Research Needs Although the above market-oriented response strategies are strongly supported by economic theory, knowledge is weak about how they may be effectively implemented. Three lines of research into markets can add to understanding of the available response strategies.

First, empirical studies are needed of the implementation of quasi-market mechanisms for adaptation to global change, to determine how particular mechanisms work in particular social and political systems. For instance, systems for auctioning emission rights can be made infeasible by political opposition, subverted by fraud, undermined by political decisions, or otherwise altered from their theoretically pure operation (Tietenberg, 1985, explains the principle in the case of local air pollution; application to global change would be more difficult). Retrospective and prospective studies of the operation of such mechanisms can illuminate the problems that arise in implementation and assess the actual, as opposed to theoretical, effects of such mechanisms on equity and efficiency. Such assessments should compare quasi-market mechanisms to available regulatory mechanisms, as each actually operates (see the section below on national policy).

Second, studies of the valuation of global environmental externalities are critically important to address several key questions. For instance: To what extent can knowledge or technology be substituted for the outputs of environmental systems, thus making those outputs less indispensable? Is such substitution desirable? How can the ''services'' produced by the natural environment be included in economic accounting systems, such as national income accounts? How can the producers and recipients of externalities arrive at a common valuation if one side is disadvantaged in financial resources, and therefore in the ability to participate in markets or quasi-markets? How do people value, and make tradeoffs between, different kinds of externalities? How do different actors value the effects of human interventions in the environment and make tradeoffs between effects? (Some of these questions are addressed in work by Mitchell and Carson, 1988, and Nordhaus, 1990.)

Third, studies of social discount rates are needed, especially to estimate preferences concerning the future environment so they can be included in evaluations of global environmental change (e.g., Lind et al., 1986). Many believe that market discount rates are too high to accurately represent the social value of the future environment, although this value is unknown.

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