forest conservation too much or too little a political economy model this paper studies the formation offorest policy when the government isinfluenced by an environmental lobbyand an industrial lobby representing anon competitive wood processing industry government decides on forestconservation by way of restricting timberharvesting lobbying is modelledas a common agency game with differencesin the efficiency of lobbying acomparison of the political equilibriashows that an exporting forestindustry faces a stricter conservationrequirement than a forest industrywhose production is destined for domesticmarkets if the industrial lobbyis more efficient than the environmentallobby conservation is insufficientfrom the social point of view however conservation may be insufficienteven if the environmental lobby is moreefficient in lobbying than theindustrial lobby this is because thelobbying effort of the environmentallobby also benefits consumers thatremain politically passive

political instability corruption and policy formation the case of environmental policy abstract this paper develops a theory of environmental policy formation taking into consideration the degree of corruptibility and political turbulence the predictions that emerge are that the interaction between the two variables is important political instability has a negative effect on the stringency of environmental regulations if the level of corruption is low but a positive effect when the degree of corruption is high corruption reduces the stringency of environmental regulations but the effect disappears as political instability increases the empirical findings are fully consistent with the predictions of the model

optimal regulation under fixed rules for income distribution abstract it is by now well known that if arbitrary lump sum transfers are feasible then the optimal regulation of firms involves marginal cost pricing here we consider optimal regulation in an economy in which lump sum taxation is possible but the income distribution is in some sense fixed we show that under certain conditions production efficiency and marginal cost pricing are desirable in general however this need not be the case in an economy with increasing returns it is possible that the second best utility possibility frontier is strictly dominated by the pareto frontier and none of the marginal cost pricing equilibria lie on the second best frontier

models of inflation expectations formation a comparison of household and economist forecasts the recent appreciation of the critical role played by expectations of inflation in the behavior of macromodels has stimulated empirical studies of the formation of expectations by different groups time series survey data on expectations of inflation exist now for economists households and businesses these data have been used as independent variables in explaining wage behavior gordon 16 turnovsky and wachter 34 and de menil and bhatta 5 prices turnovsky and wachter 34 and wachtel 36 interest rates gibson 14 hendershott and van horne 19 pearce 30 and mishkin 27 and consumption wachtel 36 generally with a significant improvement in explanatory power they have also been used as dependent variables in attempts to determine how expectations are formed by gordon 15 mullineaux 28 jacobs and jones 20 and figlewski and wachtel 9 for the economist survey van duyne 35 for the household survey and leonard 23 and de leeuw and mckelvey 4 for businesses given their different levels of knowlege of economics and perspectives one might expect that the models used by the different groups to forecast inflation would

rational expectations as long run equilibria tests for indian securities abstract it is recommended that the standard bias test for muth rational expectations should be augmented in the form of a dynamic model amongst other advantages this approach permits the researcher to test unbiasedness as a long run equilibrium of the underlying dynamic adjustment process relating expectations to realizations the approach is applied to a new data set on traders expectations in the madras stock exchange although bias is generally found in the short run the long run equilibrium is consistent with rational expectations in about half the cases studied significant steady state biases are indicated for the remainder

how good are small firms are predicting employment this paper utilises some data from an interview survey of very small firms in the north of england to examine the relationship between actual and forecast employment in small firms over a twelve month period the paper first provides some summary statistics on actual and forecast employment for the survey firms over the reference period it then looks at how successful the firms are in their short term forecasts and finds that there is systematic over estimation the causes of the systematic forecast error are investigated it is suggested tentatively that the firms may in some way be incorrectly interpreting the information embodied in their own employment figures when making their forecasts the paper concludes with a brief review of the results and possible policy implications avenues for future work are also proposed

an extension of the second welfare theorem to economies with nonconvexities and public goods in this paper we report a generalization of the results of foley and guesnerie on the second welfare theorem to economies with arbitrary nonconvex production sets the nature of marginal cost prices in such economies is clarified through the use of the clarke tangent cones

a tale of two collectives sulphur versus nitrogen oxides emission reduction in europe a theoretical model of emission reductions is specified that accounts for voluntary and non voluntary behaviour regarding the adherence to the helsinki and sofia protocols which mandated emission reductions for sulphur s and nitrogen oxides nox respectively from this model we derive an econometric specification for the demand for emission reductions that adjusts for the spatial dispersion of the pollutant when tested for 25 european nations the model performs well for sulphur cutbacks less satisfying results are obtained for nox because the model s assumption of a unitary actor at the national level is less descriptive collective action considerations indicate that sulphur emissions are easier to control than those of nox

the political economy of environmental taxes with an aging population this paper develops a two period overlapping generations model with environmental externalities and uncertain lifetimes and studies how two sources of population aging greater longevity and a lower rate of population growth affect the politically determined environmental tax and the quality of the environment it is shown that greater longevity and a lower rate of population growth have entirely different effects on these factors greater longevity has no effect on the environmental tax and has a non positive effect on the environmental quality whereas a lower rate of population growth has a negative effect on the tax and has a positive effect on the quality in addition the political decision making on the tax leads to an inefficient allocation of capital and environmental quality

