A Stock Targeting International Carbon-Tax Rule with Uncertainty and Diminishing Compliance

This paper develops a rule for setting periodically and internationally a carbon-dioxide atmospheric stock limiting tax in a world inhabited by expected utility maximizing stakeholders facing diminishing mean and increasing variance of their output level due to climate change. The stakeholders are classified as poor, hence unable and/or unwilling to pay, countries and rich countries. Due to ideological and cultural differences, the rich countries' willingness to pay the tax is not identical. Consequently, the number of complying rich countries diminishes with the tax level.