the impact of climate targets on future steel production an analysis based on a global energy system model this paper addresses how a global climate target may influence iron and steel production technology deployment and scrap use a global energy system model etsap tiam was used and a scrap availability assessment model saam was developed to analyse the relation between steel demand recycling and the availability of scrap and their implications for steel production technology choices steel production using recycled materials has a continuous growth and is likely to be a major route for steel production in the long run however as the global average of in use steel stock increases up to the current average stock of the industrialised economies global steel demand keeps growing and stagnates only after 2050 due to high steel demand levels and scarcity of scrap more than 50 of the steel production in 2050 will still have to come from virgin materials hydrogen based steel production could become a major technology option for production from virgin materials particularly in a scenario where carbon capture and storage ccs is not available imposing a binding climate target will shift the crude steel price to approximately 500 usd per tonne in the year 2050 provided that ccs is available however the increased prices are induced by co2 prices rather than inflated production costs it is concluded that a global climate target is not likely to influence the use of scrap whereas it shall have an impact on the price of scrap finally the results indicate that energy efficiency improvements of current processes will only be sufficient to meet the climate target in combination with ccs new innovative techniques with lower climate impact will be vital for mitigating climate change

project based mechanisms for emissions reductions balancing trade offs with baselines project based mechanisms for emissions reductions credits like the clean development mechanism pose important challenges for policy design because of several inherent characteristics participation is voluntary so it will not occur without sufficient credits evaluating reductions requires assigning an emissions baseline for a counterfactual that cannot be measured some investments have both economic and environmental benefits and might occur anyway uncertainty surrounds both emissions and investment returns and parties to the project are likely to have more information than the certifying authority the certifying agent is limited in its ability to design a contract that would reveal investment intentions as a result rules for benchmarking emissions may be systematically biased to overallocate and they also risk creating inefficient investment incentives this paper evaluates in a situation with asymmetric information the efficacy of the main baseline rules currently under consideration historical emissions an average industry emissions standard and expected emissions

international cooperation behind the veil of uncertainty the case of transboundary acidification the complexities of international environmental problems are only poorly understood hence decision makers have to negotiate about abatement measures even though they do not know the true model of the ecological system and have only a rough idea about the costs and benefits of their action it will be analysed to what extent this kind of model uncertainty where players do not only have incomplete information about the payoff functions of the other players but also about their own payoff function affects the prospects of international cooperation using a simple game theoretic model it is shown how countries can use the veil of uncertainty to hide their distributional interests the arguments are based on a deviation from the common prior assumption which seems particularly questionable in a setting comprising various countries with different cultural and scientific backgrounds finally the model will prove useful to quantitatively and qualitatively illustrate the central role of model uncertainty in the negotiations of the first sulphur protocol signed to combat transboundary acidification

taxing capital not a bad idea after all we quantitatively characterize the optimal capital and labor income tax in an overlapping generations model with idiosyncratic uninsurable income shocks and permanent productivity difierences of households the optimal capital income tax rate is signiflcantly positive at 36 percent the optimal progressive labor income tax is roughly a at tax of 23 percent with a deduction of 7 200 relative to average household income of 42 000 the high optimal capital income tax is mainly driven by the life cycle structure of the model whereas the optimal progressivity of the labor income tax is attributable to the insurance and redistribution role of the tax system jel e62 h21 h24

the stability and effectiveness of climate coalitions a comparative analysis of multiple integrated assessment models we report results from a comparison of numerically calibrated game theoretic integrated assessment models that explore the stability and performance of international coalitions for climate change mitigation we identify robust results concerning the incentives of different nations to commit themselves to a climate agreement and estimate the extent of greenhouse gas mitigation that can be achieved by stable agreements we also assess the potential of transfers that redistribute the surplus of cooperation to foster the stability of climate coalitions in contrast to much of the existing analytical game theoretical literature we find substantial scope for self enforcing climate coalitions in most models that close much of the abatement and welfare gap between complete absence of cooperation and full cooperation this more positive message follows from the use of appropriate transfer schemes that are designed to counteract free riding incentives

a new method of estimating risk aversion i show existing evidence on labor supply behavior places an upper bound on risk aversion in the expected utility model i derive a formula for the coefficient of relative risk aversion in terms of the ratio of the income elasticity of labor supply to wage elasticity and degree of complementarity between consumption and labor i bound the degree of complementarity using data on consumption choices when labor supply varies across states using labor supply elasticity estimates i find a mean estimate of 1 then show generating 2 requires that wage increases cause sharper labor supply reductions jel d81 j22

global warming irreversibility and learning a number of economists have argued that the literature on the irreversibility effect implies that current abatement of greenhouse gas emissions should be greater when there is the possibility of obtaining better information in the future about the potential damages from global warming than when there is no possibility of obtaining better information in this paper we show that even the simplest model of global warming does not satisfy either of epstein s 1980 sufficient conditions so it is not possible to use epstein s analysis to tell whether the irreversibility effect applies to models of global warming we derive an alternative sufficient condition for the irreversibility effect to hold

