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

agricultural price instability a survey of competing explanations and remedies there are two explanations for agricultural price dynamics one follows cobweb logic and models fluctuations driven by expectation errors but emphasises that these expectations create complex dynamics and possibly chaos the other stems from the rational expectations tradition of dynamics driven by real shocks the empirical evidence tends to support the latter but is not conclusive the rational expectations model generates an optimal dynamic path from which no improvement can be expected from public intervention however if we take account of all the potential market failures in agricultural markets and especially in developing countries this conclusion might require some qualifications although an appropriate policy design for stability has still to be achieved this paper surveys the positive and normative literature on agricultural prices highlighting empirical evidence and identifying remaining unresolved issues

spatial targeting of payments for environmental services a tool for boosting conservation benefits abstract payments for environmental services pes have become an increasingly popular market based instrument to translate external non market environmental services into financial incentives for landowners to preserve the ecosystems that provide the services however lack of spatial differentiation in the targeting mechanism may lead to efficiency losses addressing this challenge we construct an applied site selection tool which takes into account three variables that vary in space environmental services provided risks of losing those services and participation costs using data from costa rica s nicoya peninsula we empirically test the tool s potential to increase the financial efficiency of the forest focused pes program in place results show that given a fixed budget efficiency increases radically if per hectare payments are aligned to landowners heterogeneity in participation costs involving opportunity transaction and direct costs of protection respectively selecting sites based on environmental service potential also moderately increases efficiency overall additionality could in the best case be doubled but remains generally limited due to current low deforestation risks prevailing in costa rica to take advantage of the high efficiency potentials of flexible payments we propose inverse auction systems as a cost effective approach for the determination of micro level participation costs

complex dynamics in a cobweb model with adaptive production adjustment abstract chaos occurs in a nonlinear cobweb model with normal demand and supply naive expectations and adaptive production adjustment the model differs from existing ones in that it includes adaptive production adjustment instead of adaptive expectations the model exhibits observable chaos strange attractors as well as topological chaos horseshoes associated with homoclinic points as numerical simulations show the faster suppliers adjust their production and the more inelastic demand is the more likely the market behaves chaotically

externality correcting taxes and regulation externality correcting taxes and regulation in much of the literature on externalities taxes and direct regulation have been considered as alternative policy instruments both instruments might be imperfect in practice reflecting informational deficiencies and other limitations we analyse the use of taxes and regulation in combination to control externalities arising from individual consumption behaviour we consider the cases either where taxes are imperfectly differentiated to reflect individual differences in externalities or where some consumption escapes taxation in both cases we characterize the optimal instrument mix and we show how changing the level of direct regulation alters the optimal externality tax

pollution markets with imperfectly observed emissions i study the advantages of pollution permit markets over uniform emission or technology standards when the regulator has incomplete information on firms emissions and costs of production and abatement e g air pollution in large cities because the regulator observes only each firm s abatement technology but neither its emissions nor its output there are cases in which standards can lead to lower emissions and hence welfare dominate permits if permits are optimally combined with standards in many cases this hybrid policy converges to the permits alone policy but almost never to the standards alone policy

asymmetric fdi and tax treaty bargaining theory and evidence abstract tax treaties are often viewed as a mechanism for eliminating tax competition however this approach ignores the need for bargaining over the treaty s terms this paper focuses on how bargaining can affect the withholding taxes set under the treaty in a simple framework we develop hypotheses about patterns in treaty tax rates a key determinant for these patterns is the relative size of bilateral foreign direct investment fdi activity in plausible situations more asymmetric countries will negotiate treaties with higher tax rates this theory is then tested using 1992 data from us and organization for economic cooperation and development oecd bilateral tax treaties overall the data supports the prediction that greater asymmetric fdi activity increases the negotiated tax rates

the institutional causes of china s great famine 1959 1961 this paper studies the causes of china s great famine during which 16 5 to 45 million individuals perished in rural areas we document that average rural food retention during the famine was too high to generate a severe famine without rural inequality in food availability that there was significant variance in famine mortality rates across rural regions and that rural mortality rates were positively correlated with per capita food production a surprising pattern that is unique to the famine years we provide evidence that an inflexible and progressive government procurement policy where procurement could not adjust to contemporaneous production and larger shares of expected production were procured from more productive regions was necessary for generating this pattern and that this policy was a quantitatively important contributor to overall famine mortality

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

dynamics of the cobweb model with adaptive expectations and nonlinear supply and demand the price quantity dynamics of the cobweb model with adaptive expectations and nonlinear supply and demand curves is analysed we prove that chaotic dynamical behaviour can occur even if both the supply and demand curves are monotonic the introduction of adaptive expectations into the cobweb model leads to price quantity fluctuations with a smaller amplitude however at the same time the price quantity cycles may become unstable and chaotic oscillations may arise we present a geometric explanation why chaos can occur for a large class of nonlinear monotonic supply and demand curves

case study of agri environmental payments the united kingdom abstract the environmentally sensitive areas esa program when launched in the united kingdom uk in 1986 was the first agri environmental program in the european union eu this program grew to a total of 43 designated esa schemes in the uk as a whole 22 of which were in england a variety of agri environmental payments programs were created to supplement and complement the esa schemes in years to follow the most prominent of these in england was the countryside stewardship scheme css established in 1991 the css was available to farmers outside the esas and like the esa program was intended to protect valued landscapes and habitats and to improve public enjoyment of the countryside by 2003 over 10 of england s agricultural land was enrolled in either esa or css agreements these voluntary agreements were long term contracts usually for 10 years between the government and farmers to provide environmental services several major evaluations of the esa program and the css were conducted over the years and the results of many of those evaluations and the lessons derived are synthesized and summarized in this article both the esa program and the css proved to be generally effective in enrolling many farmers in the entry level contract tiers thereby halting or slowing degradation of rural landscape and other environmental features however the schemes did not generally offer sufficient economic incentives to attract high levels of enrollment in the intensive farming areas also the schemes were limited in their success in enrolling farmers in higher payment tiers tiers that required more substantial changes in farming practices the high crop and livestock related payments received by farmers under the eu s common agricultural policy cap contributed to the disincentives to participate especially in higher tiers following the latest 2003 reforms of the eu s cap england s esa program and css are being replaced by a new consolidated package of schemes that draws on lessons learned over the past 15 20 years with these two flagship programs

