6. Environmental Coordination Failures and Institutional Responses

This chapter builds on the theme of mechanism design to illustrate the adoption of policies to address the Pareto inefficient outcomes that arise in the presence of uncompensated external effects. It introduces the "governance simplex," expanding the traditional government-market dichotomy to include "civil society" as a crucial third dimension of rules and institutions governing our social interactions. This framework highlights the role of personal and enduring relationships, and other-regarding preferences within civil society in mitigating coordination failures.

The chapter provides models illustrating three distinct approaches to environmental coordination failures based respectively on markets, on governmental policies, and on both other-regarding preferences and repeated interactions in civil society. It also provides a model of the adoption of electric vehicles and policies to disrupt a coordination failure constituted by carbon trap.