armington models and terms of trade effects some econometric evidence for north america elasticities of substitution among u s imports from mexico canada the rest of the world and competing domestic production are estimated for twenty two mining and manufacturing sectors based on quarterly data for 1980 88 these elasticities will provide a benchmark for computable general equilibrium models of north american trade liberalization the authors also find that estimated armington elasticities are low and therefore researchers may want to reconsider the device of using high values of armington elasticities in multicountry computable general equilibrium models to avoid large terms of trade losses associated with preferential trade liberalization

community based tradable permits for localized pollution this paper considers the assignment of tradable permits representing property rights of an environmental good to community members who are harmed by pollution generated by firms these community members can in turn sell permits to polluters according to their personal preferences for a special case with a sole household market transactions between the household and polluters achieve an efficient pollution level however for a group of households the decentralized market solution fails to yield social efficiency because of competitive consumption of the environmental goods we design a revenue sharing mechanism akin to unitization under which market transactions also achieve efficient resource allocation importantly in some cases efficiency can be achieved even when regulators are ignorant of the private valuation of the environmental good

effluent regulation and long run optimality a regulator faced with free entry of firms is concerned not only with the implications of public policy for the discharges from a representative firm but also with the total pollution observed at the long run market equilibrium the regulator must take into account not only the effects of regulations upon the net marginal returns of the firm but must also consider the total profit of the firm and incentives for entry and exit this paper shows that effluent charges and tradeable effluent permits lead to long run optimality with entry of small firms the difference between firm payments and environmental damages is interpreted as the rent accruing to the environmental resource this result applies only to the competitive case with small polluters the analysis presented here allows a comparison and clarification of the literature on small and large polluters in a multi input framework with social damages dependent upon total effluents effluent charges are shown here to result in socially optimal entry confirming an assertion of baumol and oates 2 p 179 fn 161 and the important result of schulze and d arge 15 by taking average as well as marginal damages into account the effluent charge results in optimal firm scale levels and the correct input mix at the free entry market equilibrium the firm subject to an effluent tax will operate above or below the private minimum efficient scale depending upon whether average external costs exceed or are less than marginal external costs since public policy to reduce effluents is often directed at reducing the effluentgenerating activity some policy recommendations include a tax on the final output of the polluting firm in some theoretical analyses a relation between the output of the firm and the effluent level is identified and a pigouvian output tax is applied this approach should not be followed by policymakers since an output tax does not provide firms with the correct incentives for either input substitution or market entry it is shown that while a lump sum transfer is needed to provide correct entry incentives when a pigouvian output tax is applied no such transfer is needed if the tax is correctly applied to effluents contrary to 5 even if optimal firm scale and i thank the referees for helpful suggestions the support of the national science foundation under grant ses 82 19121 is gratefully acknowledged any errors are my responsibility 103

avoiding an ecological regime shift is sound economic policy we extend the shallow lake model by adding the capital stock of an industry a government can mitigate the effects of pollution arising from industrial activities by imposing the requirement to abate emissions within this framework two scenarios are examined in the social optimal benchmark the social planner optimally allocates investment in the competitive equilibrium market forces determine the investment in capital but the government can still abate emissions we find that irreversible environmental regime shifts are avoided in the competitive equilibrium by means of a static level of abatement when it is socially optimal to do so

in the shadow of the vote decision making in the european community scholarship on the european community ec focuses particular attention on how formal voting rules and institutional reform condition decision making outcomes the predominant view of ec history holds that decision making remained paralyzed until institutional reforms in 1987 and 1992 restored and expanded adherence to majority voting rules which in turn unblocked and expedited ec legislative efforts in this study i challenge these fundamental assumptions using comprehensive data for 1974 95 and a series of quantitative assessments including event history analysis i show that decision making in the 1970s was anything but paralyzed that the impact of the luxembourg compromise has been greatly overstated that institutional reforms actually encumbered rather than eased the ec legislative process and that institutional effects are mediated by the underlying distribution of member state preferences the findings have important implications for our understanding of the history and future trajectory of european integration and highlight the applicability of standard political science theories and methods to the study of the ec

designing economic instruments for the environment in a decentralized fiscal system designing economic instruments for the environment when external effects are important markets will be inefficient and economists have considered several broad classes of economic instruments to correct these inefficiencies however the standard economic analysis has tended to neglect important distinctions and interactions between the geographic scope of pollutants the enforcement authority of various levels of government and the fiscal responsibilities of the levels of government for example externalities generated in a particular local area may be confined to the local area or may spill over to other jurisdictions also local governments may be well informed about how best to regulate or enforce pollution control within their jurisdiction but they may not consider the effects of their actions on other jurisdictions finally the existence of locally generated waste emissions affects the appropriate assignment of both expenditure and tax responsibilities among levels of government the standard analysis therefore focuses mainly upon an aggregate or national perspective it typically ignores the possibility that the externality may be created and addressed by local governments and it does not consider the implications of decentralization for the design of economic instruments targeted at environmental problems this paper examines the implications of decentralization for the design of corrective policies that is how does one design economic instruments in a decentralized fiscal system in which externalities exist at the local level and in which subnational governments have the power to provide local public services as well as to choose tax instruments that can both finance these expenditures and correct the market failures of externalities

a general model of rent seeking for public goods this paper generalizes the model of collective rent seeking over a public good expanding the rent seeker s consumption bundle to include preferences over the public good and a private good our results suggest collective rent seeking is positively related to group size although free riding exists within a group there is not a one for one tradeoff in addition rent seeking increases with wealth finally total effort expended by both groups increases if either group increases in membership size except in the case of an extremely lopsided contest the key condition underlying these results is that the marginal utility of the public good is not inversely related to the private good

global trading versus linking architectures for international emissions trading abstract international emissions trading is widely seen as an indispensable policy pillar of climate change mitigation stern n 2007 the economics of climate change the stern review cambridge university press new york this article analyzes five different types of trading architectures classified into two top down unfccc driven and three bottom up driven by individual countries or regions approaches the two types of approaches are characterized by a trade off between environmental effectiveness and political feasibility respectively whereas their relative cost effectiveness depends on implementation details bottom up architectures constitute imperfect substitutes for top down architectures in terms of environmental effectiveness and thus remain mere fallback options however especially the formal linking architecture can act as complement in terms of cost effectiveness

