Thomas Sterner, University of Gothenburg

"Externality Shifting"

Abstract

Is the environment getting better or worse? On the one hand, the local environment has improved, particularly in richer countries: air quality, food safety, hygienic conditions, and water supply have all improved considerably. On the other hand, a series of global environmental threats has emerged, relating to climate change, biodiversity loss, and other forms of environmental degradation. In this paper, we try to resolve this apparent contradiction. We show that societies are often effective at solving local and short-run environmental problems, but do so by “shifting” externalities, thereby creating global and long-run problems instead. We model this externality shift and discuss possible policy instruments for addressing global environmental threats.