Externalities, commons and fairness – EXCOMFAIR

The widespread view that externalities and commons generate market imperfections is usually associated with the perception of the market economy as the central resource allocation mechanism whereas such imperfections come from the periphery of the economic system and are primarily disturbing the efficiency of resource allocation. However, it is increasingly recognized that the economy is deeply embedded in the social fabric and that planetary boundaries delineate the sustainable operation of the social and economic spheres. Moreover, distributional issues appear impossible to ignore in policies addressing these problems. This project aims at developing a conceptual framework in which externalities and commons are at the core of the analysis, with new models in which market instruments are only a subset of relevant tools, and in which fairness issues are as central as efficiency considerations. Three domains of applications will be investigated. The first is health policy, which will be addressed through a model of inequalities in the pandemic and with a new survey eliciting people’s values and preferences over health, consumption, and social interactions. The second domain is climate policy, for which second-best policy under constraints about transfers and about the distribution of emission permits raise difficult questions about differential carbon prices, and this project will also seek to introduce additional commons such as biodiversity and social stability into integrated assessment models used for cost-benefit analysis of mitigation policies. The third domain is the study of the optimal division of labor between private action and public interventions - an increasingly important topic at a time when public interventions are contested and insufficient, whereas many private actors, especially business firms and investors, coalesce around multiple initiatives embracing social and environmental responsibility.