the eastern enlargement of the european union this paper examines the prospects and problems of eastern enlargement it argues that considerations of stability and long run prosperity are the primary reasons why the eu has promised to enlarge eastward and why the central and eastern european nations wish to join while high politics prompted this promise opposition from eu special interest groups is likely to delay fulfilment of the promise for many years if this is the case europe should create a series of intermediate steps that would permit the reintegration of europe to proceed apace if a quick enlargement does occur eu politics is likely to become much more complicated the ceecs would have many votes in the council of ministers yet they would be very different economically to the average eu incumbent

fiscal federalism approach for controlling global environmental pollution this paper finds that optimal international carbon taxes are country specific and we can decompose a tax on a domestically produced carbon intensive commodity into a revenue tax a tax to control local atmospheric pollution and an international carbon tax it shows that an institutional arrangement for the world economy similar to the fiscal federalism in the federal countries can be useful to internalize the global externalities of atmospheric pollution

externalities a market model failure we focus here on a set of conceptual problems related to the accepted theory of externalities we are primarily concerned with difficulties that arise when a theoretical system is extended beyond its logical domain this is the practice in externality theory when the market model assuming independent agents is used to analyze physical interdependency the different kinds of dependencies obscure the standard use of the paretian analysis as the issues of rights and efficiency are mixed up the creation of emissions and the creation of externalities are further not held apart producing flows in the efficiency evaluations due to the interdependencies involved actions of both emitter and victim must be taken into account while searching for efficient policies finally we analyze the interrelationships between what is termed the internal structure of the market model and the annexed sphere of externalities we conclude that the accepted policy prescriptions both assume and demand no interrelationships between these two spheres we find the assumption unrealistic and inconsistent as concerns the basic foundations of the market model there are two main traditions addressing externalities the coasean and the pigovian this paper shows that both are vulnerable to the above critique thus the presumption that externality theory is now settled and coherent is seen to be without theoretical support

voting power in the ec decision making and the consequences of two different enlargements abstract in this paper we study the voting power in the council of ministers of the ec the purpose of this paper is twofold first to evaluate the voting power for the member states of today s community and second to analyse the balance of power after two different enlargements of the community the analysis is based on the shapley shubik and the banzhaf power indices of simple cooperative games the modified version of the shapley shubik index is used to analyse how the sub systems of the ec can change the distribution of power in the decision making process

pigovian taxes which work in the small number case abstract an appropriately conceived pollution tax can achieve a pareto optimal equilibrium which is 1 stable in the presence of myopia 2 not subject to strategic manipulation even in the small number case and 3 resistant to inefficient cost shifting by the participants when transaction costs are low a considerable amount of confusion in the literature exists because different authors use different tax formulas often implicitly and different assumptions regarding conjectural behavior some of this confusion is cleared up by formally presenting various pigovian tax formulas explicitly considering whether there is cournot or stackleberg behavior and comparing the properties of the various configurations

trade policy options for chile this article uses a multisector multicountry computable general equilibrium model to examine chile s strategy of additive regionalism negotiating bilateral free trade agreements with all of its significant trading partners taking chile s regional arrangements bilaterally only its agreements with northern partners provide sufficient market access to overcome trade diversion costs due to preferential market access however additive regionalism is likely to provide chile with gains that are many multiples of the static welfare gains from unilateral free trade at least one partner country loses from each of the regional agreements considered and excluded countries as a group always lose gains to the world from global free trade are estimated to be vastly larger than gains from any of the regional arrangements

the demand for ldc exports of manufactures estimates from hong kong exports of manufactures from developing countries are generally believed to be sensitive to changes in the level of income in the developed countries their major market this belief is grounded on both casual observation especially from the experience of recent recessions and on extensive econometric evidence of low price elasticities and high income elasticities of demand for ldc exports in developed countries this paper argues that both casual observation and previous econometric evidence are misleading the aim of the paper is to show the order of magnitude of the bias contained in previous econometric estimates of price and income elasticities of demand for ldc exports of manufactures due to neglect of supply side influences previous econometric work has neglected the supply side of ldc exports for the simple reason that it is difficult to model it is difficult to model properly the supply of aggregate ldc exports since the determinants of export supply differ from country to country even for a single country modelling export supply is complicated since in addition to foreign demand and domestic supply exports are determined in part by domestic demand for exportables furthermore in most ldcs the incentive to export is strongly influenced by complex and continually changing industrial and trade policy measures there is one major exception hong kong one of the developing world s largest and most successful exporters of manufactured goods the manufacturing sector in hong kong is almost completely specialised exporting 95 of output consequently domestic demand plays no part in determining the volume of exports furthermore factor markets and the manufacturing sector are almost completely free from government intervention the main exception being the textile export restraints imposed at the insistence of importing countries the voluntary restraint agreements vras to which hong kong is subject no doubt affect the composition of exports but not necessarily the volume of aggregate exports if resources in the restrained sectors can easily be redeployed elsewhere in the economy judging from past export growth rates the vras do not appear to have had a significant effect on aggregate export growth in hong kong the results reported below also suggest that hong kong has effectively circumvented the trade barriers it faces the hong kong manufacturing sector in many ways resembles a firm in the

bargaining in legislatures bargaining in legislatures is conducted according to formal rules specifying who may make proposals and how they will be decided legislative outcomes depend on those rules and on the structure of the legislature although the social choice literature provides theories about voting equilibria it does not endogenize the formation of the agenda on which the voting is based and rarely takes into account the institutional structure found in legislatures in our theory members of the legislature act noncooperatively in choosing strategies to serve their own districts explicitly taking into account the strategies members adopt in response to the sequential nature of proposal making and voting the model permits the characterization of a legislative equilibrium reflecting the structure of the legislature and also allows consideration of the choice of elements of that structure in a context in which the standard institution free model of social choice theory yields no equilibrium