crediting uncertain ecosystem services in a market the margin of safety mos approach is an increasingly prevalent tool for ensuring the integrity of market based programs for providing ecosystem services over crediting is reduced by setting aside mean estimates of uncertain services in favor of a more conservative estimate like many environmental policy problems ecosystem service markets involve the aggregation of uncertainty over multiple scales e g from landowners to market intermediaries to the overall market we examine how the mos instrument affects and is affected by an ecosystem services market we show that the common bottom up approach of imposing risk preferences at a local disaggregated level held over from earlier development in the context of toxics and command and control style health risk regulation leads to several unintended consequences furthermore discounting landowner services can actually increase their profits conditional on the elasticity of credit demand we illustrate theoretical insights with an empirical application to greenhouse gas offset crediting in agriculture

what can we learn from the grand policy experiment lessons from so2 allowance trading stable url http links jstor org sici sici 0895 3309 28199822 2912 3a3 3c69 3awcwlft 3e2 0 co 3b2 tthe journal of economic perspectives is currently published by american economic association your use of the jstor archive indicates your acceptance of jstor s terms and conditions of use available athttp www jstor org about terms html jstor s terms and conditions of use provides in part that unless you have obtainedprior permission you may not download an entire issue of a journal or multiple copies of articles and you may use content inthe jstor archive only for your personal non commercial use please contact the publisher regarding any further use of this work publisher contact information may be obtained athttp www jstor org journals aea html each copy of any part of a jstor transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission the jstor archive is a trusted digital repository providing for long term preservation and access to leading academicjournals and scholarly literature from around the world the archive is supported by libraries scholarly societies publishers and foundations it is an initiative of jstor a not for profit organization with a mission to help the scholarly community takeadvantage of advances in technology for more information regarding jstor please contact support jstor org http www jstor orgtue jun 26 16 25 17 2007

an interim evaluation of sulfur dioxide emissions trading ide iv of the 1990 clean air act amendments established the first large scale long term environmental program to rely on tradable emissions permitscalled allowances in this program to control pollution this program was designed to cut acid rain by reducing sulfur dioxide so2 emissions from electric generating plants to about half their 1980 level beginning in 1995 it is of interest both as a response to an important environmental issue and as a landmark experiment in environmental policy this experiment comes at a particularly important time since emission trading is under serious consideration with strong u s backing for use to deal with global climate change by curbing emissions of carbon dioxide co2 the economic stakes in climate change surpass those in acid rain by several orders of magnitude intergovernmental panel on climate change 1996 this article summarizes the results to date of our ongoing empirical analysis of compliance costs and allowance market performance under the u s acid rain program

creating incentives for the adoption of sustainable agricultural practices in developing countries the role of soil carbon sequestration sustainable agricultural development is widely acknowledged as a critical component in a strategy to combat both poverty and environmental degradation yet sustainable agricultural development remains an elusive goal particularly in many of the poorest regions of the world soil degradation continues to be a key factor in unsustainable production systems despite decades of research on soil conservation and other sustainable practices hudson scherr barrett place and aboud sanchez various studies stress the role played by resource poor farmers in human induced natural resource degradation bruntland commission reardon and vosti barbier the prevailing economic explanation for the continuing trend toward resource degradation in many parts of the world is that economic incentives often encourage degradation and discourage conservation these incentive problems have been attributed to poor farmers high discount rates lack of capital markets high transport costs and other market imperfections adverse government policies insecure property rights and limited availability of fodder for grazing or fuel for cooking and heating e g lutz pagiola and reiche heath and binswanger from this perspective the challenge facing researchers and policy analysts is to understand the factors and processes causing the use

spatial heterogeneity contract design and the efficiency of carbon sequestration policies for agriculture abstract in this paper we develop methods to investigate the efficiency of alternative contracts for carbon c sequestration in cropland soils taking into account the spatial heterogeneity of agricultural production systems and the costs of implementing more efficient contracts we describe contracts being proposed for implementation in the united states and other countries that would pay farmers for adoption of specified practices per hectare contracts we also describe more efficient contracts that would pay farmers per tonne of soil c sequestered and we show how to estimate the costs of implementing these more efficient contracts in a case study of a major agricultural region in the united states we confirm that the relative inefficiency of per hectare contracts varies spatially and increases with the degree of spatial heterogeneity the results also show that per hectare contracts are as much as five times more costly than per tonne contracts a degree of inefficiency similar to that found in assessments of command and control industrial emissions regulations measurement costs to implement the per tonne contracts are found to be positively related to spatial heterogeneity but are estimated to be at least an order of magnitude smaller than the efficiency losses of the per hectare contract for reasonable error levels this finding implies that contracting parties could afford to bear a significant cost to implement per tonne contracts and achieve a lower total cost than would be possible with the less efficient per hectare contracts

optimal environmental regulation under asymmetric information abstract a market model of environmental regulation with interdependent production and pollution abatement costs and heterogeneous firms is developed firms have private information about costs which have a quadratic form firms pursue bayes nash strategies in communication with the regulator the full information optimum cannot be attained unless gains from trade in the product market net of external damages exceed the information rents earned by firms aggregate output and externality levels are lower at the regulated equilibrium than at the full information social optimum

profit maximizing land use revisited the testable implications of non joint crop production under land constraint this article derives new implications for the land allocation and production decisions of profit maximizing farm firms where production of different crops is non joint but subject to a constraint on the total land area these implications are observable and thus subject to empirical scrutiny an estimable model of crop production land allocation and input use decisions is derived that permits joint production and enables the implications of non joint but land constrained production to be tested this may improve econometric estimates of cross price elasticities of supply by linking models of land use and production decisions and allowing non jointness to be imposed where appropriate copyright 2013 oxford university press

cap mtr versus environmentally targeted agricultural policy in marginal arable areas impact analysis combining simulation and survey data on june 2003 the final version of the common agricultural policy mid term review cap mtr was published the driving forces of this policy change include inter alia the compliance with world trade organization wto negotiations requirements improvement of social support for agricultural policy adjustment to budget constraints and adaptation of agricultural practices to environmental requirements this article reviews how this policy performs in marginal areas regarding one of those objectives the provision of environmental outputs related to agricultural activity as an alternative to this reform a policy based on agri environmental measures designed to maximize environmental outputs is proposed both options are evaluated from a cost effectiveness point of view data from a farm survey and a positive mathematical programming model for a cereal steppes agro system in spain are combined in order to simulate the effects of this reform and our alternative instrument on several environmental indicators results show that in marginal areas where land abandonment is a clear threat more environmental output can be achieved for the same cost while maintaining if not increasing the levels of achievement for the other goals

