bankable permits for the control of environmental pollution abstract intertemporal trading of emission permits banking is often identified as one of three promising market mechanisms for controlling pollution along with averaging and trading surprisingly the efficiency properties of permit banking systems have not been investigated using a simple optimal control model this paper investigates firms incentives for banking or borrowing emission permits and compares the emission and output streams firms would choose with the socially optimal solution we find that in many cases firms will suboptimally choose excessive damage and output levels in early periods and correspondingly too few in later periods if given the opportunity to freely move emissions between time periods we propose a simple alternative trading scheme we term modified banking that counters this problem and should be no more difficult for an environmental authority to implement than a straigth banking system

price and enforcement effects on cocaine and marijuana demand this article estimates equations for past year cocaine and marijuana use among adult and juvenile respondents of the 1990 97 national household surveys on drug abuse unlike most previous studies we control for the monetary price of marijuana probabilities of arrest for marijuana and cocaine possession and state fixed effects results indicate that cocaine prices are inversely related to adult cocaine and marijuana demand but are unrelated to juvenile drug demand marijuana price effects are always statistically insignificant estimated price effects are inflated when state effects are omitted and increases in each arrest probability diminish both types of drug use jel k42 118 d12 i introduction the responsiveness of cocaine and marijuana demand to changes in their prices is a key determinant of the effectiveness of illegal drug enforcement policy by harassing sellers and seizing drugs enforcement attempts to reduce the consumption of illegal drugs by restricting their supply and thereby raising their prices even if enforcement is able to increase drug prices its success in reducing illegal drug use depends on the elasticity of drug demand with respect to drug prices reciprocally unless this elasticity is close to zero legalization of cocaine and marijuana would likely increase their consumption substantially by drastically reducing their prices a complementary goal of enforcing cocaine and marijuana possession violations is to reduce their demand at prevailing prices this occurs through both incarceration of drug users who will no longer be able to purchase drugs and deterrence of drug consumption by potential users price and enforcement effects may be dissimilar if consumers respond differently to changes in their budget constraints than to changes in expected punishment in particular the relative magnitudes of the responses in drug demand to changes in possession arrest probabilities and prices is an important determinant of how enforcement resources can most efficiently be allocated between buyers and sellers but in spite of this policy relevance there is little direct evidence on the relationship between arrest probabilities for cocaine and marijuana possession and demand for these drugs meanwhile the relationship between the consumption of cocaine and marijuana is both theoretically and empirically uncertain in theory cocaine and marijuana act as substitutes in the production of intoxication but also can provide complementary intoxicating effects empirically this relationship determines whether policies designed to reduce demand for one drug have effects on the other that reinforce or counteract the impacts of policies designed specifically for that other drug for instance marijuana possession arrests more than doubled nationally between 1990 and 1997 both in number and as a fraction of total arrests this might have reinforced any effect of cocaine possession enforcement on cocaine use if the two drugs are complements but had an unintended counteractive effect if they are substitutes this study provides evidence on the impacts of cocaine and marijuana prices and possession violation enforcement on the demand for these drugs we analyze data on past year cocaine and marijuana use among 12 to 39 year old respondents to the annual 1990 97 national household surveys on drug abuse nhsda along with various individual characteristics the set of explanatory variables includes regional prices of cocaine and marijuana state level measures of the probability of arrest for cocaine and marijuana possession and fixed effects for states and years our goals are to estimate the size of the response in the demand for cocaine and marijuana to changes in their prices to do the same with respect to changes in possession violation enforcement intensity and to examine whether unmeasured state characteristics can potentially bias estimated price and enforcement effects

