change (for some examples, see Pearce and Turner, 1990 and Dasgupta and Heal, 1979). Theory suggests that governments intervene with policies that meet at least one of these criteria: (1) they have such long lead times that they must be undertaken now to be effective; (2) they are likely to be economical even in the absence of global change; or (3) the penalty from waiting a decade or two to undertake the policy is extremely high. These criteria suggest four kinds of intervention, which we note here.
Government may encourage quasi-market mechanisms before shortages occur. For example, to ensure that water will be efficiently allocated if climate change affects its availability, governments might introduce general allocational devices, such as auctions, to dispatch water to the highest-value uses. The same approach might be applied to allocate land use near sea coasts and in flood plains and to control pollution by auctioning pollution rights. Governments might also support systems of risk-adjusted insurance for flood plains or hurricanes or international climate insurance. These quasi-market mechanisms have both the advantages and the disadvantages of the market. They make allocations efficiently but tend to undersupply goods needed by those who do not participate effectively in the markets, such as people outside the geographical boundaries of a quasi-market, who may receive polluted air or salinated water.
Government may support research and development on inexpensive and reliable ways of slowing or adapting to global change. Research on adaptation is undersupplied by markets because inventors cannot capture the full fruits of their inventions. Research on mitigation technologies that will slow global changes are even more seriously undersupplied in markets, because not only can inventors not collect the fruits of their efforts, but also the fruits, such as preservation of climate, are unpriced or underpriced in the market.
International agreements may provide for international adaptation strategies, such as improved international markets, which allow migration of labor and capital over a greater geographical range than national markets.
Governments may promote needed knowledge and collect and distribute data about global change, to enable rational response. It is difficult for people to mitigate or adapt if they do not understand what is happening or the costs of the available responses and of inaction; costs of adaptation will be reduced to the extent that managers, diplomats, and voters are well informed about well-established scientific results.