efficiency of second generation biofuel crop subsidy schemes spatial heterogeneity and policy design policy schemes that aim to stimulate the cultivation of biofuel crops typically ignore the spatial heterogeneity in costs and benefits associated with their production because of spatial heterogeneity in biophysical and current agricultural production factors potential gains from stimulating biofuel crops are non uniformly distributed across space this paper explores implications of this type of heterogeneity for the net benefits associated with different subsidy schemes we present a simple framework based on discounted cash flows to assess potential gains from introducing the notion of heterogeneity into stimulation schemes we show that agricultural subsidy spending can be reduced in a pareto efficient way and simultaneously improve the total stimulation potential of biofuel policies when schemes 1 are production based instead of land based 2 accommodate differences in opportunity costs and 3 target sites where subsidies for conventional agricultural land use types are high these results are robust for a range of different bioenergy prices and the relative gains of addressing these key elements in policy compared to conventional stimulation schemes increase with lower bioenergy prices and are largest when low prices coincide with high emission reduction ambitions

caution implies profit abstract the paper illustrates by simple cobweb models that under certain circumstances fluctuations in perpetual disequilibrium may not only be viable but also preferable to a competitive equilibrium from the long run perspective

a simple auction mechanism for the optimal allocation of the commons efficient regulation of the commons requires information about the regulated firms that is rarely available to regulators e g cost of pollution abatement this paper proposes a simple mechanism that implements the first best for any number of firms a uniform price sealed bid auction of an endogenous number of transferable licenses with a fraction of the auction revenues given back to firms paybacks which rapidly decrease with the number of firms are such that truth telling is a dominant strategy regardless of whether firms behave non cooperatively or collusively the mechanism also provides firms with incentives to invest in socially optimal r d jel d44 d62 d82 q28 regulatory authorities generally find that part of the information they need for implementing an efficient regulation is in the hands of those who are to be regulated regulating externalities such as access to common resources e g clean air water streams fisheries etc is a good example environmental regulators for example know little about firms pollution abatement costs so without communicating with firms they would be unable to establish the efficient level of pollution a number of mechanisms have been proposed for inducing firms to reveal their private information but for different reasons

structural agricultural land use modeling for spatial agro environmental policy analysis this paper develops a spatially disaggregated structural econometric model of agricultural land use and production based on the joint multi output technology representation introduced by chambers and just 1989 starting from a flexible specification of the farm profit function we derive land use allocation input application crop yield and livestock intensity equations in a joint and theoretically consistent framework to account for the presence of censored observations in micro level data the model is estimated as a system of two limit tobit equations via quasi maximum likelihood we present an empirical application using fine scale spatial data covering the entirety of england and wales and including the main economic policy and environmental drivers of land use change in the past forty years a simulation of the effects of diffuse pollution reduction measures illustrates how our approach can be applied for agro environmental policy appraisal

the additionality problem with offsets optimal contracts for carbon sequestration in forests abstract carbon offsets are a frequently discussed tool for reducing the costs of an emissions reduction policy however offsets have a basic problem stemming from asymmetric information sellers of offsets have private information about their opportunity costs leading to concerns about whether offsets are additional non additional offsets can undermine a cap and trade program or if the government purchases them directly result in enormous government expenditures we analyze contracts for carbon sequestration in forests that mitigate the asymmetric information problem landowners are offered a menu of two part contracts that induces them to reveal their type under this scheme the government is able to identify ex post how much additional forest each landowner contributes and minimize ex ante its expenditures on carbon sequestration to explore the performance of the contracting scheme we conduct a national scale simulation using an econometric model of land use change the results indicate that for an increase in forest area of 61 million acres government expenditures are 5 3 billion lower under the contracting approach compared to a uniform subsidy offered to all landowners this compares to an increase in private opportunity costs of just 110 million dollars under the contracts thus the contracting scheme is preferable from society s perspective

modeling linkages between climate policy and land use an overview agriculture and forestry play an important role in emitting and storing greenhouse gases for an efficient and cost effective climate policy it is therefore important to include land use land use change and forestry lulucf explicitly in economy climate models this article gives an overview and assessment of existing approaches to include lulucf into partial and general equilibrium economy climate models for each class of models we describe different examples their treatment of land and their potential for and applicability to policy analysis as well as their shortcomings we identify data requirements and conceptual problems and provide suggestions for future research

economic incentives for environmental protection integrating theory and practice for decades economists have been extolling the virtues of market based or economic incentive approaches to environmental protection some 70 years ago arthur cecil pigou 1920 suggested corrective taxes to discourage activities that generate externalities a half century later j dales 1968 showed how the introduction of transferable property rights could work to promote environmental protection at lower aggregate cost than conventional standards from these two seminal ideas corrective taxes and transferable property rights a substantial body of research has developed both environmental taxes and marketable permits are coming of age in the policy arena examples include the introduction of marketable permits in the united states to control acid rain the use of changes in europe to limit air and water pollution and the employment of deposit refund schemes for products ranging from beverage containers to batteries the introduction of these tools on a large scale provides a unique opportunity to extend the frontiers of knowledge this essay strives to identify prominent issues that merit investigation 8 refs

economic spillovers in spatial harvest behavior abstract there has been a strong push within natural resource management to incorporate spatial structure into management regimes however discussions surrounding the appropriate designs of spatial management have largely been conceptual this paper develops a spatial econometric model of fishing location choice using non confidential data from the great barrier reef coral trout commercial fishery harvest location decisions are modeled as a function of spatial patterns of expected economic returns the preferred spatially dependent econometric model is shown to outperform ordinary least squares and fixed effects models in out of sample forecasting estimates from the spatial model reveal spatial spillover effects in fleet harvest location behavior in particular harvest activity at any given site is equally sensitive to same site economic returns and surrounding site economic returns the econometric results are illustrated using a fee based policy simulation results suggest non spatial management is characterized by two inefficiencies first heterogeneity between sites is averaged resulting a fee that is too high or too low across space second fees that are too high or too low affect the fishing effort in nearby locations