growth and distribution interest in the determinants of the rate growth of different economies is as old as our subject itself book iii of adam smith s an inquiry into the nature and causes of the wealth of nations was subtitled of the different progress of opulence in different nations but the systematic formal modelling of growth took as its inspiration the proposition of harrod 1939 and domar 1946 that a steady state rate of growth was feasible only in fortuitous circumstances it was based on three main assumptions first the amounts of capital and labour needed to produce a unit of output are given by technological requirements in particular the capital output ratio denoted by u is a technological constant second the fraction of net income in the economy that is saved denoted by s is fixed finally potential output from given inputs of capital and labour grows at an exogenous rate determined by technical progress labour supply the only non produced input also grows at an exogenous rate hence the only feasible long run steady state rate of growth is the rate of technical progress plus the rate of population growth the natural rate of growth denoted by n stochastic shocks to potential output are ignored in this model much of equilibrium growth theory has been devoted to understanding the conditions necessary for individual saving and investment decisions to be compatible with the levels implied by the natural growth rate an equilibrium growth path is one along which planned net saving equals planned net investment denote the current level of output by y and the expected change in output by ak planned saving is equal to the product of the saving ratio and the level of net output sk planned investment is equal to the product of the capital output ratio and the expected change in output ijay the expected growth rate of output is ay y and in equilibrium this is equal to s v from the condition that planned saving equals planned investment when

the economics of controlling stock pollutants an efficient strategy for greenhouse gases abstract optimal control theory is applied to develop an efficient strategy to control stock pollutants such as greenhouse gases and hazardous waste the optimal strategy suggests that at any time the marginal costs of abatement should be equated with the present value of the marginal damage of timely unabated emission the optimal strategy calls for increasingly light abatement over time as the pollutant stock accumulates the optimal policy applied to greenhouse gases suggests moderate abatement efforts at present with the potential for much greater future efforts

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

intertemporal permit trading for the control of greenhouse gas emissions this paper integrates two themes in the intertemporal permitliterature through the construction of an intertemporal bankingsystem for a pollutant that creates both stock and flow damages a permit banking system for the special case of a pollutant thatonly causes stock damages is also developed this latter simpler case corresponds roughly to the greenhouse gas emissionreduction regime proposed by the u s department of state as ameans of fulfilling the u s commitment to the frameworkconvention on climate change this paper shows that environmentalregulators can achieve the socially optimal level of emissionsand output through time by setting the correct total sum ofallowable emissions and specifying the correct intertemporaltrading ratio for banking and borrowing for the case ofgreenhouse gases we show that the optimal growth rate of permitprices and therefore the optimal intertemporal trading rate hasthe closed form solution equal to the ratio of current marginalstock damages to the discounted future value of marginal stockdamages less the decay rate of emissions in the atmosphere given a non optimal negotiated emission path we then derive apermit banking system that has the potential to lower net socialcosts by adjusting the intertemporal trading ratio taking intoaccount the behavior of private agents we use a simplenumerical simulation model to illustrate the potential gains fromvarious possible banking systems

a model of intertemporal emission trading banking and borrowing abstract this paper provides a general treatment of emission trading banking and borrowing in an intertemporal continuous time model using optimal control theory the decentralized behavior of firms is shown to lead to the least cost solution attainable under joint cost minimization explicit solutions for the time paths of emissions and permit prices are derived when firms are allowed to both bank and borrow and when firms are only allowed to bank emission permits the policy implications of emission banking and borrowing are discussed

a dynamic model of investment and endogenous growth models of endogenous growth assume that private investment in either physical or human capital yields positive externalities to production possibilities as a whole but what is the structure of such externalities we present a model of learning by watching which implies a nonlinear relationship between productivity growth and the investment rate this results in multiple steady state growth rates in a deterministic setting and in a rich dynamic structure that generates both growth and cycles in a stochastic model calibrated by reference to observable shocks to tax rates in the u k economies with identical structures can experience very different growth rates for long periods the model exhibits pathdependence and history matters