on welfare frameworks and catastrophic climate risks recent theoretical work in the economics of climate change has suggested that climate policy is highly sensitive to fat tailed risks of catastrophic outcomes weitzman 2009 68 such risks are suggested to be an inevitable consequence of scientific uncertainty about the effects of increased greenhouse gas concentrations on climate criticisms of this controversial result fall into three categories the first suggests that it may be irrelevant to cost benefit analysis of climate policy the second challenges the fat tails assumption and the third questions the behavior of the utility function assumed in the result this paper analyses these critiques and suggests that those in the first two categories have formal validity but that they apply only to the restricted setup of the original result which may be extended to address their concerns they are thus ultimately unconvincing critiques in the third category are shown to be robust however they open up new ethical and empirical challenges for climate economics that have thus far been neglected how should we value catastrophes as a society i demonstrate that applying results from social choice to this problem can lead to counterintuitive results in which society values catastrophes as infinitely bad even though each individual s utility function is bounded finally i suggest that the welfare functions traditionally used in climate economics are ill equipped to deal with climate catastrophes in which population size changes drawing on recent work in population ethics i propose an alternative welfare framework with normatively desirable properties which has the effect of dampening the contribution of catastrophes to welfare

the value of public information in a cournot duopoly we derive alternative sufficient conditions for the value of public information to be either positive or negative in a cournot duopoly where firms technology exhibits constant returns to scale

the role of uncertainty and learning for the success of international climate agreements abstract transnational externalities e g transboundary pollution trade contagious diseases and terrorism warrant coordination and cooperation between governments but this proves often difficult one reason for the meager success is the public good character of many of these economic problems encouraging free riding another reason one might suspect is uncertainty surrounding most environmental problems and in particular climate change this provides often an excuse for remaining inactive paradoxically some recent papers have concluded just the opposite the veil of uncertainty can be conducive to the success of international environmental cooperation in this paper we explain why and under which conditions this can be true however we argue that those conditions are the exception rather than the rule most important we suggest a mechanism for those conditions where learning has a negative effect on the success of cooperation which removes this effect or even turns it into a positive effect our results apply beyond the specifics of climate change to similar problems where cooperation generates positive externalities

using elasticities to derive optimal income tax rates this paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates a simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution in the general non linear income tax problem this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of mirrlees the optimal non linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution these formulas are implemented numerically using empirical earning distributions and a range of realistic elasticity parameters

redistribution and social insurance we study optimal redistribution and insurance in a life cycle economy with private idiosyncratic shocks we characterize pareto optima show the forces determining optimal labor distortions and derive closed form expressions for their limiting behavior the labor distortions for high productivity shocks are determined by the labor elasticity and the higher moments of the shock process the labor distortions for low productivity shocks are determined by the autocorrelation of the shock process redistributive objectives and past distortions in a model calibrated using newly available estimates of idiosyncratic shocks the labor distortions are u shaped and the savings distortions generally increase in current earnings jel d82 d91 h21 h23 i38 j22 j24

do tournaments have incentive effects much attention has been devoted to studying models of tournaments or situations in which an individual s payment depends only on his or her output or rank relative to that of other competitors academic interest derives from the fact that under certain sets of assumptions tournaments have desirable normative properties because of the incentive structures they provide our paper uses nonexperimental data to test whether tournaments actually elicit effort responses we focus on professional golf tournaments because information on the incentive structure prize distribution and measures of individual output players scores are both available we find strong support for the proposition that the level and structure of prizes in pga tournaments influence players performance

fundamental irreversibilities in stock externalities abstract this paper concerns the irreversibility effect in stock externalities in an environment of uncertainty with learning taking place one may wish to under emit today to avoid potential environmental irreversibilities alternatively one may wish to under invest in pollution control capital avoiding investments in sunk capital that turn out to be wasted the paper develops theoretical results on the tension between these two effects and separates risk aversion from the irreversibility effect the paper also presents a simple example in climate change policy

uncertainty learning and international environmental policy coordination in this paper we construct a simple model of global warming which captures a number of key features of the global warming problem i environmental damages are related to the stock of greenhouse gases in the atmosphere ii the global commons nature of the problem means that these are strategic interactions between the emissions policies of the governments of individual nation states iii there is uncertainty about the extent of the future damages that will be incurred by each country from any given level of concentration of greenhouse gases but there is the possibility that at a future date better information about the true extent of environmental damages may become available an important aspect of the problem is the extent to which damages in different countries may be correlated in the first part of the paper we consider a simple model with two symmetric countries and show that the value of perfect information is an increasing function of the correlation between damages in the two countries in both the cooperative and non cooperative equilibria however while the value of perfect information is always non negative in the cooperative equilibrium in the non cooperative equilibrium there is a critical value of the correlation coefficient below which the value of perfect information will be negative in the second part of the paper we construct an empirical model of global warming distinguishing between oecd and non oecd countries and show that in the non cooperative equilibrium the value of perfect information for oecd countries is negative when the correlation coefficient between environmental damages for oecd and non oecd countries is negative the implications of these results for international agreements are discussed

resistance to reform status quo bias in the presence of individual specific uncertainty comment why do governments so often fail to adopt policies which economists consider to be efficiency enhancing our answer to this question relies on uncertainty regarding the distribution of gains and losses from reform we show that there is a bias towards the status quo and hence against efficiency enhancing reforms whenever some of the individual gainers and losers from reform cannot be identified beforehand there are reforms which once adopted will receive adequate political support but would have failed to carry the day ex ante the argument does not rely on risk aversion irrationality or hysteresis due to sunk costs jel d72 f13 why do governments so often fail to adopt policies that economists consider to be efficiency enhancing this is one of the fundamental questions of political economy the answer usually relies on what may be

what determines un approval of greenhouse gas emission reduction projects in developing countries an analysis of decision making on the cdm executive board the clean development mechanism cdm established by the kyoto protocol can generate substantial rents for project participants via the sale of certified emission reductions for this reason supposedly technical decisions about the approval of cdm methodologies and about the registration of projects may be driven by benefits to specific countries or interest groups our econometric analysis of data for about 250 methodologies and about 1000 projects discussed by the cdm executive board eb so far suggests that indeed along with formal quality criteria political economic variables determine the final eb decision

