Even more Coase and global warming

Is MDF giving an accurate picture of the difficulties entailed in stopping or even slowing down global warming? Well, obviously I wouldn't have asked (or have written this post) if I thought so. Not, it's not that hard to create the kind of agreement he and Professor Sunstein are imagining. It's much harder. It's not just a matter of liberal types not wanting poor countries of the world to pay the rich countries, or that there's no way to enforce such a Coasian bargain, or even that the transaction costs are too high. It's that the logic of the Coase theorem suggests that in a perfect Coasian world of zero transaction costs, no one on earth would agree to such a contract.

Let's imagine that all of MDF's criteria are met. Somehow an agreement can be constructed that would not just completely put a stop to global warming, but that would also be acceptable from a geopolitical standpoint to both China and the US. Let us further suppose that some mechanism is found to ensure absolute, costless, perfect enforcement of such an agreement and that no opportunity for cheating would exist. Let's suppose that we are also able to magically suspend any and all transaction costs associated with such an agreement and that the Coase Theorem works perfectly.

Now, as Professor Sunstein (and others) have pointed out, it's mainly undeveloped countries who will suffer most of the burden of global warming. So setting aside any political difficulties (which might be considered a sort of transaction cost and so ignored in this thought experiment), poor countries will have to make a calculation: would they rather suffer the effects of global warming or pay for the high cost that would be suffered by China & the US (et al) in the process of avoiding global warming? Note that by some estimates the Kyoto protocol costs $150 billion a year. Maybe it's less, but probably not a whole lot less. More importantly, Kyoto isn't designed to stop warming or even slow it down all that much -- to actually stop the warming will cost an inordinate amount of money. So if those poor countries were to agree to an end to global warming, they would have to honestly think that there would be no better use to that money. Is that likely?

Perhaps you think I'm being unfair. Maybe poor countries really would like to make that deal, but they don't have the available cash to do it. And anyway, it hardly seems fair to demand that the third world pay the world's two largest (in PPP terms) economies not to pollute -- sounds like blackmail, doesn't it? And after all, what right do rich countries have to pollute the poor world or raise their temperatures? Ok, so let's tweak our imaginary solution and say that instead of being paid to release less carbon, that emitters will have to pay poor countries for the right to heat the planet. Poor countries would definitely be better off -- but they would only be cooler if they'd rather avoid a hotter, stormier climate and higher sea levels than receive cash payments from emitters up to the cost of averting global warming. Is that likely?

This is a somewhat different question, of course -- there's a big wealth effect and wealth changes marginal preferences -- but come on. Who is kidding whom? Sure, there'd be more flooding in Bangladesh in a few decades -- but Bangladesh would be able to afford tremendously better levees and better warning systems, and better fed population. Would they actually think they wouldn't, or shouldn't, want to trade very slightly higher temperatures for cleaner water systems so they could stop losing so many people to dysentery every year? Or just invest all that money in economic development so they'd be able to produce these things themselves? Note that all of these projects are rather cheap compared with the cost of averting global warming.

So either way, global warming continues -- which is exactly what the Coase Theorem tells us to expect. The opportunity cost of averting global warming -- all the things that could be purchased if we allow temperatures to continue to rise -- is quite high. (The cost of global warming is very high too, but not nearly as much.) Even setting aside geopolitical considerations and political difficulties, the sacrifices involved with gaining a cooler planet are just too high, because, in a Coasian sense, global warming isn't really a failure at all. It's really bad, but the alternatives are even worse.