joint implementation and cost effectiveness under the framework convention on climate change abstract the concept of joint implementation is the subject of ongoing negotiations under the framework convention on climate change proponents argue that allowing joint implementation of the objectives of the convention will increase the cost effectiveness with which those objectives are achieved opponents argue that allowing trade in carbon emission credits will reduce the incentive for domestic greenhouse gas emissions reductions and may undermine the commitments of the developed nations to take the lead in achieving climate stabilization this paper examines the argument for joint implementation from the standpoint of cost effectiveness it addresses the determination of incremental costs for abatement options and the assessment of cost effectiveness under complex systemic conditions using national greenhouse gas abatement costing studies from four different nations two developed nations on economy in transition and one developing nation the paper examines both the general claim for cost effectiveness of joint implementation and the implicit assumption that emissions reductions will be easier and cheaper in developing nations and economies in transition than they are in developed countries the results indicate firstly that benefits from joint implementation may be highly dependent on the level of associated transaction costs and secondly that greenhouse gas emission reductions may be considerably cheaper for some developed countries than they are for developing countries the paper stresses the need for well developed methodological guidelines under which both cost and cost effectiveness can be assessed and points to the dangers inherent in allowing ad hoc trading in emissions credits by a heterogenous community of private investors

permit banking in emission trading competition arbitrage and linkage abstract several existing or proposed climate policies have considered bankable permits in a cap and trade c t program that covers beyond a single sector e g electric power or allows the program to link to external c t programs in other regions this paper develops a model of permit banking under imperfect competition and imperfect inter temporal arbitrage in which the firms in one dominant sector can exert market power in both product and permit markets while those in other sectors or linked programs are perfectly competitive a simple analytical model is developed to generate contestable hypothesis we further extend the model to account for the physical power system institutional rules and market conditions and then apply it to the pennsylvania jersey maryland pjm market we show that if the dominant firm has market power then the permit price rises at a higher rate than the discount rate contrary to perfectly competitive permit market where the permit price rises at the discount rate following the classic hotelling s rule furthermore under a declining emissions cap system with the permits front loaded in early time periods the dominant firm has an incentive to suppress the permit prices monopsony when buying the permits in early periods and then inflate the permit prices monopoly when selling them in later periods numerical results of the pjm case are consistent with the analytical conclusion

are supply side drug control efforts effective evaluating otc regulations targeting methamphetamine precursors abstract enforcement efforts are the primary approach to reduce illegal drug use in the u s but evidence on their effectiveness is mixed we provide new evidence on the effectiveness of enforcement efforts by using rich administrative records and the staggered implementation of state laws targeting over the counter medicines that can be used to produce methamphetamine we estimate that the regulations reduced the number of methamphetamine laboratories operating in a state by 36 we find no evidence of changes in methamphetamine consumption or arrests for drug possession suggesting people were able to find methamphetamine produced elsewhere though we find evidence suggesting methamphetamine producers responded to regulation by obtaining precursors from neighboring states that lacked laws they do not appear to have systematically moved production to neighboring states this suggests that production shifted over national borders

the welfare effects of allowance banking in emissions trading programs permitting allowance banking in emissions trading programs can reduce expected compliance costs by giving capped firms flexibility to adjust the time path of abatement and to hedge against future uncertainty recent literature suggests that this compliance cost dividend is significant fell and morgenstern environ resour econ 47 275 297 2010 allowance banking may yield an environmental dividend a if the growth rate of marginal damages from emissions is less than the discount rate and b if emissions are lower in the short run as firms bank permits for use in later periods a discrete stochastic dynamic programming model is considered to simulate the two dividends of allowance banking in the context of the most recent federal united states greenhouse gas cap and trade legislation simulation results show that under a range of parameter values the environmental dividend has the same order of magnitude as the compliance cost dividend under the central set of parameters allowance banking increases expected present value of benefits by about 350 million dollars per year of the program the environmental dividend however is completely eliminated if capped firms can borrow permits from future periods without limit