insurance and taxation over the life cycle we consider a dynamic mirrlees economy in a life cycle context and study the optimal insurance arrangement individual productivity evolves as a markov process and is private information we use a first order approach in discrete and continuous time and obtain novel theoretical and numerical results our main contribution is a formula describing the dynamics for the labour income tax rate when productivity is an ar 1 our formula resembles an ar 1 with a trend where i the auto regressive coefficient equals that of productivity ii the trend term equals the covariance productivity with consumption growth divided by the frisch elasticity of labour and iii the innovations in the tax rate are the negative of consumption growth the last property implies a form of short run regressivity our simulations illustrate these results and deliver some novel insights the average labour tax rises from 0 to 37 over 40 years whereas the average tax on savings falls from 12 to 0 at retirement we compare the second best solution to simple history independent tax systems calibrated to mimic these average tax rates we find that age dependent taxes capture a sizable fraction of the welfare gains in this way our theoretical results provide insights into simple tax systems copyright 2013 oxford university press

on the distributional effects of reducing capital taxes this article asks whether household heterogeneity and market incompleteness have quantitatively important implications for the welfare effects of tax changes we compare a representative agent economy to an economy in which households face idiosyncratic uninsurable income risk the income process is consistent with empirical estimates and implies a realistic wealth distribution we find that capital tax cuts imply large welfare gains in the representative agent economy however when households are heterogeneous substantial redistribution during transition means that only a minority will support capital tax cuts whereas most households can expect large welfare losses

piercing the veil of uncertainty in transboundary pollution agreements this paper addresses the question of how uncertainty in costs and benefits affects the difficulty of reaching a voluntary agreement among sovereign states a measure of difficulty is constructed related to side payments necessary to make an agreement a pareto improving move using a simple model it is shown that uncertainty actually makes agreement easier

the incentive effects of tournaments revisited evidence from the european pga tour this analysis of data from the 1987 european men s professional golf association pga tour strongly supports the hypothesis that the level and structure of prizes in pga tournaments influence players performance specifically players performance appears to vary positively with both the total money prizes awarded in a tournament and the marginal return to effort in the final round of play a value that varies among players largely depending on how the prize money is allocated among finishers of different ranks the authors suggest that these results together with the similar results of their earlier study of the 1984 u s men s pga tour may have implications for the design of compensation systems for certain groups of workers such as corporate executives college professors and salespeople

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

has moral hazard become a more important factor in managerial compensation we estimate a principal agent model of moral hazard with longitudinal data on firms and managerial compensation over two disjoint periods spanning 60 years to investigate increased value and variability in managerial compen sation we find exogenous growth in firm size largely explains these secular trends in compensation in our framework exogenous firm size works through two channels first conflicts of interest between shareholders and managers are magnified in large firms so optimal compensation plans are now more

dynamic effects on the stability of international environmental agreements abstract in terms of the number of signatories one observes both large and small international environmental agreements the theoretical literature based on game theory discusses different concepts and mechanisms regarding stability of coalitions the conclusion has been reached that in all circumstances under farsightedness both large and small stable coalitions can occur this theory is based on behavioural reaction patterns but does not take account of the interaction with the dynamics of emission adjustments this paper shows that when these two dynamical processes are integrated large and small stable coalitions can still occur but only if the costs of emissions are relatively unimportant as compared with the costs of abatement

providing global public goods under uncertainty abstract we study how uncertainty and risk aversion affect international agreements to supply global public goods we consider a benchmark model with homogeneous countries and linear payoffs when countries directly contribute to a public good uncertainty tends to lower signatories efforts but may increase participation despite risk aversion uncertainty may improve welfare in contrast when countries try to reduce a global public bad uncertainty tends to increase signatories efforts and decrease participation in that case an ex ante reduction of uncertainty may have a large positive multiplier effect on welfare

learning and stock effects in environmental regulation the case of greenhouse gas emissions abstract this paper concerns the optimal regulation of greenhouse gases that lead to global climate change in particular we focus on uncertainty and learning which over time resolves uncertainty we present an empirical stochastic model of climate economy interactions and present results on the tension between postponing control until more is known vs acting now before irreversible climate change takes place uncertainty in our model is in the damage caused by global warming the results suggest that a temporary carbon tax may dominate a permanent one because a temporary tax may induce increased flexibility

international fisheries agreements a game theoretical approach this paper surveys the application of game theory to the economic analysis of international fisheries agreements the relevance of this study comes not only from the existence of a vast literature on the topic but especially from the specific features of these agreements the emphasis of the survey is on coalition games an approach that has become prominent in the fisheries economics literature over the last decade it is shown that coalition games were first applied to international fisheries agreements in the late 1990s addressing cooperative issues under the framework of characteristic function games then progressively this cooperative approach was combined with non cooperative elements such as the stability analysis of the agreements finally partition function games which model coalition formation endogenously were introduced and became the standard approach to study the formation and stability of international fisheries agreements a key message that emerges from this literature strand is that self enforcing cooperative management of internationally shared fish stocks is generally difficult to achieve hence the international legal framework and regulations play a decisive role on ensuring cooperation over the use of these resources

