carbon prices and fuel switching a quasi experiment in electricity markets within the pennsylvania new jersey maryland electricity market delaware and maryland participate in the regional greenhouse gas initiative rggi but other states do not providing a quasi experimental setting to study the rggi program using a difference in difference framework we find that overall the rggi program led to 6 22 million short tons of co2 reduction per year in delaware and maryland or about 19 10 of the average total potential annual emissions in these two states from 2009 to 2013 counterintuitively however the reduction is mainly achieved through reduction of coal inputs and emission leakage instead of fuel switching from coal to natural gas or from fossil fuel coal and natural gas to non fossil fuel

democracy volatility and economic development growth stability is an important objective because development requires sustained increases in income because volatility is costly for the poor and because volatility deters growth we study the determinants of average growth and its volatility as a two equation system and find that higher levels of democracy and diversification lower volatility whereas volatility itself reduces growth muslim countries instrument for democracy and measures of diversification identify volatility in contrast to the lack of consensus on the democracy growth relationship the democracy stability link is robust rather than focus on growth this paper forges an alternative link between democracy and development through the volatility channel

ownership and environmental regulation evidence from the european electricity industry abstract the paper investigates how ownership affects the environmental performance in developed countries where environmental regulation is introduced in the form of market based instrument by looking at a cross country panel dataset of 29 power markets around europe over the period 1990 2012 we find empirical evidence that an increase of public ownership as measured by the oecd etcr index is associated with a reduction of both greenhouse gas emissions and carbon intensity we also find that the implementation of the european emissions trading scheme ets had a limited impact on emissions reduction due to lax allocation of allowances the positive effect of public ownership on environmental performance has been significant even after the introduction of the ets giving additional incentives to mitigate emissions when the ets cap was not stringent enough this evidence suggests that government control over power companies in europe can has created idiosyncratic incentives to improve environmental quality complementing environmental regulation in the achievement of environmental goals when the latter was absent or sub optimal

progress along the path evolving issues in the measurement of genuine saving more than 10 years since a practical linkage between sustainable development and a measure of national wealth expanded to include natural and environmental resources was first posited the empirical estimation of adjusted net savings dubbed genuine saving has evolved considerably in this paper we take stock of both progress achieved and the challenges that remain we begin by recalling the key points made in pearce and atkinson 1993 ecol econ 8 103 which presented the first cross country estimates of savings rates adjusted to reflect depletion and degradation of the environment we then briefly summarise the evolution of the theoretical argument linking savings and sustainability however the main focus of this paper is an aspect that concerned david pearce greatly namely the evolution of the measurement of genuine savings we identify and consider the empirical evidence with regard to two particular measurement issues the valuation of exhaustible resources and environmental degradation common to the both issues are concerns about measuring changes in national wealth in real world economies

alternative regulatory methods and firm efficiency stochastic frontier evidence from the u s electricity industry the use of incentive regulation and other alternative regulatory programs in u s electricity markets has grown during the past two decades within a stochastic frontier framework i investigate the effect of individual programs on the technical efficiency of a large set of coal and natural gas generation units i find that those programs tied directly to generator performance and those that modify traditional fuel cost pass through programs to provide a greater incentive to reduce fuel costs are associated with greater efficiency levels other programs have no statistical association with efficiency levels

cap and trade and financial constraints is investment independent of permit holdings we study a new channel by which permit holdings in a cap and trade system can affect investment behavior in the presence of financial constraints permit holdings can matter through their effect on the firm s internally available resources and indirectly affect investment to test this relationship we exploit the cross sectional and temporal variation in permit holdings and the temporal variation in the price of permits in the us hbox so 2 program we find that capital expenditures are positively related to the market value of the permit holdings this relationship is stronger for smaller firms and is robust to alternative explanations based on regulatory differences

income and democracy existing studies establish a strong cross country correlation between income and democracy but do not control for factors that simultaneously affect both variables we show that controlling for such factors by including country fixed effects removes the statistical association between income per capita and vari ous measures of democracy we present instrumental variables estimates that also show no causal effect of income on democracy the cross country corre lation between income and democracy reflects a positive correlation between changes in income and democracy over the past 500 years this pattern is con sistent with the idea that societies embarked on divergent political economic development paths at certain critical junctures jel d7 e 1

income distribution political instability and investment abstract this paper successfully tests on a sample of 71 countries for the period 1960 85 the following hypotheses income inequality by fuelling social discontent increases sociopolitical instability the latter by creating uncertainty in the politico economic environment reduces investment as a consequence income inequality and investment are inversely related since investment is a primary engine of growth this paper identifies a channel for an inverse relationship between income inequality and growth we measure socio political instability with indices which capture the occurrence of more or less violent phenomena of political unrest and we test our hypotheses by estimating a two equation model in which the endogenous variables are investment and an index of socio political instability our results are robust to sensitivity analysis on the specification of the model and the measure of political instability and are unchanged when the model is estimated using robust regression techniques