reformulating taxes for an energy transition abstract an energy transition toward clean energy sources would reduce environmental impacts one proposal to trigger this energy transition uses economic instruments particularly environmental taxes this research studies the potential impact of taxes on electricity on the environment and the economy using a dynamic computable general equilibrium model for spain with energy and environmental extensions we assess their current impact on gdp growth energy use and a set of different pollutant emissions then we propose a reform that would foster an energy transition toward clean energies and assess their economic and environmental impact we find that only taxing the production of electricity by coal oil and natural gas can be better for the environment and economy than taxing all forms of electricity production in a revenue neutral context moreover the production of electricity by biomass though considered renewable is an important source of pollutant emissions and in these terms should have less importance in an energy transition

production externalities and long run equilibria bargaining and pigovian taxation this paper analyzes bargaining and pigovian taxation solutions to inefficiencies from production externalities with free entry the coase theorem fails in a decentralized context but remains valid if the property rights holder can act like a command economy planner a less powerful price taking rights holder s objective function is nonconcave causing an inefficient bargaining outcome bargaining complicates pigovian taxes with a nonlinear tax scheme required to sustain the optimum polluting firms pay a franchise tax whose revenue is given lump sum to consumers and face a marginal charge only on excess output which thus raises no revenue in equilibrium

free riding carbon treaties and trade wars the role of domestic environmental policies this paper uses a calibrated general equilibrium model of north south trade with carbon emissions to explore the strategic open economy implications of price and quantity based instruments for co2 emission reduction we compute non cooperative environmental and trade policy equilibria and nash bargaining outcomes in environmental policies with side payments of cash results show that quotas can lead to higher internalization levels in a non cooperative zero tariff equilibrium in comparison with emission fees if tariffs are also chosen non cooperatively the form of policy instrument used affects equilibrium tariffs with quotas leading to lower trade barriers particularly under a regional carbon treaty

pigou and coase in retrospect this paper documents through direct quotation and mathematical analysis the parallels between both the logic and the policy conclusions of a c pigou and r h coase it is shown that pigou s analysis encompasses the essential features of both the nature of the firm and the problem of social cost but more importantly pigou lays out the logical connection between the two an underlying theme is that particularly in the case of pigou much substance has been lost in mathematical translation had that substance not been forgotten the 1960 coase would not have had to attack pigou c 1993 academic press inc copyright 1993 by oxford university press

sharing the cost of global warming due to meteorological factors the distribution of the environmental damage due to climate change bears no relationship to that of global emissions we argue in favor of osetting this discrepancy and propose a global insurance scheme to be ncanced according to countries respon sibility for climate change because ghg decay very slowly we argue that the actual burden of global warming should be shared on the basis of cumulated emissions raher than sharing the expected costs of actual emissions as in a pigovian taxation scheme we characterize new versions of two well known cost sharing schemes by adapting the responsibility theory of bossert and fleurbaey 1996 to a context with externalities j e l classi cation d62 d63 q54

behavior in group contests a review of experimental research group contests are ubiquitous some examples include warfare between countries competition between political parties team incentives within firms group sports and rent seeking in order to succeed members of the same group have incentives to cooperate with each other by expending individual efforts however since effort is costly each member also has an incentive to abstain from expending any effort and instead free ride on the efforts of other members contest theory shows that the intensity of competition between groups and the amount of free riding within groups depend on the group size sharing rule group impact function contest success function and heterogeneity of players we review experimental studies testing these theoretical predictions almost all studies of behavior in group contests find significant over expenditure of effort relative to the theory we discuss potential explanations for such over expenditure including the utility of winning bounded rationality relative payoff maximization parochial altruism and social identity despite over expenditure most studies find support for the comparative statics predictions of the theory with the exception of the group size paradox finally studies show that there are effective mechanisms that can promote within group cooperation and conflict resolution mechanisms that can de escalate and potentially eliminate between group conflict

externalities in a regulated industry the aircraft noise problem airline noise is an externality in the traditional sense of being a byproduct of normal economic activity it affects the population around airports in single event bundles and cumulatively the transient nature of noise itself is unlike most other externalities as with the others however general improvements in technology and increases in population have made the situation more difficult to tolerate the combination of these things has led to a critical situation for the affected population since it involves its physical and mental health from among the various methods of dealing with externalities we choose the effluent charge scheme it generally allows each firm to incorporate the environmental standard into its marginal operating choices if each firm makes efficient decisions then the cost to society of achieving an environmental standard will be a minimum in this paper there are two modifications of the traditional charge scheme one is that because of the well known difficulties in specifying and estimating social costs we use the estimated direct noise abatement costs of achieving the environmental standard the second is that airlines cannot be necessarily thought of as cost minimizers the charges used for the control of airline noise are generated as shadow prices in a simple linear programming model solution to the problem involves choosing a mix of noise abating options that achieves proposed environmental standards at least cost additional bounds on the problem are limitations on service reductions and rate of return ror oni investment regulation the data sources used for the program were generally fragmentary and incomplete for our purposes after calculating a noise charge for a hypothetical airport we discuss the implementation and ramifications of the charge plan in the regulated airline industry included is a discussion of the link between noise abatement and fuel consumption

carbon abatement in the fuel market with biofuels implications for second best policies a carbon tax on fuel would penalize carbon intensive fuels like gasoline and shift fuel consumption to less carbon intensive alternatives like biofuels since biofuel production competes for land with agricultural production a carbon tax could increase land rents and raise food prices this paper analyzes the welfare effect of a carbon tax on fuel consisting of gasoline and biofuel in the presence of a labor tax with and without a biofuel subsidy the market impacts of a carbon tax are also compared with that of a subsidy findings show that if a carbon tax increases biofuel demand the tax interaction effect due to higher fuel prices is exacerbated by higher land rent and food prices and greater erosion of the carbon tax base thus the second best optimal carbon tax for fuel is lower with biofuel in the fuel mix especially if biofuel is subsidized