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

designing climate mitigation policy this us paper provides an exhaustive review of critical issues in the design of climate mitigation policy by pulling together key findings and controversies from diverse literatures on mitigation costs damage valuation policy instrument choice technological innovation and international climate policy the authors begin with the broadest issue of how high assessments suggest the near and medium term price on greenhouse gases would need to be both under cost effective stabilization of global climate and under net benefit maximization or pigouvian emissions pricing the remainder of the paper focuses on the appropriate scope of regulation issues in policy instrument choice complementary technology policy and international policy architectures

international coordination on climate policies given the current trend in global emissions the latest round of climate change negotiations at the durban meeting of december 2011 for the adoption of a comprehensive global treaty on climate change mitigation as soon as possible and no later than 2015 and to come into force in 2020 has hardly shown the results one would have hoped for even for the most optimistic it remains unclear whether one can expect a successful negotiating outcome by 2015 there are inherent difficulties associated with climate change negotiations ranging from which countries should bear most responsibility for a given emission reduction target to the assessment of a globally efficient time path for pricing harmful greenhouse gas emissions ghgs these difficulties become even more complex and challenging under the pervasive uncertainty of climate science and the uncertainty about the feedback loop between climate change damages and economic growth during the past decades the environmental economics literature has provided important insights regarding the design of environmental fiscal policies and treaties but there is a host of issues that remain relatively unexplored for instance we know little about the cooperative solution for carbon and trade policies when climate change affects the productive possibilities of countries in this context it is also not obvious whether observed policies could be improved upon in such a way that all countries gain in welfare it remains also unclear what the carbon extraction path should be in the absence of a comprehensive treaty such as for example if environmental policy is unilaterally chosen subject to an agreed ceiling in global temperature though carbon pricing instruments like carbon taxes cap and trade and hybrids have been well studied not much is known about their properties in the presence of offset schemes such as the clean development mechanism more work is also required to understand the strategic implications of the uncertainty surrounding climate change and how this affects for example the choice of climate change strategy precautionary or wait and see how uncertainty impacts the propensity of countries to sign a climate treaty and the extent to which the possibility of a climate catastrophe fosters or hinders cooperation understanding political economy issues is also vital in tackling climate change because efficient climate policies stand little chance of being successfully negotiated and implemented if they do not receive the support of the electorate the papers in the special issue of the journal of environmental economics and management are precisely devoted to this broad research agenda

on the taxation of durable goods this paper proposes a mirrleesian theory of commodity taxation in the presence of durable goods nondurable goods should be taxed uniformly provided that the preferences over nondurable consumption are weakly separable from labor effort a uniform taxation across all goods is optimal if the utility from durable consumption is linear and the preferences are additively separable between durable goods nondurable goods and labor effort if those conditions are not met wealth effects and substitution effects justify the use of differential commodity taxes to characterize the sign of the tax differential the paper exploits a substitution euler equation that links the marginal rate of substitution between durable and nondurable consumption across time finally an application of this theory suggests that housing investment should face higher tax rates than nondurable consumption

equity development and climate change control the paper analyzes the effects of different equity principles on the decision of developing countries to join a world coalition whose aim is to control greenhouse gas emissions a game theoretic framework is proposed to assess the incentives for different countries to sign an international treaty on climate change control then the effects of different equity rules on these incentives are evaluated by using a dynamic integrated growth and climate model policy proposals based on transfers from developed to developing countries are also analyzed jel c7 h0 h3 q38

regional versus global cooperation for climate control abstract this paper considers whether international environmental public goods provision such as mitigation of climate change is better dealt with through regional cooperation than through a global treaty previous research suggests that at best a global environmental treaty will achieve very little at worst it will fail to enter into force using a simple dynamic game theoretic model with weakly renegotiation proof equilibrium as solution concept we demonstrate that two agreements can sustain a larger number of cooperating parties than a single global treaty the model provides upper and lower bounds on the number of parties under each type of regime it is shown that a regime with two agreements can pareto dominate a regime based on a single global treaty we conclude that regional cooperation might be a good alternative or supplement to global environmental agreements

equilibrium and optimal size of a research joint venture in an oligopoly with spillovers this paper analyzes a simple oligopoly model with information spillovers firms spend on r d to affect their costs of production the main finding is that depending on the magnitude of the spillover the market may not provide enough incentives for the optimum degree of cooperation to take place it is shown that the equilibrium size of a research joint venture is usually less than the optimum size which requires all firms to participate in the research joint venture the policy implications of this result are that there should be encouragement for firms competing in high technology industries to form industry wide cooperative agreements copyright 1995 by blackwell publishing ltd

on the first order approach in principal agent models with hidden borrowing and lending we provide sufficient conditions for the validity of the first order approach for two period dynamic moral hazard problems where the agent can save and borrow secretly the first order approach is valid if the following conditions hold i the agent has non increasing absolute risk aversion utility niara ii the output technology has monotone likelihood ratios mlr and iii the distribution function of output is log convex in effort lcdf moreover under these three conditions the optimal contract is monotone in output we also investigate a few possibilities of relaxing these requirements

self enforcing environmental agreements and trade in fossil energy deposits abstract the literature on self enforcing environmental agreements sieas focuses on de mand side emission reduction policies to our knowledge harstad 2012 is the only study on sieas in which countries purchase fossil energy deposits to prevent their exploitation he finds that for any coalition size there exists a small subset of parameters different for each size such that the coalition of that size is stable however the comparison of harstad s results with the prevailing demand side siea analyses is hampered by major differences in the structure of the respective game models this paper develops a game model with a deposit market and deposit purchases for preservation that is in line with some demand side siea literature it turns out that either no coalition is stable or the grand coalition is the only stable coalition we compare the outcome of our model not only with harstad s model but also with eichner and pethig s 2015 model of the formation of sieas in which climate policy takes the form of demand side emissions taxes