policing cannabis and drug related hospital admissions evidence from administrative records abstract we evaluate the impact of a policing experiment that depenalized the possession of small quantities of cannabis in the london borough of lambeth on hospital admissions related to illicit drug use to do so we exploit administrative records on individual hospital admissions classified by icd 10 diagnosis codes these records allow the construction of a quarterly panel data set for london boroughs running from 1997 to 2009 to estimate the short and long run impacts of the depenalization policy unilaterally introduced in lambeth between 2001 and 2002 we find that the depenalization of cannabis had significant longer term impacts on hospital admissions related to the use of hard drugs raising hospital admission rates for men by between 40 and 100 of their pre policy baseline levels the impacts are concentrated among men in younger age cohorts the dynamic impacts across cohorts vary in profile with some cohorts experiencing hospitalization rates remaining above pre intervention levels three to four years after the depenalization policy is introduced we combine these estimated impacts on hospitalization rates with estimates on how the policy impacted the severity of hospital admissions to provide a lower bound estimate of the public health cost of the depenalization policy

does increasing the beer tax reduce marijuana consumption previous studies suggest that alcohol and marijuana are economic substitutes so recent policies restricting the availability of alcohol have led to an increase in the amount of marijuana consumed using micro level data from the national longitudinal survey of youth nlsy to estimate individual demand equations for alcohol and marijuana this research finds that alcohol and marijuana are economic complements not substitutes further this research finds that increases in the federal tax on beer will generate a larger reduction in the unconditional demand for marijuana than for alcohol in percentage terms

panic on the streets of london police crime and the july 2005 terror attacks in this paper we study the causal impact of police on crime by looking at what happened to crime before and after the terror attacks that hit central london in july 2005 the attacks resulted in a large redeployment of police officers to central london boroughs as compared to outer london in fact police deployment in central london increased by over 30 percent in the six weeks following the july 7 bombings during this time crime fell significantly in central relative to outer london study of the timing of the crime reductions and their magnitude the types of crime which were more likely to be affected and a series of robustness tests looking at possible biases all make us confident that our research approach identifies a causal impact of police on crime implementing an instrumental variable approach shows an elasticity of crime with respect to police of approximately 0 3 so that a 10 percent increase in police activity reduces crime by around 3 percent

transitional restricted linkage between emissions trading schemes linkages between emissions trading systems are deemed an important element of the future climate policy landscape they are however difficult to agree and remain few and far between temporary restrictions on permit trading have potential to facilitate and gradually approach unrestricted full linkage we compare the relative merits of several link restrictions in this respect namely quantitative transfer limits border taxes on transfers exchange and discount rates and unilateral linkage to this end we develop a simple model to have a unifying framework which in conjunction with lessons we draw from real world experiences serves as a basis for a broader policy oriented discussion while quantitative restrictions seem to be the natural route to full linkage they can lead to uncertain distributional effects and weaken price signals these aspects are mitigated under a border permit tax but this policy seems harder to implement exchange rates have potential to adjust for programmes stringencies and raise ambition over time but can be challenging to select as experience corroborates unilateral linkage can be a convenient approach

banking and borrowing in the eu ets a review of economic modelling current provisions and prospects for future design this article deals with the issue of banking and borrowing in the context of the european union emissions trading scheme eu ets by attempting to provide a policy oriented unifying theoretical framework after describing the main features of the eu ets the core part of the article consists of variations of an inter temporal continuous time optimization model additional elements include flexibility measures currently discussed and proposed in other emissions trading systems usa australia which include the use of safety valves minimum price auctioning or offsets from domestic or international projects

the demand for cocaine by young adults a rational addiction approach abstract this paper applies the rational addiction model to the demand for cocaine by young adults in the monitoring the future panel the price of cocaine is added to this survey from the drug enforcement administration s system to retrieve information from drug evidence results suggest that annual participation and frequency of use given participation are negatively related to the price of cocaine in addition current participation frequency is positively related to past and future participation frequency the long run price elasticity of total consumption participation multiplied by frequency given participation of 1 35 is substantial