international externalities strategic interaction and domestic politics abstract domestic politics can sometimes play an influential role when externalities have strategic and international implications if voters delegate the choice to policymakers and if individual countries independently determine their environmental policy using a consumption tax on the emissions generating good the result could be an outcome that is inferior to the one preferred by the median voter in the absence of delegation on the other hand if the international externality is unilateral in nature rather than reciprocal we find that delegation is largely irrelevant since voters choice of policymaker is no longer strategic in character similarly if voters anticipate policymakers successfully coordinating their policies at a later stage there also will be no difference between the policymakers and the median voters aggregate weighting of environmental emissions

environmentalism democracy and pollution control this paper makes two empirical contributions to the literature based on predictions generated by a lobby group model first we investigate how environmental lobby groups affect the determination of environmental policy in rich and developing countries second we explore the interaction between democratic participation and political electoral competition the empirical findings suggest that environmental lobby groups tend to positively affect the stringency of environmental policy moreover political competition tends to raise policy stringency in particular where citizens participation in the democratic process is widespread

political internalization of economic externalities and environmental policy abstract this paper derives the characteristics of endogenous environmental policy in a common agency model of politics and proceeds to show that competition between lobby groups is an important source of internalization of economic externalities our analysis generalizes bhagwati s principle of targeting to the case of distorted political markets moreover we show that the politically optimal structure of environmental taxes incorporates a pigouvian adjustment however since lobby groups care about the distribution of income as well as about efficiency the equilibrium structure of taxes differs considerably from the pigouvian rule

ioffe s normal cone and the foundations of welfare economics abstract we announce an example of an economy with an infinite dimensional commodity space for which the extension of the second fundamental theorem of welfare economics is valid if marginal rates of substitution are formalized in terms of either the clarke normal cone or the ioffe normal cone but in which the former is strictly contained in the latter this is in direct contradiction to the finite dimensional situation

a coasean general equilibrium model of regulation abstract although marginal cost pricing is necessary for welfare maximization firms that produce under conditions of decreasing average cost incur losses if they price at marginal cost in this paper the coase two part tariff is extended to several cases of common costs by assessing surplus in order to recover the losses of the regulated natural monopolist the existence of equilibria in these cases is demonstrated three models are considered in the context of an arrow debreu private ownership economy a model of the regulated monopolist who charges hookups to both households and firms who use the good a model of the regulated natural monopolist who is allowed to make positive economic profit and finally a model where two or more monopolists are under the control of a single regulator

investment in lumpy capacity abstract investment in lumpy capacity is usually fraught with uncertainty divergent opinions about the future can then lead to adverse selection optimistic competitions tend to be the ones that expand few firms correct this bias formally they rely instead on payback criteria portfolio planning risk sharing and self restraint

auctions or grandfathering the political economy of tradable emission permits despite the prevalence of grandfathered permits we still observe that a hybrid policy in which a fraction of initial emission permits is distributed through auctions is adopted in some cases we also observe that some polluting industries support auctioned permits and that most environmental groups support grandfathered permits this paper attempts to explain these phenomena from the perspective of political economy and investigates the conditions under which grandfathering auctions or a hybrid instrument will be the equilibrium policy by constructing a two stage lobbying game in which the type of policy instrument auction grandfathering or a hybrid instrument is determined in the first stage and then the number of permits is decided in the second stage we highlight the strategic interaction of the lobbying activities between the two stages in explaining the behavior of the lobbying groups

strategic delegation in bargaining abstract principals have the opportunity to delegate to an agent in the context of the nash bargaining model this paper resolves a shortcoming in the related bargaining literature in equilibrium a symmetric outcome typically will not result and multiple equilibria exist

the relationship between the rate of inflation and its unpredictability in high inflation latin american countries pourgerami and maskus pm 1987 find three difficulties in our analysis of the relationship between the rate of inflation p and its unpredictability pf in latin american countries the first of these is a point very well taken namely that the positive relationship we hypothesized might well be offset by a negative one arising because higher rates of inflation could be expected to induce the relevant economic agents to invest more in generating the relevant information in utilizing it efficiently and in developing the instruments capable of hedging against inflation however since any such adjustments would be institutional in nature and take time to be carried out it is obvious that this consideratipn would not be relevant for short run analysis involving year to year or especially quarter to quarter changes in inflation rates as in our analysis the other difficulties namely that quarterly observations are more relevant than annual ones in testing such relationships and that rational expectations re models of the type employed by pm are preferable to adaptive expectations models of the type we used are criticisms more relevant to the short run relation between inflation and its predictability but as we shall presently demonstrate are not persuasive nevertheless since the results presented by pm as they have noted show the relationship between pi and p to be considerably weaker than was indicated in earlier results including our own the substantial difference in results deserves explanation since their time coverage frequent of adjustment of expectations model of esprct ltions and to some extent countr coverage were all different than ours it is not possible to learn from their results the reason for the difference by employing the same time and country coverage as in pm and also an estimation procedure hildreth lu which corrects for autocorrelation and continuing to use a modified version of our adaptive expectations model mae but varying the duration of the periods the results presented in table 1 shed light on the source of the difference as can be seen the use of quarterly instead of annual data does not have a large effect on the results thereby suggesting that pm s use of quarterly data is not the source of their weaker results indeed note that in six of the seven high inflation countries the slope coefficient is larger and more significant when quarterly data are employed than when annual data are employed the largest differences are between the results obtained from our own mae model estimated with quarterly data and those obtained by pm with their re model with the same data in all seven cases the pm estimate of is significantly lower than our own corresponding estimate which estimate is more reliable even if one were to agree in principle with pm that re models are superior to ae models of price expectations the particular re model employed by pm can hardly be considered acceptable let alone superior to our mae model with their 20 right hand side variables i e four lags of each of five different explanatory variables relative to our four right hand side variables it is not surprising that pm havq been able to increase the explained variation of p correspondingly reduc