uncertainty learning and heterogeneity in international environmental agreements this paper concerns the formation of international environmental agreements under uncertainty about environmental damage with different models of learning complete learning partial learning or no learning the results of the existing literature are generally pessimistic the possibility of either complete or partial learning generally reduces the level of global welfare that can be achieved from forming an iea relative to no learning that literature regards uncertainty as a parameter common to all countries so that countries are identical ex ante as well as ex post in this paper we extend the literature to the case where there is no correlation between damage costs across countries each country is uncertain about a particular parameter in our case the benefit cost ratio drawn from a common distribution but ex post each country s realized parameter value is independently drawn consequently while countries remain identical ex ante they may be heterogeneous ex post we show that this change reinforces the negative conclusions about the effects of partial learning on international environmental agreements but under certain conditions moderates the negative conclusions about the effects of complete learning

the stability likelihood of an international climate agreement results derived from empirical analyses on the stability of climate coalitions are usually very sensitive to the large uncertainties associated with the benefits and costs of climate policies this paper provides the methodology of stability likelihood sl that links uncertainties about benefits and costs of climate change to the stability of coalitions we show that the concept of sl improves upon the robustness and interpretation of stability analyses moreover our numerical application qualifies conclusions from a recent strand of literature based on stylised models with ex ante symmetric players that learning has a negative impact on the success of coalition formation in context of uncertainty

the anti paradox of cooperation diversity may pay abstract this paper considers the stability and success of a public good agreement we allow for any type and degree of asymmetry regarding benefits and costs we ask the question whether asymmetry and which type and degree of asymmetry is conducive to cooperation we employ a simple non cooperative game theoretic model of coalition formation and derive analytical solutions for two scenarios an agreement without and with optimal transfers a central message of the paper is that asymmetry does not have to be an obstacle for successful cooperation but can be an asset we qualify two central results in the literature firstly the paradox of cooperation known since barrett 1994 and reiterated by many others afterwards stating that under those conditions when cooperation would matter most stable agreements achieve only little secondly a kind of coalition folk theorem known without proof in the literature for a long time stating that without transfers stable coalitions will be smaller with asymmetric than symmetric players we show that even without transfers the grand coalition can be stable if there is a negative covariance between benefit and cost parameters with massive gains from cooperation moreover with transfers many distributions of benefit and cost parameters lead to a stable grand coalition again some of them implying huge gains from cooperation stability and success greatly benefit from a very skewed asymmetric distribution of benefit and costs i e diversity may pay

addressing global environmental externalities transaction costs considerations is there a way to understand why some global environmental externalities are addressed effectively whereas others are not the transaction costs of defining the property rights to mitigation benefits and costs is a useful framework for such analysis this approach views international cooperation as a contractual process among country leaders to assign those property rights leaders cooperate when it serves domestic interests to do so the demand for property rights comes from those who value and stand to gain from multilateral action property rights are supplied by international agreements that specify resource access and use assign costs and benefits including outlining the size and duration of compensating transfer payments and determining who will pay and who will receive them four factors raise the transaction costs of assigning property rights i scientific uncertainty regarding mitigation benefits and costs ii varying preferences and perceptions across heterogeneous populations iii asymmetric information and iv the extent of compliance and new entry these factors are used to examine the role of transaction costs in the establishment and allocation of property rights to provide globally valued national parks implement the convention on the international trade in endangered species of wild fauna and flora execute the montreal protocol to manage emissions that damage the stratospheric ozone layer set limits on harvest of highly migratory ocean fish stocks and control greenhouse gas emissions jel d23 p14 q22 q51 q54 q58

can international environmental cooperation be bought in this paper a two stage game of international environmental agreement formation with asymmetric countries is analytically solved the equilibrium of the game makes it possible to determine the size and composition of a stable agreement two cases are studied in the first case countries differ only in abatement costs while in the second case they differ in environmental damages in both cases two different institutional settings one without transfers and another with transfers are considered the results establish that the asymmetry assumption has no important effects on the scope of cooperation in comparison with the symmetric case if transfers are not used or abatement costs represent the only difference among countries however when the only difference is in environmental damages the level of cooperation that can be bought through a self financed transfer scheme increases with the degree of asymmetry

bargaining and international environmental agreements this article surveys game theoretic papers focused on the negotiation process that leads to an international environmental agreement most of the papers considered apply bargaining theory although other approaches have been considered as well among other issues the papers considered analyze the burden sharing rule that will result from a negotiation over a global public good the role of information asymmetries the impact of unilateral commitments delegation and ratification whether or not countries are going to form groups during the negotiation process and the influence of the expectation of a future bargaining process on investment decisions the basic bargaining model is optimistic as it predicts that countries will reach an efficient agreement immediately however all the developments of this model surveyed afterwards are rather pessimistic and even the basic model has perverse incentives for pre negotiation signals

incentives and superstars on the lpga tour following ehrenberg and bognanno 1990a b this study explores the role of incentives on the 2000 lpga tour overall it finds them to have limited effectiveness several possible explanations are considered including unmeasured differences in both abilities and courses and variations in the distribution of prizes across tournaments the existence of a superstar effect is also considered

free riding and uncertainty this paper examines the effects of uncertainty on pure public good provision and free riding behavior two models are presented in the first nash behavior is assumed and uncertainty is with respect to the contributions of the rest of the community for the second model non nash behavior is assumed and uncertainty concerns the nonzero response that a representative individual s optimizing choice will cause in the community propositions provide sufficient conditions for increased risk to worsen free riding behavior in the two models for nash behavior we also give the sufficient condition for increased risk to ameliorate free riding behavior the effects of group size on free riding are also explored for uncertain responses by the community

