Costing an international public good: the case of the Baltic Sea

The paper discusses an economically efficient and internationally equitable provision of a specific public good. The good in question, the Baltic Sea, satisfies a number of needs, but economic values implied may be different in various countries polluting and using the Sea. The level of eutrophicati on has been identified as a key characteristic of the Baltic Sea relevant f or its value. The Chander-Tulkens model of cost-sharing is used to determin e a hypothetical allocation of abatement costs across the countries around the sea. The application of the model is based on estimates of national aba tement costs as well as national willingness to pay for reduced eutrophicat ion. Estimating willingness to pay in a collection of countries (some of wh ich undergo a transition from centrally planned systems) has been the main challenge of this study. The results were derived from a coordinated series of contingent valuation surveys in Lithuania, Poland and Sweden, combined with benefit transfer studies to cover the rest of the region. Predictions of cost-sharing schemes obtained from the Chander-Tulkens model are confron ted with actual data on abatement expenditures and international assistance . Several recommendations on how to optimize the Baltic-wide programmes con clude the paper. (C) 1999 Elsevier Science B.V. All rights reserved.