trade transboundary pollution and foreign lobbying in this paper we explore the use of trade policy in addressing transboundary stock pollution problems such as acid rain and water pollution we show that a tariff determined by the current level of accumulated pollution can induce the time path of emissions optimal for the downstream polluted country but if the upstream polluting country can lobby the downstream government to impose lower tariffs distortions brought by corruption and foreign lobbying lead to a rise in the upstream country s social welfare and to a decrease in social welfare in the downstream country thus the usefulness of trade policy as a tool for encouraging cooperation and internalizing transboundary externalities depends critically on the degree of governments susceptibility to foreign political influence

lobbying political competition and local land supply recent evidence from spain abstract we analyze whether local land supply is influenced by the degree of political competition and interpret the findings as indications of the influence wielded by land developer lobbies we use a new database including both political and land supply data for more than 2 000 spanish municipalities for the period 2003 2007 in spain land use policies are largely a local responsibility with municipalities needing periodically to pass comprehensive land use plans the main policy variable in these plans and the one analyzed here is the amount of land classified for potential development we measure local political competition as the margin of victory of the incumbent government this variable is however potentially endogenous since not only do votes affect policy but also policy is expected to affect votes to deal with this problem we instrument this variable using the votes at the first national legislative elections following the re establishment of democracy and votes actually obtained regionally at the same type of election the results indicate that stiffer political competition does indeed reduce the amount of new land designated for development this effect is found to be most marked in suburbs in towns with a high percentage of commuters and homeowners and in municipalities governed by the left

environmental protection a theory of direct and indirect competition for political influence how is it that environmental groups can have a strong impact on environmental policy but without much lobbying this paper develops a model of direct lobbying the government and indirect persuading the public competition for political influence and finds that they are complementary however an increase in the effectiveness of public persuasion or a rise of public environmental awareness induces substitution between the two the findings establish that the empirical phenomenon of lack of political contribution from environmental groups may not be related to financial constraints but to their greater effectiveness in public persuasion and growing public environmental awareness the size of its economic stake and hence the associated lobbying effort and the efficiency of its organization in exerting political influence how then can we explain why some environmental groups have been very successful against polluting industries when the latter s economic stakes seem very high and they lobby more and their interests are more efficiently organized some might suggest that the reason for the success of the environmental movement is that environmental groups have large memberships and can provide block votes 2 however according to olson 1965 a large membership of an interest group is not necessarily an advantage and it is still uncertain whether environmental groups are able to mobilize their members to cast votes based on such affiliations this paper suggests an alternative explanation by developing a theory of direct and indirect competition between special interests for political influence rather than marshalling block votes a primary feature of our framework is that two opposing interest groups an environmentalist group and an industrialist group compete directly and indirectly for political influence in a three stage game the indirect competition takes place in the first stage in which interest groups exert effort in persuading the public to indirectly influence government policy the direct competition takes place in the second stage in which interest groups exert effort in

optimal pricing of the portuguese telephone service a first attempt is made at finding the optimal two part tariff for portugese telephone service a theoretical model of consumer demand is presented and the two part tariff which maximizes social welfare is derived the model is then calibrated using portugese data and previous econometric studies the optimal long run two part tariff consists of an access charge that is close to twice the marginal cost of access and a usage charge 25 above the marginal cost of use the level of the optimal two part tariff depends mainly on the marginal cost of taxation and on an index of aversion to inequality the structure of the optimal two part tariff depends mainly on the ratio between the marginal consumer s usage level and the average usage level although the cost estimates are very tentative the results suggest that the 1986 usage charge was greater than optimum no similar conclusion can be drawn with respect to the acces charge