equilibrium binding agreements a comment abstract to construct their equilibrium binding agreements ray and vohra j econ theory 73 1997 30 78 define a concept of an equilibrium between coalitions and prove its existence for any coalition structure we show that this result crucially depends on the quasi concavity of the utility functions which in turn depends on the type of mixed strategies used by the coalitions when coalitions use uncorrelated mixed strategies utility functions may not be quasi concave and an equilibrium may not exist however if coalitions use correlated strategies an equilibrium always exist

optimal indirect and capital taxation we consider an environment in which agents skills are private information and follow arbitrary stochastic processes we prove that it is typically pareto optimal for an individual s marginal benefit of investing in capital to exceed his marginal cost of doing so this wedge is consistent with a positive tax on capital income we also prove that it is pareto optimal for the marginal rate of substitution between any two consumption goods to equal the marginal rate of transformation this lack of a wedge is consistent with uniform taxation of consumption goods within a period

estimates of the costs of kyoto marrakesh versus the mckibbin wilcoxen blueprint in this paper we update our earlier estimates of the cost of the kyoto protocol using the g cubed model taking into account the new sink allowances from recent negotiations as well as allowing for multiple gases and new land clearing estimates we then compare the protocol to an alternative policy outlined in mckibbin et al brookings policy brief no 17 june the brookings institution washington 1997 climate change policy after kyoto a blueprint for a realistic approach the brookings institution washington 2002a j econom perspect 16 2 2002b 107 that does not impose rigid emissions targets we focus particular attention on the sensitivity of compliance costs under each policy to unexpected changes in future economic conditions to illustrate the issue we evaluate the policies under two plausible alternative assumptions about a single aspect of the future world economy the rate of productivity growth in russia we find that moderate growth in russia would raise the cost of the kyoto protocol by as much as 50 percent but would have little effect on the cost of the alternative policy we conclude that the kyoto protocol is inherently unstable because unexpected future events could raise compliance costs substantially and place enormous pressure on governments to abrogate the agreement the alternative policy would be far more stable because it does not subject future governments to adverse shocks in compliance costs

risk aversion wealth and background risk we use household survey data to construct a direct measure of absolute risk aversion based on the maximum price a consumer is willing to pay for a risky security we relate this measure to consumer s endowments and attributes and to measures of background risk and liquidity constraints we find that risk aversion is a decreasing function of the endowment thus rejecting cara preferences we estimate the elasticity of risk aversion to consumption at about 0 7 below the unitary value predicted by crra utility we also find that households attributes are of little help in predicting their degree of risk aversion which is characterized by massive unexplained heterogeneity we show that the consumer s environment affects risk aversion individuals who are more likely to face income uncertainty or to become liquidity constrained exhibit a higher degree of absolute risk aversion consistent with recent theories of attitudes toward risk in the presence of uninsurable risks jel d1 d8

international cooperation for sale abstract this paper shows that strong asymmetry among countries warrants a change in the rules of the game of global public goods provision with the consequence that cooperation by some countries is bought by others and aggregate welfare is increased perhaps substantially side payments on their own have virtually no effect on the outcomes that can be sustained by self enforcing cooperative agreements but when the rules of the game are changed by strong asymmetry when some countries are effectively committed to being non signatories to an agreement eschewing money transfers side payments become the vehicle for increasing participation in a cooperative agreement

the oslo protocol on sulfur reduction the great leap forward the increasing number of international environmental agreements ieas and the fact that under some agreements emissions have been reduced beyond agreed targets are frequently viewed as success stories of international cooperation we argue that success can only be measured if abatement targets under an iea are compared with estimated abatement levels in the absence of a treaty and are evaluated in terms of costs and benefits we analyze the oslo protocol on sulfur reduction showing that this iea is not the great leap forward when compared with the calculated nash equilibrium and the social optimum however we also demonstrate that under the oslo protocol more ambitious targets could not have been realized due to strong free rider incentives

climate treaties and breakthrough technologies an effective climate change treaty must promote the joint supply of two global public goods climate change mitigation and knowledge of new technologies that can lower mitigation costs r d is especially needed to bring about substantial long term reductions in atmospheric concentrations of greenhouse gases for this will require the development and diffusion of revolutionary breakthrough technologies martin i hoffert et al 2002 in principle such an outcome could be realized by the kyoto protocol approach if that agreement were strengthened over time however that response may be inadequate kyoto makes no provision for r d and as i shall demonstrate unlikely to succeed can a treaty system relying directly on targeted r d and the adoption of breakthrough technologies perform better in this same setting of anarchic international relations i will show that as a general rule the answer is no essentially the same forces that undermine kyoto also challenge the r d and technology approach there is one exception to this rule r d leading to breakthrough technologies exhibiting increasing returns can improve dramatically on the kyoto approach even when these technologies are otherwise inferior to the alternatives available this suggests that our approach to treaty design should be strategic

climate and international trade policies when emissions affect production possibilities abstract in this paper we develop a model of international trade and climate change in which emission discharges arising from production have a feedback effect on national production sectors by impacting upon effective factor endowments with this context the objectives are first to provide a general characterization of pareto efficient climate and trade policies and second to examine the possibility starting from non pareto efficient equilibria for pareto improving environmental policies we provide conditions under which several particular reforms of carbon taxes are welfare improving

