Costing an international public good: the case of the Baltic Sea

Abstract

The paper discusses an economically efficient and internationally equitable provision of a specific public good. The good in question, the Baltic Sea, satisfies a number of needs, but economic values implied may be different in various countries polluting and using the Sea. The level of eutrophication has been identified as a key characteristic of the Baltic Sea relevant for its value. The Chander–Tulkens model of cost-sharing is used to determine a hypothetical allocation of abatement costs across the countries around the sea. The application of the model is based on estimates of national abatement costs as well as national willingness to pay for reduced eutrophication. Estimating willingness to pay in a collection of countries (some of which undergo a transition from centrally planned systems) has been the main challenge of this study. The results were derived from a coordinated series of contingent valuation surveys in Lithuania, Poland and Sweden, combined with benefit transfer studies to cover the rest of the region. Predictions of cost-sharing schemes obtained from the Chander–Tulkens model are confronted with actual data on abatement expenditures and international assistance. Several recommendations on how to optimize the Baltic-wide programmes conclude the paper.