on the inefficiency of two part tariffs the partial equilibrium literature on two part tariffs suggests that if a commodity is produced under increasing returns efficiency can be achieved through marginal cost pricing and a suitable choice of entry fees fixed charge which may vary from consumer to consumer we show that this partial equilibrium intuition cannot be extended beyond some special cases even with a consumer specific fixed charge it is possible that none of the equilibria yield pareto efficiency furthermore it may be impossible to achieve pareto efficiency through any specification of taxes which are levied solely to cover losses hotelling 1939 and lerner 1944 among others see for example the surveys by ruggles 1949 1950 argued that firms operating under increasing returns to scale should be regulated to equate their marginal cost to the price of the output and the resulting losses financed through lump sum taxes being concerned primarily with efficiency issues the proponents of the marginal cost pricing principle did not advocate any particular distribution of the lump sum taxes among the consumers after the ensuing debate see for example ruggles 1950 there seems to have been a general agreement that marginal cost pricing is necessary for efficiency while admitting this coase 1946 presented an illuminating analysis of the drawbacks of what he called the hotelling lerner solution and also proposed an alternative solution it will be useful to begin by briefly recalling coase s criticism of the hotelling lerner solution apart from the practical problem of collecting lump sum taxes he emphasized two distinct drawbacks of the hotelling lerner scheme he claimed that this solution would not necessarily guarantee efficiency in the sense that it might lead to a marginal cost pricing equilibrium in which a positive amount of the commodity was produced whereas it would be better not to produce the commodity at all this can be restated simply as the argument that in the presence of non convexities marginal conditions need not guarantee global optimality there may be several marginal cost pricing equilibria some efficient and some inefficient as such this phenomenon can hardly be ruled out coase s second objection to the hotelling lerner solution was that it could effectively alter the income distribution if for instance a lump sum tax was imposed on all the consumers but only some of them consumed the commodity produced by the firm operating under increasing returns to scale then there would effectively be a redistribution in favour of those who consumed this subsidized commodity it was natural to keep the issue of efficiency separate from that of equity and coase argued that the hotelling lerner solution

cost share equilibria a lindahlian approach abstract we offer a new formalization of lindahl s equilibrium notion for public goods which yields an endogenous theory of profit distribution in line with the benefit approach to taxation increasing returns in the production of public goods are not a priori excluded our equilibrium notion coincides with kaneko s ratio equilibrium for economies with only one public good by reinterpreting the commodity space the equilibrium concept can be applied to economies with purely private goods or with externalities in the pure private good case our concept singles out allocations that are efficient and where individual net payments agree with average cost

the formation of price forecasts in experimental markets this study utilizes laboratory experimental methods to evaluate the empirical validity of 1 muthian rational expectations assumptions 2 an adaptive expectations model and 3 an extrapolative expectations model over 5 00 price forecasts from 146 participants in twelve experimental double auction m arkets with a cash reward structure are analyzed the forecasting objective is t hemean price over a sequence of trading periods governed by stationary market parameters the price forecasts are found to be inconsistent with strict muthian rational expectations and the extrapolative modelis not supported by the data however the forecasts generally support the adaptive expectations model copyright 1987 by ohio state university press

political influence on non cooperative international climate policy we analyze non cooperative international climate policy in a setting of political competition by national interest groups in the first stage countries decide whether to link their domestic emission permit markets to an international market which only forms if it is supported by all countries in the second stage countries non cooperatively decide on the number of tradable emission allowances in both stages special interest groups try to sway the government in their favor we find that i both the choice of regime and the levels of domestic and global emissions only depend on the aggregate levels of organized stakes in all countries and not on their distribution among individual interest groups and ii an increase in lobbying influence by a particular lobby group may backfire by inducing a change towards the lobby group s less preferred regime

rational expectations uncertainty and cyclical activity in the british office market this study presents an econometric investigation of office building development in great britain the results show that the cyclical activity in office development measured by the changes in the office building output series compiled by the department of the environment is explained by the changes in hillier parker real office rents and changes in the volume of output in services there is also strong evidence that uncertainty originating in the volatility of rents exerted a negative influence on the rate of office development in the 1990s the study advances further the existing econometric treatment of office building development by undertaking direct tests of rationality and shows that the estimated model produces forecasts which are characterised by rational expectations it is established that information contained in the past history of office building output and variables which are considered to explain its cyclical pattern is efficiently and consistently incorporated the model also suggests

u s interest groups prefer emission trading a new perspective if there is to be environmental regulation what kind of regulation would the main interest groups then prefer this political distortion must be taken into account when designing future environmental regulation such as co2 regulation the three main interest groups in the u s private business environmentalist groups and the electricity sector prefer a grandfathered permit market business is attracted by this solution because free initial distribution of permits both favours existing sources financially and furthermore creates a barrier to entry for new firms environmentalist groups have changed attitudes and promote the idea too as a way of negotiating higher target reduction levels with industry to maintain voluntary contributions from their members finally electric utilities prefer a grandfathered permit market and this step towards less planned economy may be explained by the rise of competition in the u s electricity sector therefore it is suggested that a grandfathered permit market is a more effective policy than a tax in relation to organized interests such as industry electric utilities and environmental organizations in perspective the grandfathered permit market may be mixed with the use of taxes in the case of co2 regulation for example taxes may be applied to badly organized polluters such as households and the transport sector because their lobbying power is weak

