POLICY RESPONSE TO GLOBAL WARMING: SCIENCE OR REGULATION?

The phenomenon of global warming is raising concerns in the U.S. and abroad as scientific studies report that potentially costly climate changes are to take place. For the U.S. in particular, it is expected that the 2008 presidential elections will shift the U.S. approach to global warming. Using externality theory, public goods, and game theory, this paper provides a theoretical, economic analysis of different responses to global warming. It concludes that a science and technology based market strategy is superior to a regulatory approach under the assumptions of a flat social marginal benefit curve and uncertainty about the costs and benefits of pollution reduction. However, the paper argues that an adequate carbon tax or a capand- trade system can stimulate firms to turn to green production, depending on their response to the regulatory regime. [ABSTRACT FROM AUTHOR]