The Kyoto Protocol: Property Rights and Efficiency of Markets

Abstract

The origin of today’s global environmental problems is the historic difference in property rights regimes between industrial and developing countries, the North and the South. In industrial countries resources such as forests and oil deposits are often under well defined and enforceable property rights, mostly private property regimes. In developing countries they are generally under ill-defined and weakly enforced property rights, mostly community or state property regimes but de-facto open-access regimes. Ill-defined and weakly enforced property rights lead to the over-extraction of natural resources in the South. They are exported at low prices to the North that over-consumes them. The international market amplifies the tragedy of the commons, leading to inferior solutions for the world economy. In developing countries, the conversion of natural resources regimes from community or state property regimes or common access to private property regimes faces formidable opposition due to international economic interests, or to heavy dependence of local and poor people on these resources. The weakness of property rights in inputs to production, such as timber and oil, could be compensated by assigning well defined and enforceable property rights to products or outputs. The 1997 Kyoto Protocol provides an example as it limits countries’ rights to emit carbon, a by - product of burning fossil fuels, but the atmosphere’s carbon concentration is a public good, which makes trading tricky. Similarly, trading rights to forests’ carbon sequestration services involve public goods. Markets that trade public goods require a measure of equity to ensure efficiency, a requirement different than the markets for private goods