the effect of production versus consumption based emission tax under demand uncertainty abstract emission tax is an instrument widely adopted by countries and regions to incentivize emission abatement by emission intensive firms including manufacturers however policies differ in how they allocate emission responsibilities among stakeholders for example the chile emission tax directly penalizes manufacturers for the emissions they generate during their production production based emission tax whereas the sweden electricity emission tax penalizes the consumption of electricity rather than its production consumption based emission tax these two methods have potentially varying implications on manufacturers profits their emission abatement decisions as well as the resulting emission levels especially when demand uncertainty is involved in this paper we investigate the impact of the two distinct methods by studying a profit maximizing manufacturer facing stochastic demand under either production or consumption based emission tax the manufacturer s optimal decisions on its selling price production quantity and emission abatement investment are derived perhaps surprisingly we show that under either tax it is possible for an increase in the emission tax to discourage the manufacturer from investing in emission abatement the impact of tax rate abatement technology efficiency and demand uncertainty on the manufacturer s profitability and abatement decision are also studied interestingly higher demand uncertainty may motivate the manufacturer to invest more in emission abatement under production based emission tax using a numerical example of an electricity power generator we offer further insights into the comparison between the two taxes and find that there exist cases for either tax to dominate the other in terms of both profit and emissions

the economics of renewable energy support abstract this paper uses theoretical and numerical economic equilibrium models to examine optimal renewable energy re support policies for wind and solar resources in the presence of a carbon externality associated with the use of fossil fuels we emphasize three main issues for policy design the heterogeneity of intermittent natural resources budget neutral financing rules and incentives for carbon mitigation we find that differentiated subsidies for wind and solar while being optimal only yield negligible efficiency gains policies with smart financing of re subsidies which either relax budget neutrality or use polluter pays financing in the context of budget neutral schemes can however approximate socially optimal outcomes our analysis suggests that optimally designed re support policies do not necessarily have to be viewed as a costly second best option when carbon pricing is unavailable

the free trade epidemic of the 1860s and other outbreaks of economic discrimination why was there an abrupt increase in economic openness in europe in the 1860s this increase may have been the result of a contagion process in which the cobden chevalier treaty between britain and france threatened to displace third party exports to fra nce with british exports as a result most european states signed similar treaties with france which had further ripple effects this article outlines a formal model of this process based on the assumption that an agreement between two states incre ases the desirability of similar treaties to third parties propositions regarding the rate and pattern of spread of treaties are derived from this model this article then discusses the insights these propositions may offer into the rise and fall of the most favored nation network of treaties between 1860 and 1929 at a theoretical level the model aims to link the microlevel processes underlying state preferences to system level phenomena at a substantive level this analysis offers insight into the current explosion of regionalism

production uncertainty and pollution there has been considerable interest in two sector models in which the production of one of the goods is subject to uncertainty the major papers in this area are by rothenberg and smith 13 batra 1 britto 3 diamond 5 mills 12 and harford and park 8 in the latest of these papers harford and park 8 41 build on a model in mills 12 to show that if constant relative risk aversion r which is mathematically analogous to the pratt arrow measure is less than exceeds or equal to unity the direction of efficient resource flow under uncertainty as compared to certainty is away from the risky sector toward the risky sector or unchanged respectively in their model as in mills 12 the preferences of consumers are represented by a community expected utility function in the present two sector model the risky sector is an industry that is adversely affected by air pollution which is a by product of production in the other industry although there is a deterministic relation between the output and emissions of the polluting stable sector the damage caused to the other sector as a result of any given level of emissions depends upon random variables such as mixing height and wind velocity and is therefore stochastic it is not intuitively obvious whether the results of harford and park 8 hold if the uncertainty in the risky sector is the consequence of production in the stable sector in fact there is substantial dissimilarity in the results if the measure of risk aversion r is less than unity the efficient direction of resource flow is generally though not always toward the risky polluted sector if r equals unity the results also differ with resources shifting under uncertainty in the direction of the risky polluted sector only if r exceeds unity are the results always the same in both models with resources flowing toward the risky sector this paper presents the marginal condition such that under uncertainty the optimal combination of outputs includes less of the stable polluting good and more of the risky pollution sensitive good than would be the case if pollution damage were anticipated with certainty if this marginal condition does not hold the risk averse community may prefer either more or less of the polluting good a narrowed interpretation of the marginal condition is then used to predict the special case in which the efficient flow of resources under uncertainty is toward the polluting sector

demand and supply factors in the determination of nie exports a simultaneous error correction model for hong kong a comment v a muscatelli t g srinivasan and d vines 1992 purported to refute j riedel s 1988 finding that hong kong is a small price taking country in world markets this comment shows however that muscatelli srinivasan and vines s results are due entirely to an unjustifiable restriction they imposed on the estimated export demand equation and not the result of using a superior estimation technique as they asserted copyright 1994 by royal economic society

endogenous sharing rules in collective group rent seeking this paper examines the possibility of endogenous determination of intra group sharing rules in a collective group rent seeking game collective group rent seeking is considered as a two stage nash cournot game in which sharing rules are determined prior to individual decision on voluntary contribution the solution is subgame perfect and is obtained by backward induction in competition between two groups of the same size the nash equilibrium sharing rule of each group is to distribute rent to each according to relative effort total rent seeking outlays in this case are equal to those obtained by tullock 1980 when more than two groups compete for a rent the sharing rule based on relative effort is again likely to be the nash equilibrium strategy of each group the amount of total rent seeking outlays is also equal to that in tullock 1980 in a nutshell the rent is substantially dissipated if sharing rules are endogenously determined

externality regulation and the monopoly firm abstract differences in strategic assumptions lead to predictable variations in the conclusions one may draw the formal theory of monopoly power and externalities reflects this variability in assumptions and conclusions this paper contains a unified model of monopoly power marketable product output and externality abatement

collective rent dissipation the theory of rent seeking was initiated by tullock 1967 1980 followed by krueger 1974 and posner 1975 and more recently extended in various directions by allard 1988 appelbaum and katz 1986a b c gradstein and nitzan 1989 hillman and katz 1984 1987 hillman and samet 1987 hillman and riley 1989 katz et al 1990 long and vousden 1987 ursprung 1990 and varian 1989 the purpose of this paper is to extend this theory by introducing the possibility of collective group rent seeking with voluntary individual decisions regarding their extent of participation in the collective rent seeking efforts

