INTRODUCTION

In this chapter, we further develop the economic analysis of global warming, focusing our attention on the role played by terrestrial forests in moderating processes of global warming, on the one hand, and in affecting the level of the welfare of people in the society by providing a decent and cultured environment, on the other. As in the previous chapters, we are primarily concerned with examining those time patterns of economic development that are either dynamically optimum or sustainable with respect to both the atmospheric environment and the market economy. The analysis we have developed so far is already complicated enough that the introduction of another factor would make the problems extremely difficult to handle. Therefore, we would like to keep our discussion simple enough to derive relevant theoretical conclusions and policy proposals while still reflecting the crucial characteristics of global warming. To make the discussion as self-contained and heuristic as possible, we would like, at the risk of repetition, to describe the premises of the model in full detail and to explain each deductive step thoroughly.

The analysis of the simple, dynamic model of global warming introduced in this chapter leads us to those institutional arrangements and policy measures that are effective in stabilizing the atmospheric concentration of greenhouse gases with minimal governmental intervention into private economic activities. Our analysis will guarantee that the allocation of scarce resources, including the global atmosphere and terrestrial forests, will be sustainable in the sense precisely defined in Chapter 5 without unduly hindering economic progress in the developing countries.