UN control

Compromise: unclear objectives, implementation shared by WB, UNDP, UNEP

UNCED (UN Conference on Environment and Development)

• June/92; summit → high stakes

Bargaining problems and GEF

Turf battle + Poor implementation, project selection

Deadlock over organizational mission

Keohane & Levy framework

• Concern → conditionality (concern generally asymmetric)• Contractual environment: limited lending agency discretion

in bargaining; commitment to punishing; monitoring• Capacity → involuntary defection

– WB: most failures due to lack of institutional capacity– On-going funding for recipient governments– Competition from sectoral lobbies in donor countries →

misdirection of funds– NGOs as solution

• Coordination: bilateral, IFIs, NGOs, regional development

banks can reinforce or undermine (Indonesia)

Criticisms

• A laundry list, not a theory• Testing?• Generating intermediate-range

hypotheses• Research design

– More hypotheses than cases– Selection bias

• Still, a useful starting point

Environmental Politics in Europe:

Coordination, bargaining and transfers

Expectations• Expectations: good results in Europe

– High concern– Contractual environment: transparent, institution

dense, multiple linkages

– High capacity

• But volume finds poor results. Why?– Case selection: looking for cases involving financial

transfers (most cases in Europe don’t)

• Success in “coordination” cases in Europe:– LRTAP, Baltic and North Seas pollution,

Mediterranean– Leaders shame laggards

Chloride pollution in the Rhine

• Perfect case for Coasian bargaining– Small “n”; transparency; narrow issue; very accurate

measurement ; winners and losers clear

• Puzzle of the formal outcome: – Netherlands, Germany, Switzerland pay France; – only Netherlands benefits; – Germany, Switzerland are the polluters

• Coase: MdPA lowest marginal cost of reduction

Chloride pollution in the Rhine• But transaction costs (bargaining) interfered

– Incentives to misrepresent– Distributional bargaining

Delay

• Private adaptation → reduced concern

• Decline of mining → reduced problem

Nuclear safety in Eastern Europe

• Remember Chernobyl? • RBMK, VVER-440, VVER-1000• Asymmetric concern → conflict over solution

– Income effect – Austerity programs and the IMF– foreign currency crunch

• Puzzle: West’s weak bargaining position:– Short-term fix → reduced incentives for closure

– Lack of coordination– Capture by Western industry

Other environmental assistance to Eastern Europe

• Expectation: substantial aid because– Trans-boundary effects, lower marginal cost of

abatement in EE– Potential expansion of EU– Institution-rich environment: EU, EBRD, WB, G-24

• Outcome: little aid, less conditionality. Why?

• Principal-agent problems, organizational mission, inertia, other agendas:– World Bank:

• Energy projects• Macroeconomics

– EBRD: • private sector projects• partnership in investment → constrained by

supply of interested investors• need for speed


• Lack of coordination in bilateral programs• Why?

Endogenous aid:

Interest groupsDemand for aid

Environmental exports


• Examples: nuclear industry, contractors, consultants• Dilemma: if aid programs don’t serve a domestic

constituency, aid amounts will be lower

international environmental transfers

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