the allocation of co2 emissions as a claims problem abstract in the context of multilateral negotiations on climate change this paper proposes to use the claims approach as a reasonable and practicable alternative in order to allocate the admissible co2 emissions per region the proposed methodology entails analyze the application of a broad group of theoretical solutions through the establishment of equity and stability criteria to this regard the empirical analyzing combines several co2 world endowments from meinshausen et al 2009 together with claims forecasts associated with the rcp representative concentration pathways scenarios the results obtained indicate that the constrained equal awards and minimal solutions are clearly equity sensitive given that the co2 emission reduction imposed by the constrained equal awards solution on asia and the oecd are very important and considering the better balance between equity and proportionality associated with the min solution it could be that this latter solution would be the most practicable and acceptable

strategic climate policy with offsets and incomplete abatement carbon taxes versus cap and trade abstract this paper provides a first analysis of a policy bloc of fossil fuel importers which implements an optimal climate policy faces a non policy fringe of other fuel importers and an exporter bloc and purchases offset from the fringe we compare a carbon tax and a cap and trade scheme for the policy bloc in either case accompanied by an efficient offset mechanism for reducing emissions in the fringe the policy bloc is shown to prefer a tax over a cap since only a tax reduces the fuel export price and by more when the policy bloc is larger offsets are also more favorable to the policy bloc under a tax than under a cap the optimal offset price under a carbon tax is below the tax rate while under a cap and free quota trading the offset price must equal the quota price the domestic carbon and offset prices are both higher under a tax than under a cap when the policy bloc is small when the policy bloc is larger the offset price can be higher under a cap fringe countries gain by mitigation in the policy bloc more under a carbon tax since the fuel import price is lower

on income and wealth taxation in a life cycle model with extensive labour supply in a stationary life cycle model with extensive labour supply two forms of taxation are studied non linear income taxation and linear wealth taxation in the life cycle model the social weights of the dynasties depend on their permanent incomes not on the observed taxable current income a tax on wealth then can complement income tax as a redistributive tool the derivative of social welfare with respect to the wealth tax rate at the no tax point is computed it is positive whenever permanent income is positively correlated with aggregate life time savings this result is illustrated on a numerical example

optimal income taxation when asset taxation is limited several frictions restrict the government s ability to tax assets first it is very costly to monitor trades on international asset markets second agents can resort to nonobservable low return assets such as cash gold or foreign currencies if taxes on observable assets become too high this paper shows that limitations in asset taxation have important consequences for the taxation of labor income we study a simple dynamic moral hazard model of social insurance with observable and nonobservable saving decisions we find that optimal labor income taxes become less progressive when the ability to tax savings is limited

risk aversion and wealth evidence from person to person lending portfolios we estimate risk aversion from investors financial decisions in a person to person lending platform we develop a method that obtains a risk aversion parameter from each portfolio choice since the same individuals invest repeatedly we construct a panel data set that we use to disentangle heterogeneity in attitudes toward risk across investors from the elasticity of risk aversion to changes in wealth we find that wealthier investors are more risk averse in the cross section and that investors become more risk averse after a negative housing wealth shock thus investors exhibit preferences consistent with decreasing relative risk aversion and habit formation data as supplemental material are available at http dx doi org 10 1287 mnsc 2015 2317 this paper was accepted by amit seru finance

taking one for the team is collective action more responsive to ecological change debate persists around the timing of risk reduction strategies for large scale ecological change for three reasons risks are difficult to predict they involve irreversibilities and they impact multiple jurisdictions the combination of these three factors creates a general class of filterable spatial dynamic externalities fsde in which one person s risk reduction investments reduce or filter undesirable events experienced by others and underestimates the option value placed on being able to respond to new information about the consequences of ecological change by focusing on the optimal intervention decision we illustrate how and when the opposing forces created by an fsde will lead to a divergence in private and collective risk reduction strategies we use bioinvasions as our motivating example the bioinvasion first hits one jurisdiction and that jurisdiction s risk reduction investment reduces the risk faced by all other jurisdiction we find that efforts to internalize the full benefits of risk reduction investments may have unintended consequences on the responsiveness of environmental policy there is a social welfare gain from asking the first jurisdiction to delay a risk reduction investment to internalize the option values of all at risk jurisdictions

the case for a progressive tax from basic research to policy recommendations the fair distribution of the tax burden has long been a central issue in policyhe fair distribution of the tax burden has long been a central issue in policymaking a large academic literature has developed models of optimal tax making a large academic literature has developed models of optimal tax theory to cast light on the problem of optimal tax progressivity in this theory to cast light on the problem of optimal tax progressivity in this paper we explore the path from basic research results in optimal tax theory to paper we explore the path from basic research results in optimal tax theory to formulating policy recommendations formulating policy recommendations models in optimal tax theory typically posit that the tax system should maximize a models in optimal tax theory typically posit that the tax system should maximize a social welfare function subject to a government budget constraint taking into account social welfare function subject to a government budget constraint taking into account that individuals respond to taxes and transfers social welfare is larger when resources that individuals respond to taxes and transfers social welfare is larger when resources are more equally distributed but redistributive taxes and transfers can negatively are more equally distributed but redistributive taxes and transfers can negatively affect incentives to work save and earn income in the fi rst place this creates the clasaffect incentives to work save and earn income in the fi rst place this creates the classical trade off between equity and effi ciency which is at the core of the optimal income sical trade off between equity and effi ciency which is at the core of the optimal income tax problem in general optimal tax analyses maximize social welfare as a function of tax problem in general optimal tax analyses maximize social welfare as a function of individual utilities the sum of utilities in the utilitarian case the marginal weight for individual utilities the sum of utilities in the utilitarian case the marginal weight for a given person in the social welfare function measures the value of an additional dollar a given person in the social welfare function measures the value of an additional dollar of consumption expressed in terms of public funds such welfare weights depend on of consumption expressed in terms of public funds such welfare weights depend on the level of redistribution and are decreasing with income whenever society values the level of redistribution and are decreasing with income whenever society values more equality of income therefore optimal income tax theory is fi rst a normative more equality of income therefore optimal income tax theory is fi rst a normative theory that shows how a social welfare objective combines with constraints arising from theory that shows how a social welfare objective combines with constraints arising from limits on resources and behavioral responses to taxation in order to derive specifi c limits on resources and behavioral responses to taxation in order to derive specifi c