the politics of 1992 fiscal policy and european integration the internal market in europe will greatly increase the international mobility of resources how will this affect fiscal policy in different countries we consider taxation of capital in a two country model where a democratically chosen government in each country chooses tax policy higher capital mobility changes the politico economic equilibrium in two ways on the one hand it leads to more tax competition between the countries this economic effect tends to lower tax rates in both countries on the other hand it alters voters preferences and makes them elect a different government this political effect offsets the increased tax competition although not completely

on marginal cost pricing with given tax subsidy rules we provide an existence proof for generalized marginal cost pricing with given tax subsidy rules the novelty is that our approach allows for economic environments where all the generalized marginal cost pricing equilibria are inefficient in the aggregate an example is recalled in order to suggest how non pathological these environments are

endogenous lobby formation and endogenous environmental protection with unilateral tariff reduction this paper studies how one country s decision to liberalize trade affects the political economic structure that determines environmental policy in another country by constructing a political economy model in which the formation of lobby groups and environmental policy are endogenously determined we show that unilateral tariff reductions by a large country importing a polluting good will generate a lobby group with a relatively lower cost of organization in a small country exporting that good a formulated lobby demands an inefficient environmental policy and hence the small country s environmental regulations become less efficient then we show that when a lobby already exists unilateral tariff reductions result in the formation of a rival lobby and consequently make the small country s environmental policy more efficient

on the formation of industry lobby groups abstract this paper provides a step towards a more complete theory of lobbying extending the menu auction model of grossman and helpman grossman g m helpman e 1994 american economic review 84 833 850 a new explanation is proposed for why more concentrated industries more easily overcome the free rider problem inherent in political collective action instead of focusing on transactions costs as olson olson m 1965 the logic of collective action harvard university press cambridge ma we show that more collusive industries with higher collusive profits have a greater incentive to form lobby groups and to contribute to industry lobbying moreover more polluting industries also have a greater incentive to form and contribute to a lobby group

the siting of hazardous waste facilities in federal systems the political economy of nimby this paper offers a new political economy explanation for thepervasive problem of siting hazardous waste treatment facilitiesin federal system we first show that a decentralized systemyields the first best waste treatment capacity level and that acentralized structure gives rise to free riding behavior amonglocal jurisdictions in our model each community seeks toinfluence the central government through political contributions this leads to suboptimal levels of treatment capacity thecapacity is increasing in the compensation level if the marginalbenefit of treatment capacity is sufficiently large and in thegovernment s weight on aggregate social welfare relative tolobbying activities the centralized system can replicate thedecentralized system with a sufficiently high compensation level since compensation has proved difficult a centralized systemfaces greater obstacles than a decentralized system

is perfect price discrimination really efficient welfare and existence in general equilibrium we examine the welfare properties of surplus maximization by embedding a perfectly discriminating monopoly in an otherwise standard arrow debreu economy although we discover an inefficient equilibrium we validate partial equilibrium intuition by showing i that equilibria are efficient provided that the monopoly goods are costly and ii that a natural monopoly can typically use personalized two part tariffs in these equilibria however we find that pareto optima are sometimes incompatible with surplus maximization even when transfer payments are used we provide insight into the source of this difficulty and give some instructive examples of economies where a second welfare theorem holds

comments on monetary policy announcements and expectations evidence from german firms abstract enders et al 2019b find that small expansionary monetary policy surprises lead to increases in firms price and production expectations vice versa for small contractionary monetary surprises for larger monetary surprises of either direction the reaction of price and production expectations tends to be dampened back to zero this finding is explained with a differential size dependent mix in monetary policy surprises as regards their actual monetary policy content and their delphic information content about how the monetary authority views the state of the economy policy conclusions from this result for the conduct of monetary policy and its communication are discussed

comparative politics and environmental taxation abstract in this paper we take a step towards understanding the role of democratic institutions on the level of pollution taxation persson et al j polit economy 108 2000 1121 argue that presidential congressional regimes set lower taxes than parliamentary regimes this conclusion results from the checks and balances built into the former and the higher degree of legislative cohesion in the latter we test this prediction on gasoline and diesel prices using the method of propensity score matching along with data from 86 democratic countries the empirical evidence is consonant with the theory we find that ceteris paribus the average price of super gasoline is 0 14 0 20 less per liter in presidential congressional systems the average price of diesel gasoline is 0 11 0 14 less per liter

environmental research joint ventures under emission taxes the effect of environmentalpolicy depends crucially on the strategicbehavior of firms firms can undertakepollution abatement innovation cooperativelythrough environmental r d joint ventures rjvs environmental rjvs have not onlyenvironmental but also economic impacts threetypes of environmental rjv are discussed inthis paper r d cartelization in which firmschoose r d efforts to maximize the jointprofit rjv competition in which firms sharethe r d fruits to maximize their own profits and rjv cartelization in which firms share r dfruits and maximize the joint profit an r dcartelization minimizes output quantities maximizes the total emission and minimizes thesocial surplus an rjv cartelization with asufficiently high spillover coefficientmaximizes r d efforts minimizes the totalemission and maximizes the social surplus