steering the climate system using inertia to lower the cost of policy common views hold that the efficient way to limit warming to a chosen level is to price carbon emissions at a rate that increases exponentially we show that this hotelling tax on carbon emissions is actually inefficient the least cost policy path takes advantage of the climate system s inertia to delay reducing emissions and allow greater cumulative emissions the efficient carbon tax follows an inverse u shaped path and grows more slowly than the hotelling tax economic models that assume exponentially increasing carbon taxes are overestimating the cost of limiting warming overestimating the efficient near term carbon tax and overvaluing technologies that mature sooner

why do some countries get better wto accession terms than others the process by which countries accede to the world trade organization wto has become the subject of considerable debate this article takes a closer look at what determines the concessions the institution requires of an entrant in other words who gets a good deal and who does not i argue that given the institutional design of accession proceedings and the resulting suspension of reciprocity accession terms are driven by the domestic export interests of existing members as a result relatively greater liberalization will be imposed on those entrants that have more valuable market access to offer upon accession something that appears to be in opposition to expectations during multilateral trade rounds where market access functions as a bargaining chit the empirical evidence supports these assertions looking at eighteen recent entrants at the six digit product level i find that controlling for a host of country specific variables as well as the applied protection rates on a given product prior to accession the more a country has to offer the more it is required to give moreover i show how more democratic countries in spite of their greater overall depth of integration exhibit greater resistance to adjustment in key industries than do nondemocracies finally i demonstrate that wealth exhibits a curvilinear effect on the one hand institutionalized norms lead members to exercise observable restraint vis a vis the poorest countries on the other hand the richest countries have the greatest bargaining expertise and thus obtain better terms the outcome as i show using a semi parametric analysis is that middle income countries end up with the most stringent terms and have to make the greatest relative adjustments to their trade regimes

providing adequate economic incentives for bioenergies with co2 capture and geological storage abstract knowing that carbon capture and storage ccs could play an important role in reducing emissions it is important to have a good understanding of this role and the importance of environmental policies to support carbon capture and geological storage from bioenergies beccs to date ccs technologies are not deployed on a commercial level and policy instruments should be used to provide incentives to firms to use these technologies to reduce pollution the aim of this paper is to compare the cost efficiency of several incentive based instruments a fossil fuel tax an emissions tax a cap and trade system and a subsidy on captured emissions needed to spur the adoption of ccs and beccs using a dynamic general equilibrium model this type of model has become the standard for assessing economy wide impacts of environmental and technological policies the study shows that beccs will be deployed only if a specific subsidy per unit of biomass emissions captured with a ccs technology is available we show also that the two most cost efficient instruments for achieving a given emissions reduction target are a specific subsidy that rewards captured emissions and a carbon tax whose revenues are recycled to subsidize beccs

endogenous group formation in experimental contests abstract we experimentally study endogenous alliance formation and contest effort choices in a generic three player contest differences in intrinsic or extrinsic incentives to expend effort cause self selection weakly motivated players have an incentive to enter into an alliance and to free ride on strongly motivated players hence strong players prefer to stand alone self selection has direct consequences for effort in endogenously formed alliances but we also find evidence of an effort stimulating effect if players endogenously form an alliance which is in line with theories of in group favoritism the experimental evidence on self selection is in conformity with a theory analysis of the game

multilateral tariff cooperation during the formation of free trade areas we consider the impact of the formation of free trade agreements on multilateral tariff cooperation we assume that countries are limited to selfenforcing multilateral arrangements that balance the gains from deviating against the costs of an ensuing trade war we find that the emergence of free trade areas will be accompanied by a temporary retreat from liberal multilateral trade policies as the initial balance supporting multilateral cooperation is upset eventually however as the full impact of the emerging free trade agreement on multilateral trade patterns is felt this initial balance tends to reemerge and liberal multilateral trade policies can be restored

sleeping with the enemy the economic cost of internal environmental conflicts this paper extends the literature on collective rent seeking by introducing the possibility that a competing group may be a subset of another we develop a model that incorporates the potential for some individuals to be party of both sides of a conflict which creates interdependence of payoffs results indicate that strategic individual behavior and the resulting rent dissipation is affected by the relative size of the groups we conduct an experimental test of the model and find that observed laboratory behavior corresponds well with the game theoretic comparative static predictions

managing the evolution of multilateralism author s downs george w rocke david barsoom peter n abstract in the past five years a relatively extensive literature has emerged that explores the demand for multilateral cooperation that is those factors that motivate states to develop or resist developing formal institutions that operate to increase interstate economic military or environmental cooperation 1 these factors include the transaction costs associated with ad hoc and multiple bilateral arrangements increased interstate trade the diffusion of liberal trade theory information about the costs of environmental degradation and trends in elite ideology to date however our understanding of the supply side of multilateralism the standards that are set for admission the order and speed with which candidate states are admitted and the impact of expansion on cooperation and future evolution has been relatively undeveloped 2 partly as a result theorists have had little to say about how multilateral institutions are likely to evolve or what the policy consequences of their expansion will be 3 supply side issues are important because multilateral organizations usually do not spring forth full blown they grow instead of forming an inclusive agreement that is one that covers nearly all of the states that its designers eventually hope to include many multilateral organizations start out with substantially smaller memberships and generally expand over time we argue that among the many possible explanations for the choice of this design strategy there is a rational choice argument

in the shadow of law or power consensus based bargaining and outcomes in the gatt wto this article explains how consensus decision making has operated in practice in the general agreement on tariffs and trade world trade organization gatt wto when gatt wto bargaining is law based consensus outcomes are pareto improving and roughly symmetrical when bargaining is power based states bring to bear instruments of power that are extrinsic to rules invisibly weighting the process and generating consensus outcomes that are asymmetrical and may not be pareto improving empirical analysis shows that although trade rounds have been launched through law based bargaining hard law is generated when a round is closed and rounds have been closed through power based bargaining agenda setting has taken place in the shadow of that power and has been dominated by the european community and the united states the decision making rules have been maintained because they help generate information used by powerful states in the agenda setting process consensus decision making at the gatt wto is organized hypocrisy allowing adherence to the instrumental reality of asymmetrical power and the sovereign equality principle upon which consensus decision making is purportedly based

