International Environmental
Transfers
The Case for International
Environmental Transfers
• Income effect
– Environmental protection as a normal good
– Rich countries have more income to devote to
environmental protection
• Lobbying
– Rich countries bear the externalities, but don’t
share profits
– Protection is underprovided because
environmental interests are diffuse and producer
interests are concentrated
• Interest group organization
– NGOs are denser, older, wealthier in the North
If concern is so much greater in
developed countries, why are
there so few transfers?
Coase theorem revisited
• Without transaction costs, bribery is
efficient; property rights don’t matter
• With transaction costs:
– search
– bargaining
– enforcement
suboptimal level of bribes
Aid agency
Commit
•
LDC
•
Don’t commit
•
LDC
Aid agency
Commit
•
•
Don’t commit
•
LDC
LDC
Comply
Don’t comply
Comply
Don’t comply
Aid agency
•
Commit
•
Don’t commit
•
LDC
LDC
Comply
Don’t comply
• ~Disburse D •
AA
Disburse
C-P-T
T+P-C
C-P
P-C
Comply
Don’t comply
AA
-P-T
P+T
~D
-P
-P
C
-C
0
0
North
South
Problem 1: Noncredible recipient commitment
Aid agency
•
Commit
•
Don’t commit
•
LDC
LDC
Comply
Don’t comply
• ~Disburse D •
AA
Disburse
C-P-T
T+P-C
C-P
P-C
Comply
Don’t comply
AA
-P-T
P+T
~D
-P
-P
C
-C
0
0
North
South
Problem 1: Noncredible recipient commitment
Aid agency
•
Commit
•
Don’t commit
•
LDC
LDC
Comply
Don’t comply
• ~Disburse D •
AA
Disburse
C-P-T
T+P-C
C-P
P-C
Comply
Don’t comply
AA
-P-T
P+T
~D
-P
-P
C
-C
0
0
North
South
Problem 1: Noncredible recipient commitment
Aid agency
•
Commit
•
Don’t commit
•
LDC
LDC
Comply
Don’t comply
• ~Disburse D •
AA
Disburse
C-P-T
T+P-C
C-P
P-C
Comply
Don’t comply
AA
-P-T
P+T
~D
-P
-P
C
-C
0
0
North
South
Problem 1: Noncredible recipient commitment
Aid agency
•
Commit
•
Don’t commit
•
LDC
LDC
Comply
Don’t comply
• ~Disburse D •
AA
Disburse
C-P-T
T+P-C
C-P
P-C
Comply
Don’t comply
AA
-P-T
P+T
~D
-P
-P
C
-C
0
0
North
South
Problem 2: Noncredible donor commitment
Aid agency
•
Commit
•
Don’t commit
•
LDC
LDC
Comply
Don’t comply
• ~Disburse D •
AA
Disburse
C-P-T
T+P-C
C-P
P-C
Comply
Don’t comply
AA
-P-T
P+T
~D
-P
-P
C
-C
0
0
North
South
Problem 2: Noncredible donor commitment
Aid agency
•
Commit
•
Don’t commit
•
LDC
LDC
Comply
Don’t comply
• ~Disburse D •
AA
Disburse
C-P-T
T+P-C
C-P
P-C
Comply
Don’t comply
AA
-P-T
P+T
~D
-P
-P
C
-C
0
0
North
South
Problem 2: Noncredible donor commitment
Aid agency
•
Commit
•
Don’t commit
•
LDC
LDC
Comply
Don’t comply
• ~Disburse D •
AA
Disburse
C-P-T
T+P-C
C-P
P-C
Comply
Don’t comply
AA
-P-T
P+T
~D
-P
-P
C
-C
0
0
North
South
Problem 2: Noncredible donor commitment
Aid agency
•
Commit
•
Don’t commit
•
LDC
LDC
Comply
Don’t comply
• ~Disburse D •
AA
Disburse
C-P-T
T+P-C
C-P
P-C
Comply
Don’t comply
AA
-P-T
P+T
~D
-P
-P
C
-C
0
0
North
South
Problem 3: Noncredible conditionality
Aid agency
•
Commit
•
Don’t commit
•
LDC
LDC
Comply
Don’t comply
• ~Disburse D •
AA
Disburse
C-P-T
T+P-C
C-P
P-C
Comply
Don’t comply
AA
-P-T
P+T
~D
-P
-P
C
-C
0
0
North
South
Problem 3: Noncredible conditionality
Aid agency
•
Commit
•
Don’t commit
•
LDC
LDC
Comply
Don’t comply
• ~Disburse D •
AA
Disburse
C-P-T
T+P-C
C-P
P-C
Comply
Don’t comply
AA
-P-T
P+T
~D
-P
-P
C
-C
0
0
North
South
Problem 3: Noncredible conditionality
Aid agency
•
Commit
•
Don’t commit
•
LDC
LDC
Comply
Don’t comply
• ~Disburse D •
AA
Disburse
C-P-T
T+P-C
C-P
P-C
Comply
Don’t comply
AA
-P-T
P+T
~D
-P
-P
C
-C
0
0
North
South
Problem 3: Noncredible conditionality
Aid agency
•
Commit
•
Don’t commit
•
LDC
LDC
Comply
Don’t comply
• ~Disburse D •
AA
Disburse
C-P-T
T+P-C
C-P
P-C
Comply
Don’t comply
AA
-P-T
P+T
~D
-P
-P
C
-C
0
0
North
South
Conclusions
• Transaction costs can prevent donors
from offering aid in the first place
• The credibility problem need not be on