self selection bias in the evaluation of voluntary energy conservation programs while voluntary energy conservation programs have been extensively promoted by electric utilities and public utility commissions their effectiveness has been insufficiently critiqued this paper contributes to the growing evaluation of such programs by measuring the net energy savings directly attributable to an actual set of programs the analysis explicitly corrects for the self selection bias that can arise in program evaluation the correction is found to be important traditional evaluation methods are subject to considerable bias correcting for this bias the amount of program induced energy savings is found to be considerably less than traditionally believed copyright 1988 by mit press

the social costs of second best policies evidence from agricultural ghg mitigation abstract this paper investigates the social costs of second best agricultural greenhouse gas ghg mitigation policies adjustments along the land use and input intensity margins are represented within a regionalized optimization model of california crop production calibrated to economic and agronomic information second best policies relying on spatially aggregated ghg emission factors lead to small abatement efficiency losses while policies targeting a single ghg lead to moderate losses in contrast policies targeting a single input entail large abatement efficiency losses which nonetheless can be reduced by combining instruments

designing efficient markets for carbon offsets with distributional constraints abstract this paper presents an assessment of the relative efficacy of three key instruments baselines trade ratios and limits which are under policy discussion in the design of carbon offset programs we rank the instruments by their implications for total emissions economic efficiency and efficiency gain relative to a distributional transfer from capped to uncapped sectors we find that the baseline is the best instrument for maximizing welfare as it directly reduces the share of offsets that are non additional and that second best policies do not sacrifice much welfare relative to the standard first best policy prescription

the net benefits of incentive based regulation a case study of environmental standard setting economists interested in environmental safety and health regulation have long argued that decentralized incentive based or ib policies are more efficient than centralized command and control or cac approaches see charles schultze 1977 for instance these arguments generally have been based on the assumption that ib policies will accomplish the same goals as their cac counterparts but at less cost to society however some of those touting ib policies have overlooked an important point environmental workplace or even productsafety standards typically take the form of maximum permissible concentrations of harmful substances so that compliance only requires that all monitoring points or samples register readings below these critical levels for this reason ib policies typically assign a shadow price of zero to improvements that exceed the standard s while more crude cac policies generally result in overcontrol beyond the standards if there is no value to this overcontrol cac policies will not improve at all on ib approaches and will indeed be more expensive if however reduced concentrations below the level of the standards bring with them further improvements in health or the environment cac approaches will produce greater benefits than ib approaches thus a fair comparison between the two necessitates that any additional benefits associated with cac policies be offset against the cost advantages enjoyed by their ib counterparts although this possibility has been recognized by others scott atkinson and t h tietenberg 1982 for instance it is little appreciated and its empirical significance has never been ascertained that is our purpose here we do so by developing data on the costs and benefits of controlling a common air pollutant total suspended particulates or tsp in baltimore by comparing the tsp levels likely under both ib and cac approaches we are able to estimate the marginal costs and benefits associated with a variety of alternative air quality standards which take the form of maximum permissible concentrations this in turn allows us to determine the net benefits arising from the two kinds of regimes in the next section we present a simple conceptual framework for our analysis section ii describes the estimation of the costs and benefits of our hypothesized air pollution controls in baltimore section iii presents our somewhat surprising findings and section iv discusses those findings and their potential significance for regulation in the real world

scale and transfers in international emissions offset programs abstract voluntary emissions offset programs between developing and industrialized countries suffer from adverse selection because participants will self select into the program in contrast pure subsidies for mitigation lead to full participation and hence efficiency but require large financial transfers which make them unattractive to industrialized countries we present a simple model to demonstrate the impact of three policy options on the performance of offset programs 1 baseline scale increases 2 offset discounting and 3 setting stringent baselines with baseline scale increases entire political jurisdictions such as regions or nations are assigned a single aggregate baseline and must choose whether to participate as one entity we find that increasing scale both improves efficiency and reduces transfers from offset buyers to sellers offset discounting means paying less than the value of abatement and can be paired with trading ratios between offsets and allowances in a cap and trade system we show that discounting is inefficient but can make offsets more attractive to industrialized countries setting stringent baselines also involves a tradeoff between efficiency and transfers we finally show that pareto efficient policies that are individually rational for buyers and sellers entail some combination of discounting and or stringent baselines offset policies are never first best but can be efficiency improving especially with increased scale

the costs of carbon sequestration a revealed preference approach increased concem by policy makers with the threat of global climate change has brought with it considerable attention to the possibility of encouraging the growth of forests as a means of sequestering carbon dioxide national academy of sciences nas 1992 james p bruce et al 1996 1 the kyoto protocol to the united nations framework convention on climate change 1997 which establishes emission reduction targets for the united states and other industrialized nations states that carbon sequestration can be used by participating nations to achieve their targets moreover even before the kyoto agreement this approach had become an explicit element of both u s and intemational climate policies u s department of energy 1991 united nations general assembly 1992 william j clinton and albert gore 1993 this high level of interest has been due in part to suggestions that sufficient lands are available to use the approach to mitigate a substantial share of annual carbon dioxide c02 emissions greg marland 1988 daniel a lashof and dennis a tirpak 1989 mark c trexler 1991 and claims that growing trees to sequester carbon is a relatively inexpensive means of combating climate change roger a sedjo and allen m solomon 1989 daniel j dudek and alice leblanc 1990 nas 1992 in other words the serious attention given by policy makers to carbon sequestration can partly be explained by implicit assertions about respective marginal cost functions i develop and demonstrate a method by which the costs of carbon sequestration can be estimated on the basis of evidence from landowners behavior when confronted with the opportunity costs of alternative land uses the simplest of previous economic analyses derived single point estimates of average costs associated with particular sequestration levels marland 1988 sedjo and solomon 1989 dudek and leblanc 1990 edwin s rubin et al 1992 omar masera et al 1995 often it has been assumed that land opportunity costs are zero g van kooten et al 1992 j k winjum et al 1992 new york state energy office 1993 robert k dixon et al 1994 another set of studies essentially engineering costing models has constructed marginal cost schedules by using information on revenues and costs of production for altemative uses on representative types or locations of land and then sorting these in ascending order of cost robert j moulton and kenneth r richards 1990 richards et al 1993 simulation models include a model of the lost profits due to removing land from agricultural production peter j parks and ian w hardie 1995 a mathematical programming model of the agricultural sector and the timber market richard m adams et al 1993 a related model incorporating the effects of agricultural price support programs j m callaway and bruce mccarl 1996 and a dynamic simulation model of forestry susan swinehart 1996 lastly an analysis by andrew j plantinga 1995 adopts land use elasticities from an econometric study to estimate sequestration costs we draw on some of the best features of the previous studies including the carbon levelization method of moulton and richards john f kennedy school of government harvard university 79 john f kennedy street cambridge ma 02138 and resources for the future richard newell supplied excellent research assistance and valuable comments on a previous version were provided by lawrence goulder william nordhaus andrew plantinga kenneth richards two anonymous referees participants in seminars at the universities of california at los angeles and santa barbara the university of maryland the university of michigan the university of texas harvard university stanford university yale university resources for the future and the national bureau of economic research the author alone is resdonsible for any errors 1 after fossil fuel combustion deforestation is the second largest source of carbon dioxide emissions estimates of annual global emissions from deforestation range from 0 6 to 2 8 billion tons compared with slightly less than 6 0 billion tons annually from fossil fuel combustion cement manufacturing and natural gas flaring combined r a houghton 1991 t m smith et al 1993