pigou and coase a mathematical reconciliation abstract this paper provides a rigorous statement of the coase theorem and establishes a formal equivalence between abstract allocative mechanisms attributed to coase and pigou the model proceeds from output functions that reduce to production functions in special cases thereby capturing effects that are obscured by conventional production and cost functions the model also emphasizes fundamental differences in the characteristics of inputs particularly land that are implied in the construction of externality stories finally the model embodies a clear distinction between local e g nuisance and global e g pollution externalities the coase theorem as stated is valid only in the former case

conflict and rent seeking success functions ratio vs difference models of relative success the rent seeking competitions studied by economists fall within a much broader category of conflict interactions that also includes military combats election campaigns industrial disputes lawsuits and sibling rivalries in the rent seeking literature each party s success pi which can be interpreted either as the probability of victory or as the proportion of the prize won has usually been taken to be a function of the ratio of the respective resource commitments alternatively however pi may instead be a function of the difference between the parties commitments to the contest the contest success function csf for the difference from is a logistic curve in which as is consistent with military experience increasing returns apply up to an inflection point at equal resource commitments a crucial flaw of the traditional ratio model is that neither onesided submission nor two sided peace between the parties can ever occur as a cournot equilibrium in contrast both of these outcomes are entirely consistent with a model in which success is a function of the difference between the parties resource commitments

2 the institutional structure of production 1 prize lecture to the memory of alfred nobel december 9 1991 this abstract was borrowed from another version of this item

joining an existing regional trade agreement from the perspective of a small open economy chile s accession to nafta and mercosur during the mid 1970s chile began a bold program of unilateral trade liberalization following decades of protectionism effectively putting an end to four decades of import substitution policies like other countries in latin america chile had relied on quantitative restrictions qrs and in some cases high tariffs to protect the production of importables agricultural exports were subject to qrs moreover agriculture suffered a high indirect taxation from industrial protection hurtado valdrs and muchnik the current trade regime is simple to describe a uniform tariff of 11 applies to all importables except wheat sugar and edible oils which have a price band scheme which provides additional protection beyond the uniform tariff there are no qrs on imports and no export taxes licensing or quotas a uniform vat applies to all imports and domestic production and under the uruguay round agreement ura of april 1994 chile bound tariffs at 25 for all products except wheat and sugar at 31 5 thus chile s program of tariffs like several countries in latin america had already occurred at the time of the ura in april of 1994 chile therefore came out of the gatt negotiations with virtually no mandated changes to its trade policies today chile s agricultural trade policy is facing new challenges one is to maintain an open trade regime in the face of continuous pressure for protection of importables because of a stress on profitability since about 1990 a second challenge is to improve trade related institutions such as rules for dealing with contingency protection measures safeguards antidumping etc that remain out of step with liberalized trade a third challenge is related to preferential trade agreements ptas which have taken on astonishing prominence more recently in the trade policy debate of the posturuguay round in latin america regional agreements are in and trade agreements proliferate mercosur in the southern cone nafta in north america the free trade agreement at the summit for the americas in miami and older treaties such as the andean trade preference act add to these the trade

information systems in treaty regimes one of the most influential arguments in international relations is that international institutions influence states behavior by monitoring their compliance with treaties which in turn facilitates reciprocity empirically however many treaty organizations are not mandated to monitor compliance the article develops a parsimonious theoretical framework to address the empirical diversity of monitoring arrangements by mapping strategic environments onto monitoring arrangements it accounts for who detects noncompliance and who brings it to light in particular two factors the interest alignment between noncompliance victims and their states and the availability of noncompliance victims as low cost monitors largely shape the organizational forms of information systems this simple theory sheds light on a wide range of substantively important treaty regimes

rent seeking for pure public goods in this paper we present a formal analysis of rent seeking for public goods by two or more groups with different numbers of individuals we begin by considering equally wealthy groups under risk neutrality a case which constitutes our basic model several surprising and interesting results emerge from the analysis of this basic case the problem is then extended to deal with a groups with different wealth levels and b risk aversion this last extension brings about a further crop of interesting and useful results

the effect of emission taxes and abatement subsidies on market structure comment abstract conrad and wang 1993 international journal of industrial organization 11 499 518 determine that a tax on emissions decreases the total output of a polluting industry but if demand is sufficiently inelastic can increase the number of firms in that industry this follows from their proposition that the tax reduces the scale of the polluting firm in contrast the scale of the polluting firm in the present model increases when there are increasing returns to scale in abatement whereas conrad and wang extend their results to cases of monopolistic competition the present paper is confined to perfect competition but extends the analysis to the pollution damaged industry

banning the bulb institutional evolution and the phased ban of incandescent lighting in germany much academic attention has been directed at analysing energy efficiency investments through the lens of behavioural failure these studies have challenged the neoclassical framing of regulation which emphasises the efficiency benefits of price based policy underpinned by the notion of rational individual self mastery the increasing use of a regulatory ban on electric lamps in many countries is one of the most recent and high profile flash points in this dialectic of freedom versus the state in the public policy discourse this paper interrogates this debate through a study of electric lamp diffusion in germany it is argued that neoclassical theory and equilibrium analysis is inadequate as a tool for policy analysis as it takes the formation of market institutions such as existing regulations for granted further still it may be prone to encourage idealistic debates around such grand narratives which may in practice simply serve those who benefit most from the status quo instead we argue for an evolutionary approach which we suggest offers a more pragmatic framing tool which focuses on the formation of market institutions in light of shifting social norms and political goals in our case progress towards energy efficiency and environmental goals

is there a broader deeper trade off in international multilateral agreements it is commonly thought that there is a trade off between the breadth and depth of multilateral institutions that is multilaterals that are more inclusive in their memberships will necessarily be shallower in their level of cooperation using a multilateral bargaining model with self seeking rational actors i show that such a trade off does not exist for a broad class of multilateral cooperation problems the conclusion that there is a broader deeper trade off follows from the assumption that the members of the multilateral must set their policies at an identical level the multi lateral agreement modeled in this article allows states to set their policies at different levels once this change is made there is no broader deeper trade off a finding that has obvious empirical and policy implications it explains why some regimes are created with fairly large memberships at the outset and it calls into question the policy prescription of limiting membership of multilateral institutions to a small group of committed cooperators for the class of cooperation problems modeled in this article