the recipient’s side
• The three types of credibility problems
are observationally equivalent
Case Study: bargaining problems
and the GEF
• Politics of GEF (Global Environment Facility - 1990 -)
– 1990-1993, $1 bil; 1993, $2 bil
• North-South conflict
North
South
• Global problems, additionality,
incremental cost
•Obtain new funds but avoid
new conditionality
• “Green” conditionality
(“integration”)
•Sustainable development
•World Bank control
•UN control
Bargaining problems and GEF
Compromise: unclear objectives, implementation
shared by WB, UNDP, UNEP
Turf battle +
Poor implementation,
project selection
Deadlock over
organizational mission
UNCED (UN Conference on Environment and Development)
• June/92; summit → high stakes
Keohane & Levy framework
• Concern → conditionality (concern generally asymmetric)
• Contractual environment: limited lending agency discretion
in bargaining; commitment to punishing; monitoring
• Capacity → involuntary defection
– WB: most failures due to lack of institutional capacity
– On-going funding for recipient governments
– Competition from sectoral lobbies in donor countries →
misdirection of funds
– NGOs as solution
• Coordination: bilateral, IFIs, NGOs, regional development
banks can reinforce or undermine (Indonesia)
Criticisms
• A laundry list, not a theory
• Testing?
• Generating intermediate-range
hypotheses
• Research design
– More hypotheses than cases
– Selection bias
• Still, a useful starting point
Environmental Politics in
Europe:
Coordination, bargaining and
transfers
Expectations
• Expectations: good results in Europe
– High concern
– Contractual environment: transparent, institution
dense, multiple linkages
– High capacity
• But volume finds poor results. Why?
– Case selection: looking for cases involving
financial transfers (most cases in Europe don’t)
• Success in “coordination” cases in Europe:
– LRTAP, Baltic and North Seas pollution,
Mediterranean
– Leaders shame laggards
Chloride pollution in the Rhine
• Perfect case for Coasian bargaining
– Small “n”; transparency; narrow issue; very accurate
measurement ; winners and losers clear
• Puzzle of the formal outcome:
– Netherlands, Germany, Switzerland pay France;
– only Netherlands benefits;
– Germany, Switzerland are the polluters
• Coase: MdPA lowest marginal cost of reduction
Chloride pollution in the Rhine
• But transaction costs (bargaining) interfered
– Incentives to misrepresent
– Distributional bargaining
Delay
• Private adaptation → reduced concern
• Decline of mining → reduced problem
Nuclear safety in Eastern Europe
• Remember Chernobyl?
• RBMK, VVER-440, VVER-1000
• Asymmetric concern → conflict over solution
– Income effect
– Austerity programs and the IMF
– foreign currency crunch
• Puzzle: West’s weak bargaining position:
– Short-term fix → reduced incentives for closure
– Lack of coordination
– Capture by Western industry
Other environmental
assistance to Eastern Europe
• Expectation: substantial aid because
– Trans-boundary effects, lower marginal cost of
abatement in EE
– Potential expansion of EU
– Institution-rich environment: EU, EBRD, WB, G-24
• Outcome: little aid, less conditionality. Why?
Other environmental
assistance to Eastern Europe
• Principal-agent problems, organizational
mission, inertia, other agendas:
– World Bank:
• Energy projects
• Macroeconomics
– EBRD:
• private sector projects
• partnership in investment → constrained by
supply of interested investors
• need for speed
Other environmental
assistance to Eastern Europe
• Lack of coordination in bilateral programs
• Why?
Endogenous aid:
Demand for aid
Interest groups
Environmental
exports
• Examples: nuclear industry, contractors, consultants
• Dilemma: if aid programs don’t serve a domestic
constituency, aid amounts will be lower