Nicholas Stern

The Economics of Climate Change

�Greenhouse gas (GHG) emissions are exter nalities and represent the biggest market failure the world has seen. We all produce emissions, people around the world are already suffering from past emissions, and current emissions will have potentially catastrophic impacts in the future. Thus, these emissions are not ordinary, localized externalities. Risk on a global scale is at the core of the issue. These basic features of the problem must shape the economic analy sis we bring to bear; failure to do this will, and has, produced approaches to policy that are pro foundly misleading and indeed dangerous. The purpose of this lecture is to set out what I think is an appropriate way to examine the economics of climate change, given the unique scientific and economic challenges posed, and to suggest implications for emissions targets, policy instruments, and global action. The sub ject is complex and very wide-ranging. It is a subject of vital importance but one in which the economics is fairly young. A central challenge is to provide the economic tools necessary as

The theory of cost-benefit analysis

Publisher Summary The theory of cost-benefit analysis is widely used. It contributes to the understanding by giving a formal description of the subject and examining the theoretical basis for some of the techniques that have become the accepted tools of decision-making around the world. The aim of cost-benefit analysis is to provide a consistent procedure for evaluating decisions in terms of their consequences. This might appear as an obvious and sensible way to proceed, but it is by no means the only one. Cost-benefit analysis clearly embraces an enormous field. It offers clear guidelines for the evaluation of government decisions in such varied fields as tax, trade, or incomes policies; the provision of public goods; the distribution of rationed commodities; or the licensing of private investment. The chapter discusses the way cost-benefit analysis should proceed, a fairly unified account of the most salient results of the theoretical literature, and the way the framework encompasses a number of approaches to the definition and formulation of cost-benefit problems and describes the implications for a number of practical issues.

The theory of reform and indian indirect taxes

Abstract Given a set of value judgements, an initial state, and a model of the economy, one can ask whether some feasible tax change would increase welfare. We do this by defining the marginal cost in terms of welfare of raising an extra rupee from the i th good. The inverse optimum problem is the calculation of non-negative welfare weights on households which imply that the initial state is optimum. If no such welfare weights exist, then a Pareto improvement is possible. We illustrate the concepts and results using data from the Indian economy for 1979–1980. Directions of tax reform for a number of specific social welfare functions and for Pareto improvements are presented.

On the specification of models of optimum income taxation

Abstract The main concerns of the paper are the problems of estimating labour supply functions for use in models of optimum income taxation, and the calculation of the effect on the optimum linear tax rate of varying the elasticity of substitution, e, between leisure and goods from 0 to 1. Backward sloping supply curves are commonly observed and they imply e e = 0.4. Optimum marginal rates decrease with e when taxation is purely redistributive but may be nonmonotonic if positive revenue is to be raised. It is proved that optimum (linear or nonlinear) taxation involves a marginal rate of 100 percent when e = 0.

Optimum taxation with errors in administration

The basic theorem of welfare economics tells us that, under standard assumptions, the first best can be achieved as a competitative equilibrium with zero taxes on commodities and the appropriate lump sum tax for each individual. the calculation of the appropriate set of lump sum taxes requires information on individuals which they have an incentive not to reveal - for example Mirrlees (1974) has shown that, where individuals differ in skills it is likely that the first best will require utility to decrease with skill. it is then natural to ask how well one can do with a tax system which does not discriminate between individuals. This has led to the theory of optimum income taxation where we assume that only income observed and all individuals face the same income tax schedule. This schedule is then chosen to maximise welfare.

The effects of taxation, price control and government contracts in oligopoly and monopolistic competition

Abstract Many government contracts with or policies towards oligopolistic sectors essentially involve private firms selling a given proportion (ϑ), or quantity, of output to the government at a fixed price ( P R ) with the remainder being sold on the open-market. Often this is combined with consumer rationing. Examples include cement and sugar in India, and health, housing and defence in many countries. The paper investigates the effects of these schemes (including sales and excise taxation) on prices, output and household welfare under oligopoly and monopolistic competition. Less government control (reduced ϑ) may raise prices and tax shifting can be above or below 100 percent.

The Determinants of Growth

The growth theories of the 1950s and 1960s emphasized capital accumulation and technical progress as explanations of growth. More recently theoretical attention has focused on the understanding of progress in terms of learning/human capital (in the tradition of K. Arrow) and investment in research (following H. Uzawa). These newer developments have made some, but only limited, progress. The experience of developing countries suggests that the agenda should be broadened to include the efficiency of factor use, infrastructure (broadly interpreted), and sectoral allocation. These aspects, together with the Kaldorian concern for dynamic increasing returns, provide substantial promise for future research. Copyright 1991 by Royal Economic Society.

The Employment of Married Women in the United Kingdom 1970-83

The proportion of married women in employment in the United Kingdom grew rapidly during the 1970s, rising from around 50 to 60 percent. The paper investigates this change using a time series of cross sections from the Family Expenditure Survey. An attempt is made to assess how much of the change was due to trends in the observable characteristics of the population and what part was played by changes in behavioral and other factors reflected in the coefficients of the model. A technique of growth accounting is proposed and used to this purpose. Copyright 1990 by The London School of Economics and Political Science.

Economic development in Palanpur over five decades

This book provides an account of economic development in Palanpur, a village in rural North India, based on five detailed surveys of the village over the period 1957 to 1993. These five decades have seen economic well-being rise in some important respects, but stagnation and even decline in other areas. The analysis presented here focuses on the reasons behind this uneven progress. The authors tie in the background issues of the evolution of poverty and inequality and mobility over time with causal factors such as technological progress, demographic and sectoral changes, the operation of markets, and the role of public action. The richness and unique nature of the qualitative and quantitative data collected and presented by Lanjouw and Stern yields an analysis which illuminates questions of direct importance to researchers in a wide variety of disciplines.

Policy Reform, Shadow Prices, and Market Prices

How should public projects and policy reforms be assessed when market prices give misleading signals? Revenues and costs at market prices then give distorted measures of social gains and losses and our appraisal should use social opportunity costs or ‘shadow prices’. We show how shadow prices may be integrated into an analysis of policy reform, demonstrate the critical dependence of these prices on government policy and analyse their relations with market prices. The model allows for a wide range of sources of impairment of price signals. We also discuss key issues in the analysis of price reform and ‘privatisation’.