abiding by the vote between groups conflict in international collective action we analyze institutional solutions to international cooperation when actors have heterogeneous preferences over the desirability of the action and split into supporters and opponents all of whom can spend resources toward their preferred outcome we study how actors can communicate their preferences through voting when they are not bound either by their own vote or the outcome of the collective vote we identify two organizational types with endogenous coercive enforcement and find that neither is unambiguously preferable like the solutions to the traditional prisoners dilemma these forms require long shadows of the future to sustain we then show that cooperation can be sustained through a noncoercive organization where actors delegate execution to an agent even though this institution is costlier it does not require any expertise by the agent and is independent of the shadow of the future and thus is implementable when the others are not

the polluter pays versus the pollutee pays principle under asymmetric information abstract this paper compares the pollutee pays principle with the polluter pays principle in a model of one sided externalities and asymmetric information even allowing for mitigation through contracts pollution reductions traded for subsidies or compensations will not result in the perfect information social optimum but will bias the outcome favoring the one with the property right while the pollutee pays principle allows for global incentive mechanisms such voluntary arrangements are severely restricted for the polluter pays principle indeed these conditions for an out of court settlements low damage and large benefits from pollution somehow contradict the polluter pays principle

multilateral tariff cooperation during the formation of customs unions abstract we study the implications of customs union formation for multilateral tariff cooperation we model cooperation in multilateral trade policy as self enforcing in that it involves balancing the current gains from deviating unilaterally from an agreed upon trade policy against the future losses from forfeiting the benefits of multilateral cooperation that such a unilateral defection would imply the early stages of the process of customs union formation are shown to alter this dynamic incentive constraint in a way that leads to a temporary honeymoon for liberal multilateral trade policies we find however that the harmony between customs unions and multilateral liberalization is temporary eventually as the full impact of the emerging customs union becomes felt a less favorable balance between current and future conditions re emerges and the liberal multilateral policies of the honeymoon phase cannot be sustained

is unilateral tariff reduction preferable to a customs union the curious case of the missing foreign tariffs during the past decade and a half an important part of the literature on customs unions has dealt with the question of whether a country might obtain the gains it would achieve from a customs union cu in an alternative way by a unilateral tariff reduction utr utr may involve a partial reduction in tariffs or a reduction all the way to zero a widely accepted conclusion see eitan berglas p 329 c a cooper and b f massell 1965b pp 745 47 roma dauphin ch 2 harry johnson p 280 melvyn krauss pp 417 19 and peter robson is that utr does indeed hold out the prospect for all the gains from a cuwithout the disadvantagesif two important simplifying assumptions are made namely that we ignore economies of scale and the effects of a customs union on the terms of trade 2 in the words of berglas it is important to note that if a preferential trade agreement does not affect the terms of trade then it does not allow for any mutually beneficial policy opportunities which are not open to each of the member countries separately through utr p 329 if this conclusion is correct it is very important in that it undercuts the earlier literature on customs unions the question asked by jacob viner in his pioneering work whether a cu represents a net gain or a net loss in economic efficiencybecomes unimportant except insofar as a customs union is based on terms of trade effects3 or economies of scale 4 since a cu can be summarily rejected in favor of utr the utr case would mean that for economists the puzzle is not to identify the efficiency gains or losses from a cu but rather to explain why countries form customs unions in the first place berglas p 329 cooper and massell 1965b p 247 and johnson p 270 indeed in his survey of cu theory krauss identifies the problem raised by cooper and massellof why countries form customs unionsas the theoretical issue of the past decade the 1960 s just as in the prior one the major issue as explicitly defined by jacob viner 1950 was whether a customs union represented a movement towards freer trade or greater protection p 413 the typical reply to the cooper massell question is countries tend to form a cu for noneconomic reasons berglas pp 329 30 5

coasean bargaining in the presence of pigouvian taxation coasean arguments against the pigouvian perspective are well established a central tenet in this criticism argues that a pigouvian tax may be a source of inefficiency if parties were to bargain in the presence of a pigouvian tax allocative inefficiencies would occur the so called buchanan stubblebine turvey theorem by analyzing a coasean environment where the appropriation of property rights is costly we show coasean bargaining in the presence of a pre existing pigouvian tax may be superior this has implications for policy where dual regulatory environments exist such as regulation at the state and federal level as well as environmental liability and litigation

elements of an economic justification for municipal zoning abstract the possibility that externalities will produce a nonconvexity in the social production set limits the application of both the coase and pigou solutions for achieving an optimal allocation of land resources conditions on relative land prices are derived which indicate that external effects are strong enough to introduce a nonconvexity into the production set these conditions were not fulfilled in a sample of single family and multifamily dwellings in foster city california this does not preclude the possibility that they are fulfilled in cases of more severe external effects

green fiscal reform in sweden econometric assessment of the carbon and energy taxation scheme abstract empirical econometric assessment of environmental policy effectiveness is capable of demonstrating which tools have been helping to achieve the desired effect of reducing harmful emissions or stimulating technological change this paper employs an econometric approach to analyse the effectiveness of energy and carbon taxes in sweden the country which was one of the first to introduce a co2 tax as well as an extensive environmental tax reform the results showed that taken in isolation a co2 tax was not sufficient to result in a significant change in co2 emissions in sweden except in the case of petrol on the other hand energy taxes for coal and lpg have been statistically significantly effective it was also clear that a technological innovation in the form of development of nuclear and hydro energy played a significant role in reducing co2 emissions and higher oil price was also important in reducing national co2 emissions in sweden at the same time renewable energy excluding hydro a more recent innovation has not been a statistically significant driver of co2 emissions reduction perhaps due to the fact that wind and solar play a much lesser role in sweden at the moment the net electricity imports from other countries have contributed positively towards reducing co2 emissions in sweden while the use of coal and biomass tended to increase co2 emissions compared to the ex ante modelling results from the literature review the findings confirm the role of environmental taxation as a viable policy instrument effective in reducing co2 emissions in sweden although point towards a more nuanced picture the paper raises important policy questions focused on the effectiveness of environmental policy tools

