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Economic Theory for the Environment

Essays in Honour of Karl-Göran Mäler

Edited by Bengt Kriström, Partha Dasgupta and Karl-Gustaf Löfgren

Karl-Göran Mäler’s work has been a mainstay of the frontiers of environmental economics for more than three decades. This outstanding book, in his honour, assembles some of the best minds in the economics profession to confront and resolve many of the problems affecting the husbandry of our national environments.
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Chapter 15: Global Externalities: Sovereign States

Domenico Siniscalco


Domenico Siniscalco* 1 GLOBAL EXTERNALITIES ‘Globalization’ is a new expression that does not appear in many dictionaries, even if it is increasingly used in the media and in the current debate. It obviously means ‘becoming global’ or, more precisely, worldwide. But what is becoming global so recently and so intensely that it needs a new word? In the last few years we have seen increasing transnational flows of goods, services, finance, direct investment, people, culture, knowledge, information, pollution, crime and the like. Such transnational flows have been accelerated by technological, institutional and demographic changes. From an economic perspective they can be seen as the effect of a ‘worldwide arbitrage’ and selection process. The global flows under review are gaining momentum and are partly new, given the nature and characteristics of modern information, communication and transportation technologies. But globalization per se is a historical phenomenon that comes and goes in secular waves, and usually – but not necessarily – creates convergence (see Braudel, 1997; Foreman-Peck, 1998). Transnational and global flows imply greater interdependence among people, firms, governments, and non-governmental and international organizations. In this context, for every agent (or country), welfare depends on his or her own action as well as on the other agents’ action. In general, the exchange of flows requires markets and well-defined property rights. Unfortunately, this is not always the case in the global economy. Some flows, such as pollution, knowledge, or migrations completely lack markets and prices: in this case we are in the presence of pure global...

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