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Frontiers of Economics in China

Front. Econ. China    2016, Vol. 11 Issue (1) : 88-103     DOI: 10.3868/s060-005-016-0006-0
Orginal Article |
Transfers and the Samuelson Rule in Stock Externality Provision—Why Do We Need Them Both?
Zili Yang()
Department of Economics, State University of New York at Binghamton, Binghamton, NY 13902, USA
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This paper examines the relationship between the Samuelson rule for efficient provision of stock externality and unilateral transfers for equalization of mitigation costs among the agents. Using a generic model of stock externality provisions, we proved that the revised Samuelson rule that allows transfers is a necessary and sufficient condition for efficient provision of stock externalities. In addition, selection of social welfare weights of the agents plays a key role in directions and magnitudes of the transfers. We discuss the implications of the revised Samuelson rule in economic modeling of climate change, an empirical case of stock externality, through numerical simulations in the RICE model.

Keywords Samuelson rule      transfer      stock externality      mitigation cost equalization     
Issue Date: 22 March 2016
 Cite this article:   
Zili Yang. Transfers and the Samuelson Rule in Stock Externality Provision—Why Do We Need Them Both?[J]. Front. Econ. China, 2016, 11(1): 88-103.
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