preferential trading agreements an investigation abstract a three country general equilibrium model of international trade in an arbitrary number of goods is constructed and the welfare effects of the formation of a preferential trading club e g customs union free trade area are analyzed

effort levels in contests the public good prize case abstract we examine the equilibrium individual players groups and total effort levels expended in a contest where groups compete with one another to win a group specific public good prize and the players choose their effort levels simultaneously and independently

from eea to eu economic consequences for the efta countries abstract the paper surveys and evaluates the economic consequences for austria finland norway and sweden of becoming members of the eu that are the least difficult to quantify namely transfers to and from the eu budget changes in agricultural policy and changes in trade barriers it concludes that the net effect of this subset of economic consequences is small or negligible for all candidate members

the inefficiency of private adaptation to pollution in the presence of endogenous market structure the paper considers an industry where production costs rise due to pollution but where this effect can be partially off set by investing in adaptation as a private good the focus is not on external effects but industries where economies of scale are introduced from adapting to pollution the structure of the resulting oligopolistic market is endogenous since the level of adaptation is chosen by the firms the analysis of externalities usually disregards defensive or adaptation measures with a few exceptions that point to considerable complications the present debate on adaptation to climate change shows the importance of understanding defensive measures i show that the market failure caused by economies of scale leads to production costs above the social optimum i e to under adapation when pollution increases adaptation only increases if demand is price inelastic otherwise welfare loss from market failure decreases with pollution the total welfare loss is only convex if demand is price inelastic and the influence of pollution on production costs is stronger than the influence of adaptation concave welfare loss has crucial implications for abatement policies

peer pressure experimental evidence from restroom behavior we provide experimental evidence on the effect of peer pressure on individual behavior specifically we study the effect of being exposed to an observer in a public restroom on handwashing and urinal flushing behavior our estimates show that being exposed to an observer increases the probability of handwashing by 13 percentage points and the probability of urinal flushing by 15 percentage points given that handwashing and urinal flushing have social benefits that exceed individual benefits our findings provide support for peer pressure as an additional way of addressing the social suboptimality arising from externalities jel c91 c93

controlling the monopolistic polluter nihilism or eclecticism abstract this paper is concerned with the consequences of pollution control when the polluter is a monopolist who can choose between abating pollution by reducing output and by adopting a less polluting technology it is suggested that the risk of welfare losses resulting from control policy is lower when technology is flexible than when it is rigid nevertheless some risk does remain so the paper concludes with a discussion of the possible use of selective control instruments to keep the risk to a minimum

a note on externalities and taxation the purpose of this paper is to explore the distributional aspects of a tax that is imposed in order to correct the detrimental effects of a production externality in the framework of a two sector general equilibrium model we show that harberger s classic results of tax incidence may change considerably because of the presence of the externality we also show that the tax is effective in reducing the detrimental effect of the externality although the return of the taxed factor may rise relative to the return of the untaxed factors

multilateralism with small and large numbers multilateralism international governance of the many was defined by the united states after 1945 in terms of certain principles particularly opposition to bilateral and discriminatory arrangements that were believed to enhance the leverage of the powerful over the weak and to increase international conflict postwar multilateralism also expressed an impulse to universality john ruggie s generalized organizing principles that implied relatively low barriers to participation in these arrangements a ticket of admission was always required whether acceding to the general agreement on tariffs and trade gatt or joining the international monetary fund imf and the world bank nevertheless the price of that ticket was not set so high that less powerful or less wealthy states could not hope to participate

free riding convergence and two speed monetary unification in europe this paper shows that two speed monetary unification carries a danger low inflation countries in europe have an interest in delaying entry of the high inflation country because it would raise the average inflation rate however this country might refuse to join when the first group find it qualified to that is when convergence has taken place this is because the high inflation country can employ its monetary policy to stabilize against shocks given that the currency union members have optimally chosen a lower inflation rate hence a tradeoff exists between the necessity for convergence and the free rider problem

effort levels in a cournot nash contest with asymmetric information abstract many contests exist where one player does not know his opponent s value of a fixed prize e g unobservable non market preferences for preservation this paper explores how changes in the nature of a one sided information asymmetry affect effort levels in a cournot nash contest the results indicate that the uninformed player s effort is an uncertain input such that his effort is inversely related to risk this reduces his average odds of success comparative static results are driven by the perceived odds of success and risk for the uninformed player and the actual odds of success for the informed player

multilateral determinants of regionalism the effects of gatt wto on the formation of preferential trading arrangements preferential trading arrangements ptas have spread widely over the past fifty years during the same era multilateral openness has grown to unprecedented heights spurred by the general agreement on tariffs and trade gatt and its successor the world trade organization wto if the cornerstone of the manifestly successful multilateral regime is nondiscrimination why have its members increasingly resorted to preferential liberalization we argue that developments at the heart of gatt wto encourage its members to form ptas as devices to obtain bargaining leverage within the multilateral regime specifically the growth in gatt wto membership the periodic multilateral trade negotiation rounds as well as participation and especially losses in formal gatt wto disputes have led its members to seek entrance into ptas conducting the first statistical tests on the subject we find strong evidence in support of this argument

fundamental nonconvexities in arrovian markets and a coasian solution to the problem of externalities abstract d starrett j econ theory 4 1972 180 199 argues that the presence of externalities implies fundamental nonconvexities which cause arrow markets to fail while this is true we argue this failure is due to the structure of the arrovian markets that starrett uses and not to the presence of externalities as such we provide an extension of a general equilibrium public goods model in which property rights are explicitly treated nonconvexities are not fundamental in this framework we define a notion of coasian equilibrium for this economy and show first and second welfare theorems in this context the first welfare theorem is a type of coase theorem journal of economic literature classification numbers d62 h41

strategic groups and rent dissipation we consider a rent seeking contest in which players can form strategic groups before expending their outlays we examine the profitability of endogenous group formation and the effect of such group formation on rent dissipation we show the following when just one strategic group is formed in equilibrium group formation is beneficial both to the group members and to the nonmembers and rent dissipation is smaller than with usual individual rent seeking however when more than two strategic groups are formed in equilibrium group formation is never profitable to any players and rent dissipation is greater than with individual rent seeking jel