environmental policy in majoritarian systems abstract this paper sheds new light on the determination of environmental tax policies in majoritarian federal electoral systems such as the u s and derives implications for the environmental federalism debate on whether the national or local government should have authority over environmental taxes in the absence of majority bias the socially preferred policy would be federal district level taxation which accounts both for cross boundary pollution and differences in industry concentration across districts in majoritarian systems however where the legislature consists of geographically distinct electoral districts the majority party at the national or state level favors home districts depending on the location of polluting industries and the associated damages the majority party may therefore impose sub optimally high or low pollution taxes due to a majority bias majority bias can influence the social welfare ranking of alternative environmental tax policies in some cases majority bias may make decentralized or federal uniform taxation the preferred solution

testing for strategic interaction among local governments the case of growth controls this paper helps to fill a gap in the public economics literature by providing empirical evidence on strategic interaction among local governments using the methodology of case et al journal of public economics 52 285 307 1993 the paper focuses on the adoption of growth control measures by cities in california and looks for evidence of policy interdependence in these choices the data are drawn from an elaborate survey of growth control practices in california cities conducted by glickfeld and levine regional growth local reaction lincoln institute of land policy cambridge ma 1992 the survey results are used to compute an index of the stringency of growth controls in each city which serves as the dependent variable for the study

a note on environmental awareness and cross border pollution considering a nash equilibrium in which a developed country chooses the amount of foreign aid and a developing country sets the emission tax rate and the proportion of the received aid allocated to public abatement of pollution it is shown that an increase in the recipient country s environmental awareness will reduce the level of cross border pollution and benefits the donor though its foreign aid is increased

testing the rationality of price forecasts new evidence from panel data this paper tests the rationality of individual price forecasts in a panel of professional forecasters here unlike in most previous studies rationality is not rejected the results here differ because 1 using individual forecasts avoids aggregation bias 2 comparison of forecasts to initial data avoids bias due to data revision 3 the professional forecasters have economic incentives to state their expectations accurately and 4 a new covariance matrix estimator consistent when forecast errors are correlated across individuals is used copyright 1990 by american economic association

two part marginal cost pricing equilibria existence and efficiency two part tariffs are explored in a general equilibrium model with increasing returns to scale two part marginal cost pricing equilibria are not generally paretoefficient the second fundamental theorem of welfare economics may also fail we introduce a notion of consumer surplus as the willingness to pay for access to the increasing returns good the individuals s hookup charge is set to a fixed fraction of his consumer surplus if aggregate consumer surplus exceeds the losses of the regulated monopoly then exact two part marginal cost pricing equilibria exist further for efficient allocations having positive net surplus the second fundamental theorem of welfare economics holds

environmental regulations transfers and trade theory and evidence abstract this paper develops a theory of compensation of producers for the costs associated with environmental regulations we show that the existence of transfers can give counter intuitive effects of environmental policy on both output and trade flows in particular the compensation obtained by producers neutralizes the effect of environmental policy on output and consequently on trade flows this may help explain why previous empirical research has found weak evidence that environmental regulations affect trade patterns the theory is tested using agricultural sector data the evidence supports the hypothesis that environmental regulations and transfers are positively correlated

surprise surprise measuring firm level investment innovations abstract using the ifo investment survey for the german manufacturing sector we construct a forty year panel of firm level investment innovations surprises we document the cross sectional and time series properties of this panel and our main findings are the cross sectional dispersion of investment surprises is countercyclical as is their average within firm time series volatility and both are highly correlated this justifies in part strategies in the literature to use cross sectional moments for the calibration of heteroscedasticity at the same time the cross sectional dispersion of investment is procyclical suggesting a nonsmooth capital adjustment friction at the micro level there is substantial dispersion in within firm volatility a feature consistent with a recent literature on information frictions at the firm level finally the aforementioned second moments of investment innovations are granger caused by recessions but not vice versa rendering simple exogenous uncertainty shocks less plausible as drivers of business cycles

the political economy of trade liberalization and environmental policy a pressure group model where environmental and industry lobby groups offer political support in return for favorable pollution tax policies is used to explain and predict the equilibrium pollution tax in sectors protected by tariffs the political economy effects of trade liberalization are investigated the pollution tax is shown to decrease if the lobbying effort by the environmental lobby decreases more rapidly than by the industry lobby ceteris paribus the level of political conflict falls with trade liberalization pollution may increase because of a reduction of the pollution tax and tax revenues may fall simultaneously as pollution increases the global trading system is currently undergoing another round of multilateral trade liberalization and regional economic integration is occurring in several parts of the world the trade environment link has become an important part of trade liberalization talks it is commonplace for industry representatives to argue that less stringent environmental regulations give less developed countries ldcs a comparative advantage in pollution intensive goods and that industries with high abatement costs will migrate to ldcs environmentalists argue that international differences in environmental laws and regulations may be reduced to their lowest common denominator through political pressure this is not a fear of trade liberalization itself but of the effects of lower trade barriers on the political determination of environmental regulation

