Climate change, strict Pareto improvements in welfare and multilateral financial transfers

Christos Kotsogiannis and Alan Woodland

Oxford Economic Papers, 2025, vol. 77, issue 1, 190-212

Abstract: Climate change discussions and negotiations have emphasized the need for developing countries to take the lead by undertaking economy-wide absolute emission reduction targets but also the obligation of developed countries to provide financial resources to assist them in their mitigation efforts. This article explores the role of such financial resources in achieving strict welfare gains for all countries (strict Pareto improvements) when emission targets, due to inefficient carbon pricing, deviate from the global welfare optimum and there are impediments to international trade. It is shown that such transfers exist if and only if a Generalized Hatta Normality Emissions Condition is violated. Numerical examples illustrate the financial transfer mechanism.

Keywords: Global emissions; environmental externalities; multilateral financial transfers; Pareto-improving reforms (search for similar items in EconPapers)
JEL-codes: F18 H23 (search for similar items in EconPapers)
Date: 2025
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Working Paper: Climate change, strict Pareto improvements in welfare and multilateral financial transfers (2020)
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