economics of additionality for environmental services from agriculture abstract we present a model of additionality for offsets sold from agriculture to industrial sector sources regulated by cap and trade we consider a potential policy where agricultural sources would not be covered by cap and trade requirements but would be eligible to receive offsets whenever their emissions fall below a policy specified baseline and would not be penalized for emissions above their baseline major results are 1 the optimal baseline should be set above the average counterfactual emissions of participating farms an unexpected result that has been missing from the literature 2 the optimal trading ratio should be greater than one a ton of offsets counts for less than a ton of covered emissions even under emissions certainty previous research has justified such trading ratios by emissions uncertainty 3 emissions uncertainty does not justify a change in the baseline if the accompanying emissions model is unbiased 4 an optimal combination of policies is to subsidize offsets and tighten the baseline relative to the no subsidy case

international emissions trading with endogenous allowance choices abstract this paper compares endogenous choices of tradable and non tradable emission allowances by non cooperative countries i find that the cost savings of trading do not necessarily lead to less pollution in particular environmentally more concerned countries usually choose less allowances if these are tradable but this may be offset by the choice of more allowances on the side of environmentally less concerned countries moreover if the establishment of a trading system requires the unanimous approval of all countries there may be no agreement on trading even if it were to lead to less pollution overall conversely a trading system may find unanimous approval even if it induces more pollution

the endogenous transaction costs of delegated auditing abstract this paper analyzes the deadweight loss of delegated auditing in a three tier hierarchy in a costly state verification model this cost depends on the endogenous information structure the auditor s degree of risk aversion and the size of the punishment we identify the optimal contractual outcome of this delegation model with the solution obtained in a standard three tier hierarchical model of collusive auditor we then derive from this identification the set of parameters of the physical environment which may affect the efficiency of side contracting within the firm

adaptive expectations and cobweb phenomena does heterogeneity matter this paper studies a cobweb type commodity market characterized by a strictly monotone demand and supply in which n types of firms operate types differ in a key parameter governing price expectations which are supposed to be adaptive the unique steady state of the resulting economic dynamics is characterized in terms of stability and the impact of the number of firms types is studied to this end the notions of structural and behavioural degree of instability which are introduced in the paper prove to be crucial in determining whether stability or instability prevail the case of market integration is also considered and conditions to have stability or instability in terms of the original markets parameters are given the baseline structure is extended in two directions the first extension assumes the point of view of an authority who is uncertain about the firms types in this case the structural degree of instability determines how heterogeneity affects the probability of ending up with a stable outcome the second extension consists in endogenizing the choice of predictors through a discrete choice based evolutionary mechanism in both cases the amount of the heterogeneity and its possible variations play a critical role in shaping the range of possible long run outcomes of the model

voluntary compliance with market based environmental policy evidence from the u s acid rain program the u s acid rain program implemented a nationwide market for electric utilities sulfur dioxide so2 emissions and included voluntary compliance possibilities for nonaffected sources i observe significant voluntary participation albeit with small impact on the so2 market mostly from sources with counterfactual emissions below their allowance allocations an ex post analysis suggests that costs from the resulting higher emissions outweigh savings from shifts in emissions reductions from high cost affected sources to low cost nonaffected sources further utilities voluntary participation is well explained by economic variables which provides new evidence of cost effective compliance strategies and low transaction costs

the cobweb borrowing and financial crises abstract studies of non linear cobweb models have failed to address a fundamental issue whether the complex dynamical behavior displayed by such models is consistent with the survival of producers this paper shows that where borrowing is unconstrained as is implicitly assumed in standard cobweb models borrowing results in financial crises incorporating constraints on borrowing is needed to salvage cobweb models industry performance in terms both of profitability and of the incidence of bankruptcies is highly sensitive to the nature of such credit restrictions

mitigation incentives with climate finance and treaty options abstract future greenhouse gas ghg mitigation action of current non climate policy np countries is considered to take two alternative forms 1 climate finance payments received in return for future reductions in its ghg emissions below a defined baseline and 2 join a climate treaty whereby the required emissions reductions are formally binding it is assumed that baselines defining climate finance payments and required emissions reductions under a treaty depend positively on current emissions it is then shown that making such future options available reduces current ghg mitigation in np countries leading to higher emissions in the short run this effect is stronger when future climate finance payments are higher the required relative emissions reductions under a treaty are greater when commitments under a treaty are longer lasting and mitigation targets depend more on current emissions such short run increases in emissions can sometimes more than fully eliminate the effect of the subsequent policy when climate finance and treaties are both future alternatives more generous climate finance can make it harder and more expensive to induce the country to join a climate treaty

costs of alternative environmental policy instruments in the presence of industry compensation requirements abstract this paper explores how the costs of meeting given aggregate targets for pollution emissions change with the imposition of the requirement that key pollution related industries be compensated for potential losses of profit from the pollution regulation we apply a numerically solved general equilibrium model to compare the incidence and costs of emissions taxes fuel intermediate input taxes performance standards and mandated technologies in the absence and presence of this compensation requirement compensation is provided either through industry tax credits or industry specific cuts in capital tax rates we analyze the added costs from the compensation requirement in terms of 1 an increase in intrinsic abatement cost reflecting a lowered efficiency of pollution abatement and 2 a lump sum compensation cost that captures the efficiency costs of financing the compensation the compensation requirement affects these components differently depending on the policy instrument involved and the required extent of pollution abatement as a result it can change the cost rankings of the different instruments in particular when compensation is provided through lump sum tax credits the lump sum compensation cost is higher under the emissions tax than under the command and control policies performance standards and mandated technologies a reflection of the higher compensation requirements under the emissions tax when the required pollution reduction is modest imposing the compensation requirement causes the emissions tax to lose its status as the least costly instrument and to become more costly than command and control policies in contrast when required abatement is extensive the emissions tax again becomes the most cost effective instrument because of its advantages in terms of lower intrinsic abatement cost