when subsidies for pollution abatement increase total emissions in a first best deterministic world it is well known 2 28 30 that a unit tax on emissions equal to marginal damage is an efficient mechanism for internalizing the damages caused by polluting firms a unit subsidy for emissions abated also equal to marginal pollution damage has the same desirable property but only in the short run in the long run such subsidies induce polluting firms to operate at too small a scale and attract an excessive number of new firms to the polluting industry this can have the perverse result that there are more emissions when abatement is subsidized than when it is not nevertheless economists have been reluctant to give up entirely on the subsidy approach recognizing with oates 23 290 that polluters will obviously be far more receptive to measures that assist with the costs of pollution control than to those that place the burden upon themselves it is therefore not surprising that economists have continued to look for and find new justifications for subsidizing pollution control thus mestelman 20 187 argues that the subsidy scheme may be a second best alternative for externality control when the direct taxation alternative is not politically viable mchugh 17 64 shows that subsidies for pollution abatement expenditures can be a useful instrument in the case of cost increasing technological innovations harford 6 demonstrates that subsidies for pollution control inputs may be efficient when enforcement is sufficiently costly harford 7 makes still another argument for subsidies in the case in which the day to day performance of abatement equipment is uncertain but the uncertainty can be reduced by maintenance expenditures finally there are schemes for combining subsidies and taxes 14 26 given the continuing interest in subsidies it is important to examine carefully the disturbing case in which subsidies increase rather than decrease total emissions

trading rules and the environment does equal treatment lead to a cleaner world abstract in this paper we consider a three stage game in the context of a competing exporters model to compare and contrast the effects of discriminatory and uniform most favored nation mfn tariffs on countries choice over environmental standards for varying degrees of pollution spillovers because of the presence of punishment effects and stronger own and cross tariff effects we find that discrimination yields higher standards than mfn and free trade independently of the extent of pollution spillovers when pollution is local and incentives to free ride on other countries abatement efforts are weak we show however that welfare is larger under mfn than under discrimination in a dynamic setting we consider the impact of symmetric and asymmetric treatments on the sustainability of an international environmental agreement iea and obtain that multilateral cooperation is easier to sustain under discrimination than under mfn or free trade

governance and renewable energy investment in mena countries how does trade matter abstract the middle east and north africa mena countries have recently developed renewable energy re markets however their rate of investment in renewable energy remains small compared to other regions in the world despite their relatively abundant endowments particularly in wind and solar while the literature identifies some barriers to investment in renewable energy we assume that the investment of mena countries could be impeded by specific governance factors furthermore we consider recent literature showing that trade openness reduces the negative effects of weak governance in this paper we empirically investigate the link between governance openness and renewable energy investment in the mena region using panel data for 15 mena countries over the period 1996 2013 our results prove that high institutional quality is associated with re investment in mena countries in addition this relationship seems to be conditional on the trade regime our results are robust to several measures of renewable energy investment and governance as well as to an alternative econometric set up

the political economy of pollution taxes in a small open economy abstract this paper develops a positive theory explaining pollution tax policy outcomes in a small open economy the equilibrium tax rate depends on lobby group membership the relative importance of lobbying activities and the tax elasticity of pollution the equilibrium properties are investigated the model is extended to incorporate pollution abatement and a pollution abatement subsidy we show that total pollution may be increasing in the pollution abatement subsidy rate this effect arises because the equilibrium pollution tax rate may be decreasing in the subsidy rate due to altered political influence of the lobby groups in the political equilibrium

trade politics and the environment tailpipe vs smokestack abstract the vast majority of economic research on environmental regulation in open economies focuses on producer generated smokestack pollution we instead consider consumer generated tailpipe pollution we examine how political opposition to environmental regulation varies with a country s trade regime and show that the impact on environmental policy of a move from autarky to free trade can depend critically on who ultimately generates pollution producers or consumers we find that opening to trade may raise industry opposition to smokestack regulation but reduce its opposition to strict tailpipe policy

strategic voting for noncooperative environmental policies in open economies in this paper we construct a political economy model of strategic environmental policymaking with different degrees of product differentiation and different market structures and examine how strategic voting decisions are affected by the choice of environmental policy instruments tax or standard we show that in a cournot market structure voters elect tax setting policymakers who are more green than themselves when product differentiation and or environmental externalities are more prominent in a bertrand market structure they elect more green tax setting policymakers than themselves on the other hand they elect standard setting policymakers who are less green than themselves the results confirm the advantage of the overall use of emission tax over that of emission standard regarding the welfare effect of strategic voting

what does it take to sell environmental policy an empirical analysis of referendum data we analyze the factors that influence the support for environmental policy proposals swiss referendum data show that proposals obtain more yes votes if they do not restrict consumption possibilities directly if they are endorsed by the largest business association if environmental preferences are strong and economic conditions are favorable at the time of the referendum also there are more pro environmental votes in cantons with higher population density on the other hand yes votes do not seem to depend on whether a proposal involves a tax or not