a tradable permit system in an intertemporal economy it is known that in an intertemporal competitive economy a tradable permit system may not achieve efficiency without setting appropriate permit interest rates i e rewards for holding permits to find the rates however we need to know in advance the path of efficient permit prices which is difficult to obtain this study intends to solve this problem in two ways first we analyze a special case in which the permit interest rates are given by a simple rule for example if the marginal abatement cost of pollution emission is constant then the appropriate rate is to equal the monetary interest rate as is the case for global warming if the damage is caused in the future far beyond the planning period of the environmental program the appropriate rate coincides with the marginal self recovery of environmental stock under certain conditions as a second approach we propose a tradable permit system with a permit bank as a mechanism by which the permit interest rates are generated endogenously without governmental intervention other than the issuance of permits however we also show that this approach raises the problem of indeterminacy of the equilibrium

alternative approaches to cost containment in a cap and trade system we compare several emissions reduction instruments including quantity policies with banking and borrowing price policies and hybrid policies safety valve and price collar using a dynamic model with stochastic baseline emissions the instruments are compared under the design goal of obtaining the same expected cumulative emissions across all options based on simulation analysis with the model parameterized to values relevant to proposed us climate mitigation policies we find that restrictions on banking and borrowing including the provision of interest rates on the borrowings can severely limit the value of the policy depending on the regulator chosen allowance issuance path although emissions taxes generally provide the lowest expected abatement costs a cap and trade system combined with either a safety valve or a price collar can be designed to provide expected abatement costs near those of a tax but with lower emissions variance than a tax consistently a price collar is more cost effective than a safety valve for a given expected cumulative emissions outcome because it encourages inexpensive abatement when abatement costs decline

does distribution matter efficiency equity and flexibility in greenhouse gas abatement this paper analyses banking and borrowing ofcarbon emission rights within the framework ofa simple integrated assessment model breaking the world economy in just two regionsit will be shown 1 increasing intertemporal flexibility in greenhouse gasabatement through banking and borrowing ofcarbon emission permits has a positive effecton welfare for regions with a poor endowment incarbon emission rights but negatively affectsrich endowed regions 2 intergenerationalfairness advocates intertemporal flexibility ingreenhouse gas abatement irrespectively of theinitial allocation of carbon rights 3 optimal carbon accumulation is not independentof the initial allocation of carbon rights different initial sharing rules clearlyinfluence the development of atmospheric carbonconcentration

a regional dynamic general equilibrium model of alternative climate change strategies outcomes and noncooperative equilibria this study finds that cooperative policies show much higher levels of emissions reductions than do noncooperative strategies that there are substantial differences in the levels of controls in both the cooperative and the noncooperative policies among different countries and that high income countries may be the major losers from cooperation jel h41 q4 q2 q20

taxation and uncertainty while taxes may be certain u s tax policy has certainly not been furthermore intrinsic economic risk makes investment decisions risky therefore a serious examination of the effects of tax policy on dynamic economic behavior should consider both sources of uncertainty this paper presents a simple theoretical and computational model that can analyze both intrinsic risk and uncertain taxation furthermore it will be clear that these techniques will be useful for examining general problems of taxation and risk when studying the impact of past and or proposed tax changes one of two extreme assumptions are usually made either agents are perfectly aware of future tax policy a perfect foresight assumption or they always believe that no change will ever occur a myopic foresight assumption these two assumptions yield substantially different views of recent tax experience as alan auerbach and james hines 1987 demonstrate in a partial equilibrium context both are clearly wrong the myopic specification assumes that individuals believe at each point in time that the current tax law will surely continue forever even after they have been hit repeatedly with tax changes on the other hand it is absurd to think that in say 1977 a significant number of individuals perfectly knew the various tax changes that would occur during the following decade this paper analyzes a dynamic general equilibrium model wherein taxpayers understand the uncertainty in tax policy when making their deci