pricing monitoring uncertainty in climate policy this article assesses the environmental and economic efficiency of three different approaches to treat monitoring uncertainty in climate policy namely prescribing uncertainty setting minimum certainty thresholds and pricing uncertainty through a discount our model of the behavior of profit maximizing agents demonstrates that under the simplest set of assumptions the regulator has no interest in reducing monitoring uncertainty however in the presence of information asymmetry monitoring uncertainty may hamper the economic and environmental performance of climate policy due to adverse selection in a mandatory policy prescribing a reasonable level of uncertainty is preferable if the regulator has enough information to determine this level for voluntary mechanisms such as carbon offsets allowing agents to set their own monitoring uncertainty below a maximum threshold or discounting carbon revenues in proportion to monitoring uncertainty are the best approaches for the regulator to mitigate the negative effects of information asymmetry these conclusions are much more pronounced when agents do not accrue revenues from their mitigation action other than carbon our analysis of monitoring uncertainty under information asymmetry which results in heterogeneity in the agents benefits from abatement generalizes the classical trade off between production efficiency and information rents

designing economic instruments for the environment in a decentralized fiscal system 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

spatial heterogeneity and the choice of instruments to control nonpoint pollution because it is difficult to monitor emissions and to implement differentialtaxes and standards uniform taxes and standards on agricultural chemicaluse are often proposed and used to control nonpoint source pollution thisarticle analyzes the relative efficiency of these uniform instruments in thepresence of spatial heterogeneity we show that the relative slopes of themarginal pollution cost and marginal profit of chemical use are only one ofthe factors that affect the relative efficiency other factors includecorrelation between marginal pollution costs and marginal profits and theslope and variability of marginal profits in addition a uniform tax mayresult in some farmers not using the chemical and a uniform standard mayhave no effect on low input land we show empirically that the presence ofcorner solutions can reverse a conventional finding of tax or standardsuperiority based on the relative slop rule

the true art of the tax deal evidence on aid flows and bilateral double tax agreements out of a total of 2 976 double tax agreements dtas some 60 are signed between a developing and a developed economy as dtas shift taxing rights from capital importing to capital exporting countries the prior would incur a loss we demonstrate in a theoretical model that in a deal one country does not trump the other but that the deal must be mutually beneficial in the case of an asym metric dta this requires compensation from the capital exporting country to the capital importing country we provide empirical evidence that such compensation is indeed paid for instance in the form of bilateral official development assistance which increases on average by six million us in the year of the signature of a dta

emissions trading with offset markets and free quota allocations we study optimal climate policy for a policy bloc of countries facing a market where emissions offsets can be purchased from a non policy fringe of countries such as with the cdm policy bloc firms benefit from free quota allocations which are updated according to either firms past emissions or outputs we show that the resulting abatement and its allocation between policy bloc and fringe are both inefficient when all quotas are traded freely at a single price the policy bloc chooses to either not constrain the offset market leading to suboptimal policy bloc mitigation or ban offsets completely the former latter case occurs when free allocation of quotas is not very generous and the offset market is large small it is preferable for policy bloc countries governments to instead buy offsets directly from the fringe at a quota price below marginal damage cost of emissions while the policy bloc quota price will be above this cost with maximization of global welfare and a unified quota price this price is higher and offsets constrained in fewer cases but the solution still inefficient full efficiency then requires a higher quota price in the policy bloc than in the fringe

prices versus quantities with incomplete enforcement abstract i study whether incomplete enforcement of a regulation has any impact on the choice between price e g taxes and quantity e g tradeable quotas instruments results indicate that a second best design accounting for incomplete enforcement can be implemented equally well with either instrument as long as the benefit and cost curves are known with certainty if these curves are uncertain to the regulator however the quantity instrument performs relatively better than the price instrument the reason is that the effective amount of control under the quantity instrument is no longer fixed which makes this instrument come closer to a non linear instrument

the economics of a public fund for environmental amenities a study of crp contracts the problem of targeting crp purchases to buy environmental amenities under productivity and environmental heterogeneity is considered gini coefficients and lorenz curves are used to measure the effectiveness of spending under alternative targeting criteria the environmental benefits considered are water erosion wind erosion surface water quality and wildlife habitat the three alternative targeting criteria examined include purchasing land according to i the benefit to cost ratio ii the level of benefits and iii the level of cost results indicate that the degree of variability and correlation determine the extent to which suboptimal targeting achieves a significant portion of available environmental benefits

the optimal allocation of conservation funds abstract this paper presents a framework to evaluate alternative designs of conservation programs and their implications for the allocation of conservation funds we show that the efficient allocation of conservation funds must consider two important pooling effects cumulative effects and interrelationships among alternative environmental benefits ignoring the cumulative effects of environmental benefits may cause conservation funds to be overly dispersed geographically and as a result may result in minimum environmental benefits when the budget is small ignoring the interrelationships among alternative environmental benefits may result in not only misallocation of conservation funds among geographical areas but also incorrect resources being targeted for conservation practices implications of these results for the design of conservation programs are discussed

econometric process models for integrated assessment of agricultural production systems this article develops the conceptual and empirical basis for a class of empirical economic production models that can be linked to site specific biophysical models for use in integrated assessment research site specific data are used to estimate econometric production models and these data and models are then incorporated into a simulation model that represents the decision making process of the farmer as a sequence of discrete and continuous land use and input use decisions an econometric process model of the dryland grain production system of the northern plains demonstrates the capabilities of this type of model to simulate decision making both within and outside the range of observed data copyright 2001 oxford university press

on reducing the windfall profits in environmental subsidy programs investment subsidies are widely used to induce adoption of new technologies that can lower the marginal cost of reducing emissions to economize on these subsidies governments would like to distinguish between firms that need to receive a subsidy to adopt a new technology and firms that would adopt that technology even without subsidies we show that policies consisting of a menu of emission taxes and investment subsidies can potentially induce firms to self select

