Intergovernmental Fiscal Transfers and the Environment
Provision of environmental services involves spatial externalities. The costs of provision are borne at the level of provision, but the benefits are realized on a larger scale. Mismatch between the decision-making responsibilities and costs and benefits has been considered a cause for the underprovision of the services. Perrings and Gadgil (2003) suggest a number of measures to patch up the local costs and global benefits of biodiversity conservation. Intergovernmental fiscal transfers are an important instrument for internalizing the spatial externalities (Breton, 1965; Olson, 1969).