Global public economics : public goods and externalities

Abstract

This paper extends the normative analysis of public goods and externalities to an international setting. The first part considers the optimal allocation of a global public good. Whether global production efficiency is desirable depends on the existence of international lump sum transfers; in the absence of such transfers and with an egalitarian social welfare function a poor country should bear less of the burden of producing global public goods than implied by production efficiency. The second part of the paper analyzes global externalities and shows that internationally uniform Pigouvian taxation is only optimal in the presence of ideal lump sum transfers.