25 years of aid allocation practice whither selectivity the 4p framework poverty population policy and proximity is introduced as a way of understanding a donor s aid allocation we use the two part model and examine the period 1982 2006 the results indicate that recent conclusions of increasing selectivity are misplaced for the seven major donors analyzed who together represent the majority of development aid indeed the effect of each of the commonly mentioned time trends selectivity the end of the cold war and the commencement of the global war on terror is much smaller than the role of donor heterogeneity which appears sizeable and entrenched

on some agency costs of intermediated contracting abstract this paper identifies a new agency cost of intermediated contracting a non productive intermediary can extract some rents when a the productive agent has some private information and b the intermediary s sub contract with the productive agent is not directly controlled by the top principal we show that the intermediary s informational rent is an increasing and concave function of the productive agent s own informational rent

foreign aid and voting in international organizations evidence from the iwc i use a unique dispute between major aid donors in the international whaling commission iwc to investigate whether donor nations change their aid giving in response to changes in aid recipients voting behavior inside international organizations ios this relationship is difficult to pin down in most ios because agenda items constantly change and donor coalitions fluctuate with them i exploit the fact that the iwc has on the one hand seen two fixed aid donor blocs opposing each other for three decades over a single issue but has on the other hand seen rich variation in both membership and voting behavior of aid recipient countries using an identification strategy that relates changes in bilateral aid to within recipient variation in iwc voting bloc affiliation and fixed cross sectional variation in donors voting bloc the evidence suggests that japan rewards joining the pro whaling bloc and that countries who recently experienced aid reductions from the three big anti whaling donors the u s the u k and france are more likely to join the pro whaling bloc

time inconsistent resource conservation contracts abstract are certain types of commonly observed resource conservation contracts inefficient in this paper we construct a model embodying realistic characteristics of resource contracts we find that resource contracts that share these characteristics are economically inefficient this inefficiency stems from a time inconsistency inherent in the contracts there are two possible ways to overcome this time inconsistency the first is to employ a sufficiently large penalty for early termination of the contract the second and possibly easier method is to offer an upward sloping conservation payment schedule so far overlooked by policy makers under this payment schedule the agent s ex ante and ex post contract choices coincide social externalities are fully internalized and the contractual outcome is economically efficient even in the absence of a penalty for early termination

optimal design of a phase in emissions trading program abstract this paper studies a phase in emissions trading program with voluntary opt in possibilities for non affected firms and derives optimal permits allocations to affected and opt in firms when the environmental regulator has incomplete information on individual unrestricted emissions and control costs the regulator faces a trade off between production efficiency minimization of control costs and information rent extraction reduction of excess permits allocated to opt in firms the first best equilibrium can be attained if the regulator can freely allocate permits to affected and opt in firms otherwise a second best equilibrium is implemented the latter is sensitive to uncertainty in control costs and benefits

imperfect observability of emissions and second best emission and output taxes abstract this paper studies the second best tax design problem when emissions are publicly unobservable but can be discovered through costly monitoring a representative firm in industry chooses its emissions and declarations to maximize its expected profits the paper shows the pigouvian rule of equating the marginal private benefit of emissions in production to the marginal social damage of emissions is modified to take account of the resource costs of monitoring and enforcement emissions from different sectors must be taxed at different rates every polluting good must face an effective emission tax that is less than the full marginal social damage of emissions emission taxes do not reflect standard optimal tax objectives output taxes have a pigouvian role so that the targeting principle fails

tell the truth or not the montero mechanism for emissions control at work abstract we experimentally test the truth telling mechanism proposed by montero 2008 for eliciting firms abatement costs we compare this mechanism with two well known alternative allocation mechanisms free and costly allocation of permits at the pigouvian price controlling for the number of firms and the firms maximal emissions we find that in line with the theoretical predictions firms over report their maximal emissions under free allocation of permits and under report these under costly allocation of permits under montero s mechanism by contrast firms almost always report their maximal emissions truthfully however in terms of efficiency the difference between montero s mechanism and costly allocation disappears with industries including more than one firm

protecting the environment when costs and benefits are privately known in this survey i analyze different approaches for protecting the environment when stakeholders are privately informed about the costs and benefits of pollution reduction the presence of asymmetric information calls for some important departures from the textbook prescriptions of marketable permits and emission taxes for controlling pollution for instance it may no longer be optimal to equate the social marginal benefits to the marginal cost of cleanup in determining appropriate abatement levels i conclude this review with some suggestions for future research in this area

political conditionality and foreign aid this article argues that a new generation of political conditionalities has emerged during the last decade this requires an expansion of the original definition and research agenda beyond the traditional questions of use and effectiveness however there is also a need to dig deeper into the dynamics surrounding political conditionalities particularly the bargaining processes and outcomes along the aid chain from domestic donor politics donor harmonization fora policy dialog spaces to the political economy of recipient institutional reform and donor coping strategies because they influence the set up use follow up purpose and effectiveness of pcs

economic instruments for environmental regulation our knowledge about economic incentive approaches to pollution control has grown rapidly in the two decades in which they have received serious analytical attention not only have the theoretical models become more focused and the empirical work more detailed but we have now had over a decade of experience with emissions trading in the u s and emission charges in europe as the world community becomes increasingly conscious of both the need to tighten environmental controls and the local economic perils associated with tighter controls in a highly competitive global marketplace it seems a propitious time to stand back and to organize what we have learned about this practical and promising approach to pollution control that may be especially relevant to current circumstances this paper draws upon economic theory empirical studies and actual experience with implementation to provide a brief overview of some of the major lessons we have learned about two economic incentive approaches emissions tradi copyright 1990 by oxford university press

global horse trading imf loans for votes in the united nations security council we investigate whether temporary members of the united nations security council receive favorable treatment from the international monetary fund imf using panel data for 197 countries over the period from 1951 to 2004 our results indicate a robust positive relationship between temporary security council membership and participation in imf programs even after accounting for economic political and country specific factors there is also evidence that security council membership reduces the number of conditions included in imf programs imf loans seem to be a mechanism by which the major shareholders of the fund can win favor with voting members of the security council

agri environmental schemes adverse selection information structure and delegation this work analyzes alternative designs of agri environmental schemes and how different incentive mechanisms impact on their overall efficiency it focuses on spatial targeting and delegation in an asymmetric information context first the optimal contract under adverse selection is modeled this model underlines the trade off between information rents and allocative efficiency the impact of spatial targeting is then addressed disaggregated information structures increase the optimal efforts asked of the farmers it may also involve higher information rents and may reduce the net contributions of some farmers finally the consequences of delegating authority within the principal agent relationship are investigated the results illustrate that spatial targeting and delegation when combined have asymmetric impacts on farmers payoffs

