Showing papers by "Michael J. Barnes published in 2022"
TL;DR: The authors generalize Kortum and Weisbach to a multi-country world where the coalition consists of many heterogeneous countries and find that coalitions that implement the optimal unilateral policy can be unstable and that coalition instability has a considerable impact on the effectiveness of the optimal bilateral policy in reducing global emissions.
Abstract: Kortum and Weisbach (2021) propose a general equilibrium model for carbon taxation and derive the optimal policy as a function of marginal damages from emissions. This paper serves as an extension of Kortum and Weisbach by combining the general structure of Kortum and Weisbach with the Eaton and Kortum (2002) model of trade. Our results generalize Kortum and Weisbach to a multi-country world where the coalition consists of many heterogeneous countries. Like Kortum and Weisbach, our optimal policy consists of i) an extraction tax, ii) a partial border adjustment that partially shifts the tax imposition downstream and reduces leakage, and iii) an export policy that simultaneously exploits inelastic demand for goods amongst noncoalition countries and expands the export margin. Because the export policy functions as an external penalty incentivizing participation, we interpret coalitions implementing the optimal policy as climate clubs akin to those orignally proposed by Nordhaus (2015). We find that coalitions that implement the optimal unilateral policy can be unstable and that coalition instability has a considerable impact on the effectiveness of the optimal unilateral policy in reducing global emissions. I would like to express my sincerest gratitude to Professor Kortum, whose invaluable assistance, support, and mentorship over the past two years as my professor, research advisor, and thesis advisor made this paper possible. I would also like to thank my parents, sister, uncle, grandparents, and friends, including Chris, Robert, Mark, Daniel, and Michelle, who supported and encouraged me throughout this process. Finally, I’d like to thank Professor Patrick Devlin, who taught me to find curiosity at the intersection of rigor and intuition, and the late Bob Turansky, who taught me that knowledge without understanding is hollow. All errors are my own.