Climate-change policies and international rate-of-return differentials

Greenhouse gas abatement can be viewed as an alternative to conventional ca pital formation. Somehow, society must agree on how to split its limited re sources between investment in region-specific physical capital and global i nvestment in environmental capital. Now, since restrictions on the internat ional mobility of capital affect regional investment decisions, it might be expected that significant interregional differences in rates of return cou ld affect global climate policy decisions. This is the issue addressed here . With a "descriptive" view of the world, we obtain an invariance result. T hat is, the pareto-optimal amount of greenhouse gas abatement is virtually independent of the restrictions on capital flows. We conclude with conjectu res on this outcome. (C) 1999 Elsevier Science Ltd. All rights reserved.