negotiating environmental agreements under ratification constraints abstract we analyze the impact of ratification constraints on the optimal terms of international environmental agreements ieas for this we combine the literature on ieas with the public choice literature on two level games by also incorporating uncertain preferences of the pivotal voter in the ratification stage we make several important contributions i we contribute to a more realistic modeling of the temporal structure of international agreements ii we show a surprising yet intuitive non monotonic relationship between the optimal commitment level and the variance of ratification decisions iii we identify reasons to expect a larger number of countries to join international negotiations than predicted by most of the coalition formation literature based on a representative agent model ratification constraints thereby can improve the welfare gains from stable international agreements

bargaining with noisy delegation principals delegate to an agent in the context of the nash bargaining model but communicate instructions to their agents imperfectly numerical methods are used to find a unique equilibrium in the principals strategies agents fail to agree with a positive probability invoking a secondary mechanism for the resolution of disputes such as arbitration comparative statics are informative the risk sensitivity of the nash bargaining solution is mitigated but not eliminated as uncertainty goes to zero a stable unique limiting equilibrium is identified from the set of multiple equilibria identified in a model in which principals delegate without trembles

the bias towards zero in aggregate perceptions an explanation based on rationally calculating individuals i introduction a central theme in the study of economic behavior is individual rationality or utility maximizing behavior contrary to the accusations of many outside critics the economics assumption of rationality neither denies that information is costly nor implies that decisions are error free rational expectations allows for ignorance but insists on the absence of systematic errors in the aggregate even if some individuals make large underestimates their errors are offset by large overestimates made by others alternatively even if people on average underestimate the effect of some variable during one period they may overestimate its effect at a later date these assumptions form the basis for the standard conclusion that the government cannot systematically outsmart the public the theory and application of rational expectations has generated a vast literature over the last couple of decades it is now well known that the application of rational expectations theory to actual cases may for instance be unsuitable when there are systematic errors in the observed variables when loss functions are not quadratic or when variables are constrained to take only positive values while such limitations may well be problematic these objections have in our view not been very damaging in the sense that rational expectations still provides a natural starting point for much economic analysis like rational expectations this paper takes individual rationality as its central theme yet we reach a radically different conclusion from rational expectations regarding aggregate behavior we demonstrate that individual errors in identifying the relationships among variables cause a downward bias in the aggregate that would be equivalent to the public underestimating the strengths of the true relationships rational expectations has considered the misestimation type of error which can cancel out in the aggregate but with errors in identifying relationships there exists no similar cancelling out effect and thus the public appears to irrationally underestimate the strengths of relationships the paper is organized as follows first we set up a simple formal model to examine the misestimation problem and then contrast it to the identification problem section iii explains why the identification problem can be so important even when a relatively small number of variables are involved section iv reviews empirical evidence of bias in the expectations formation literature as shown in section v our hypothesis can be used to explain political business cycles in a standard aggregate supply and demand framework ii theory in our model individuals acquire knowledge in two steps they first identify the causal relationship between two or more variables and then estimate the strength of that relationship as with herbert a simon s satisficing approach 1959 1979 and the analysis in ronald a heiner 1988 we assume finite intellectual capabilities however our model neither assumes nor implies anything about simon s satisficing approach and the often related concept of bounded rationality instead our inquiry is strictly limited to the consequences of omitting variables and will not address the more ambitious question of what strategies individuals might adopt to improve learning like heiner we distinguish between the reliability of making decisions and the issue of obtaining information heiner shows that while decision making itself might be flawless when individuals face only a very limited amount of information it is optimal for them to choose a larger information set and enter into the imperfect decision zone he provides several different reasons finite channel capacity information complexity and nonlocal information for why the advantage of having much information also translates into more decision error while heiner s model deals with individuals making correct or incorrect decisions his underlying reasoning could equally well be used to motivate our analysis of why a portion of the population fails to appreciate certain economic relationships

product standards trade disputes and protectionism trade disputes over national product standards are a growing source of tension in the international trading system the usual pattern is that a country introduces a new product standard for all sales of a good in its local market which is justified as necessary for consumer or environmental protection importers into the local market however challenge the standard as a disguised barrier to trade or green protectionism the paper develops a two country political economy model to explain such disputes it is shown how the political process can lead to a political failure which takes the form of either too many or too few product standards and disagreement between politicians in different countries over the optimal policy in a second step the model is used to evaluate whether two common proposals to settle or avoid such disputes mutual recognition of standards and harmonization can improve the political process

interest groups trade liberalization and environmental standards in considering a country that imposes a minimum standard on an imported polluting good which generates negative consumption externalities we construct a common agency model in which a domestic environmental group and a foreign industrial lobby can influence the formation of the minimum standard by providing political contributions to the government this paper investigates the effects of trade liberalization on the political equilibrium environmental standard the pattern of trade environmental disutility and social welfare we find that trade liberalization tightens the minimum standard decreases imports of the polluting good and reduces environmental disutilities the importing country s social welfare however does not necessarily increase with trade liberalization the weaker the environmental group s lobbying efficiency or the stronger the foreign firm s lobbying efficiency the more likely it is that trade liberalization will enhance the importing country s welfare