joint implementation strategic reactions and possible remedies this paper investigates the promising proposal of joint implementation ji to mitigate greenhouse gas emissions this was ultimately the only concrete outcome of the conference on climate change in berlin albeit restricted to a pilot phase the basic idea given the public s awareness of global warming sounds economically plausible the industrialized countries the only ones required to stabilize and lower carbon emissions can search for cheaper reductions of greenhouse gas emissions in developing countries and economies in transition however this proposal leads to strategic reactions by developing countries reinforced by the fact that this cheating coincides with the interest of the industrialized country in short this proposal will lead to cheating given asymmetric information and will thus produce largely faked reductions in emissions on the constructive side an efficient mechanism retaining the spirit of ji is derived which deters strategic reactions this differs from a usual principal agent problem through an additional hierarchical layer a global authority e g the conference of parties on climate change an industrialized country and a developing country the unavoidable loss that is even associated with an optimal scheme due to strategic behavioural reality the first best optimum is unattainable except at the top leads of course to much less glamorous predictions in emission reductions moreover the implicit subsidization scheme focuses and favours on already efficient partners

a hotelling model with a ceiling on the stock of pollution abstract environmental agreements such as the kyoto protocol aim to stabilize the amount of carbon in the atmosphere which is mainly caused by the burning of nonrenewable resources such as coal we characterize the solution to the textbook hotelling model when there is a ceiling on the stock of emissions we consider both increasing and decreasing demand for energy we show that when the ceiling is binding both the low cost nonrenewable resource and the high cost renewable resource may be used jointly a key implication is that if energy demand were to decline in the long run we may supplement energy supply through clean renewables to meet the environmental standard but then revert back to using only dirty fossil fuels in the future when the ceiling has become non binding that is the much heralded societal transition to clean energy resources may be short lived

estimating risk preferences from deductible choice we develop a structural econometric model to estimate risk preferences from data on deductible choices in auto insurance contracts we account for adverse selection by modeling unobserved heterogeneity in both risk claim rate and risk aversion we find large and skewed heterogeneity in risk attitudes in addition women are more risk averse than men risk aversion exhibits a u shape with respect to age and proxies for income and wealth are positively associated with absolute risk aversion finally unobserved heterogeneity in risk aversion is greater than that of risk and as we illustrate has important implications for insurance pricing

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

north south negotiations on emission reductions a bargaining approach this article models north south negotiations on emission reductions where the north provides side payments in exchange for the south s adoption of a more stringent emission standard we find that depending on where firms compete strong asymmetry among regions the two regions different valuations of side payments and climate change damage can produce self enforcing cooperative agreements moreover the south s optimal standard choice can be one of two polar cases i e either the cleanest or the dirtiest irrespective of the continuum of standards available the results above can also hold true when both parties bargain over the south s emission tax

green lobbies and transboundary pollution in large open economies abstract we employ a common agency model of policy making to examine how green lobbies affect the determination of trade and environmental policies in two large countries that are linked by trade flows and transboundary pollution we show that the impact of green lobbying on environmental policy outcomes depends crucially on the prevailing trade regime cooperative or non cooperative on whether environmental agencies act in a unilateral or coordinated manner and on the size of the emission leakages and transboundary spillovers under free trade a unilateral increase in pollution taxes reduces domestic emissions at the cost of increased foreign emissions in this case if the emission leakages and the associated transboundary spillovers are large enough green lobbying can create a bias towards lower pollution taxes

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

uncertainty learning and international environmental agreements the role of risk aversion this paper analyses the formation of international environmental agreements ieas under uncertainty learning and risk aversion it bridges two strands of the iea literature i the role of learning when countries are risk neutral ii the role of risk aversion under no learning combining learning and risk aversion seems appropriate as the uncertainties surrounding many international environmental problems are large often highly correlated e g climate change but are gradually reduced over time through learning the paper analyses three scenarios of learning a key finding is that risk aversion can change the ranking of these three scenarios of learning in terms of welfare and membership in particular the negative conclusion about the role of learning in a strategic context under risk neutrality is qualified when countries are significantly risk averse then it pays them to wait until uncertainties have been largely resolved before joining an iea this may suggest why it has been so difficult to reach an effective climate change agreement

on modeling and interpreting the economics of catastrophic climate change with climate change as prototype example this paper analyzes the implications of structural uncertainty for the economics of low probability high impact catastrophes even when updated by bayesian learning uncertain structural parameters induce a critical tail fattening of posterior predictive distributions such fattened tails have strong im plications for situations like climate change where a catastrophe is theoretically possible because prior knowledge cannot place sufficiently narrow bounds on overall damages this paper shows that the economic consequences of fat tailed structural uncertainty along with unsureness about high temperature damages can readily outweigh the effects of discounting in climate change policy analysis

stable coalition structures with externalities this paper argues that the sign of external effects of coalition formation provides a useful organizing principle in examining economic coalitions in many interesting economic games coalition formation creates either negatie externalities or posi tie externalities for nonmembers examples of negative externalities are research coalitions and customs unions examples of positive externalities include output cartels and public goods coalitions i characterize and compare stable coalition structures under the following three rules of coalition formation the open