A Polycentric Approach For Coping With Climate Change

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues.An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished.The papers carry the names of the authors and should be cited accordingly.The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors.They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Policy Research Working Paper 5095This paper proposes an alternative approach to addressing the complex problems of climate change caused by greenhouse gas emissions.The author, who won the 2009 Nobel Prize in Economic Sciences, argues that single policies adopted only at a global scale are unlikely to generate sufficient trust among citizens and firms so that collective action can take place in a comprehensive and transparent manner that will effectively reduce global warming.Furthermore, simply recommending a single governmental unit to solve global collective action problems is inherently weak because of freerider problems.For example, the Carbon Development Mechanism (CDM) can be 'gamed' in ways that hike up prices of natural resources and in some cases can lead to further natural resource exploitation.Some flaws are also noticeable in the Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (REDD) program.Both the CDM and REDD are vulnerable to the free-rider problem.As an alternative, the paper proposes a polycentric approach at various levels with active oversight of local, regional, and