on the consistency of backward looking expectations the case of the cobweb in dynamic models of economic fluctuations backward looking expectations with systematic forecasting errors are inconsistent with rational behaviour in non linear dynamic models exhibiting seemingly unpredictable chaotic fluctuations however simple habitual rule of thumb backward looking expectation rules may yield non zero but nevertheless non systematic forecasting errors in a chaotic model expectational forecasting errors may have zero autocorrelations at all lags even for rational agents patterns in these forecasting errors may be very difficult to detect especially in the presence of small noise backward looking expectations are then not necessarily inconsistent with rational behaviour we investigate whether simple expectation schemes such as naive or adaptive expectations can be consistent with rational behaviour in the simplest of all non linear dynamic economic models the non linear cobweb model

adaptive learning and roads to chaos the case of the cobweb abstract we investigate the dynamics of the cobweb model with adaptive expectations a linear demand curve and a nonlinear s shaped increasing supply curve both stable periodic and chaotic price behaviour can occur we investigate how the dynamics of the model depend on the parameters both infinitely many period doubling and period halving bifurcations can occur when the demand curve is shifted upwards the same result holds with respect to the expectations weight factor

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

stochastic carbon sinks for combating carbon dioxide emissions in the eu abstract this paper carries out numerical calculations on the potential of carbon sinks in the eu emissions trading scheme ets and national commitments under conditions of stochastic carbon dioxide emissions from fossil fuels and carbon sequestration by forests chance constraint programming is used to analyze the role of stochastic carbon sinks for national and eu wide compliance costs the analytical results show that the inclusion of the carbon sink option can reduce costs for low enough marginal cost and risk discount but also that costless carbon sinks as by products from forestry are not part of a cost effective solution under a high reliability concern cost savings are reduced due to risk discounting under a reliability concern in particular when assigning chebyshev s inequality as compared with a normal probability distribution it is also shown that the supply of forest sinks on the market depends on the differences in marginal abatement cost between the trading and the non trading sectors and in risk discounting between achievements of the ets cap and the national commitment relatively low marginal abatement cost in the non trading sector and high risk discounting of national commitment achievements increase the supply of sinks in the market and hence reduces the equilibrium price the empirical application illustrates the importance of risk discounting for the magnitude of cost savings obtained from introducing forest carbon sinks in the eu ets and national commitments

revenue raising vs other approaches to environmental protection the critical significance of pre existing tax distortions using analytical and numerical general equilibrium models we show that preexisting factor taxes produce a tax interaction effect that increases the costs of pollution taxes and quotas under policies that raise revenue and recycle it through cuts in marginal factor tax rates this effect is partially offset by a revenue recycling effect grandfathered pollution quotas such as those used under the 1990 clean air act amendments to regulate electric utilities so2 emissions do not benefit from this offset preexisting taxes raise this regulation s cost by over 70 more than half of this additional cost could be avoided by auctioning quotas and exploiting the revenue recycling effect

incentives for carbon sequestration using forest management this research uses an econometric model to analyze the factors affecting non industrial private forest landowners choice of intermediate forest management practices and to examine how these choices might change in response to incentives for carbon sequestration we also use parameter estimates to simulate the carbon sequestration potential for different combinations of management practices and compare the effectiveness and costs of carbon sequestration based and practice based incentive payment schemes our results suggest that incentive payments increase the probability that desirable combinations of management practices are adopted simulation results indicate that incentives targeting fertilization yield the highest carbon sequestration potential and that a carbon based payment scheme produces higher carbon sequestration than a practice based payments scheme

opportunity cost estimation of ecosystem services land use changes rank among the most significant drivers of change in ecosystem services worldwide the enhancement of important services such as biodiversity and carbon sequestration requires modifications in land use that can lead to the decline in other ecosystems services targeting the most suitable areas for particular land uses based on comparative advantages requires opportunity cost information across large regions this is a demanding task because the input output relations are ill defined and determined by spatially heterogeneous operational and environmental conditions to address this methodological challenge this paper presents a two stage semiparametric technique that enables multi dimensional production possibility frontiers to be estimated from data provided by biophysical models specific advantages of the proposed frontier approach are its flexibility with regard to assumptions on the convexity of the production possibility set and its freedom from any separability assumptions for the input output space and the space of the heterogeneous background variables the method is illustrated for a case study of 18 central and eastern european countries results show that opportunity costs of changes in ecosystem services provision differ substantially between regions those areas having already relatively high levels of carbon sequestration have a comparative advantage in sequestering carbon opportunity costs of biodiversity are generally positively related with the level of biodiversity up to a turning point after which they are negatively related to illustrate the policy consequences of the observed economies and diseconomies of scope we compare two management regimes to illustrate the potential gains from smart land management

interactions between agricultural and environmental policies a conceptual framework agricultural policy has a well documented impact on farmers production decisions and those decisions land water and agricultural chemical use may in turn affect the environment there is a public perception that existing agricultural policies are linked to agricultural pollution as exemplified by the conclusions of the recent national research council report alternative agriculture 1989 there is only limited theoretical or empirical research addressing these linkages however this paper develops a conceptual framework that can be used to analyze the interactions between agricultural and environmental policies and pollution this framework integrates physical and economic models at a disaggregate level necessary to capture the heterogeneity of the physical environment and the economic behavior of farmers following e hochman and d zilberman 1978 the disaggregate units can be statistically aggregated to a level useful for policy analysis agricultural and environmental policies can be categorized according to their effects on the intensive and extensive margins combining the different policy instruments with the microeconomic heterogeneity we find that existing agricultural and environmental policies can have either positive or negative effects of nonpoint source pollution to infer an aggregate effect requires data that do not currently exist our framework provides a basis for empirical investigations of these effects given adequate data moreover we find that agricultural policy instruments can be used to mitigate pollution if used appropriately

optimal environmental taxation and enforcement policy abstract we study the optimal environmental taxation and enforcement policy when i the regulator does not know the firms abatement costs ii penalties for tax evasion are limited and iii monitoring of pollution is costly we show that the threat of being audited alter the usual firms incentives to over estimate their abatement costs in particular depending on the firms abatement costs the optimal policy may involve over or under deterrence compared to the full information outcome we then investigate the properties of a pollution standard we show that this policy comes close to an environmental tax once the economic incentives of the accompanying enforcement policy are considered