the benefits of spatially differentiated regulation the response to acid rain by u s states prior to the acid rain program location is a crucial driver of both the marginal abatement and damage costs of sulfur dioxide emissions by u s coal fired power plants before the start of the acid rain program in 1995 old boilers were subject to emission rate standards set by individual states we investigate how individual states adjusted their sulfur regulation laws in response to acid rain and whether they accounted for differences in marginal abatement costs vulnerability to agricultural damages special industry interests or inter state externalities the welfare gain compared to a uniform reduction in emission rate standards is estimated to be 21 million in 1995 dollars annually

clearing the air the effects of gasoline content regulation on air quality this paper examines the effects of u s gasoline content regulations on groundlevel ozone pollution these regulations are costly and have been shown to fragment gasoline markets and raise prices paid by consumers we provide the first comprehensive empirical estimates of the regulations air quality benefits we exploit the fact that gasoline regulations vary by time and place of introduction using both difference in difference and regression discontinuity designs we show that federal regulations targeting the emissions of volatile organic compounds vocs one of the two main precursors to ozone do not substantially improve air quality this outcome is driven by the response of refiners to the regulation minimizing the cost of abatement involves removing a type of voc from gasoline that is not an important determinant of ozone pollution in california however we show that precisely targeted regulations requiring the removal of vocs particularly prone to forming ozone caused a significant improvement in air quality

spatial spillovers in the development of institutions abstract we examine spatial spillovers in institutional development dependent variables are institutional measures reflecting politics law and governmental administration the explanatory variable of interest is the level of institutions in bordering countries a spatial lag of the dependent variable our spatial model directly leads to the identification strategy for the endogenous spatial lag we implement new results in spatial econometrics to counter missing data problems usually rife in spatial empirics spatial institutional spillovers are statistically significant and economically important a counter factual exercise the non existence of the ussr reveals large direct and indirect spillovers numerous robustness exercises bolster conclusions including yearly cross section regressions fixed effects estimates and adding many extra explanatory variables moreover we provide a new theoretical result showing the robustness of estimates in the presence of omitted variables we extend the core model allowing different effects for better and worse neighbors using inverse distance weights estimating the spatial durbin model and using polity s institutional measure

the welfare consequences of mixed environmental policy instruments with voluntary provision this article evaluates the welfare consequences of a mixed regulatory framework with a voluntary cap and trade program and intensity standards using data from the texas electricity industry i construct and estimate a structural model of the compliance choices of power generating units to recover their abatement costs then i simulate for the counterfactual equilibrium under a mandatory cap and trade regulation results show that the mixed policy framework mainly benefits generating units with small capacity and high abatement costs however a mandatory cap and trade regulation with redistribution policies could bring in substantial pareto improvement

democracy and national economic performance the preference for stability appear to arise because democracies ameliorate the effects of social cleavages another mechanism that might explain democratic stability when growth and volatility are jointly examined democracies reveal highly favorable economic results oes democracy affect national economic performance and if so how no question is more central to the study of political economics almost all previous work on democracy and economic performance has focused exclusively on growth rates with contradictory and confusing results in this article we argue that to reveal the impact of democratic institutions on economic performance scholars must consider two dimensions of economic performance growth rate and volatility we begin with a novel hypothesis economic policy in democracy is risk avoiding relative to policy in nondemocracies 1 because voters are riskaverse they penalize incumbent governments for economic volatility and democratic governments respond accordingly in nondemocracies we posit that elites are more likely to seek risk that voters would reject consequently autocracies produce systematically more economic volatility than

does institutional change spread across countries explaining spatial patterns in human rights if a country improves its human rights record will neighbouring countries benefit beneficial spillovers could justify intervention by the un or one of the many other organisations that internationally fight human rights violations we document that countries human rights performances often resemble the human rights situation of their neighbours however exploiting time variation in a spatial panel we find that much of that resemblance is simply determined by the shared geographical location changes in neighbouring countries have little influence on local human rights suggesting that contemporaneous spillovers and interactions are limited

greenwash vs brownwash exaggeration and undue modesty in corporate sustainability disclosure corporate greenwashing has accelerated in recent years bringing in its wake growing skepticism about corporate green claims although a theory of the drivers and deterrents of greenwashing has begun to emerge it is static in nature and does not incorporate the full range of ways in which firms can misrepresent their environmental performance our contribution is threefold first we extend the theory of organizational information disclosure to incorporate the possibility of undue modesty about a firm s environmental social and governance practices second we hypothesize about the drivers of exaggeration and undue modesty based on which of a firm s stakeholders are salient at a given point in time to do so we place the firm within a dynamic context that has largely been missing in the prior literature third we test our hypotheses using a data set that allows us to directly compare corporate green claims against actual performance results reveal that corporate output growth deregulation and low profits under deregulation significantly affect the choice between greenwashing and brownwashing the effects of growth and profits are mitigated by external scrutiny

neighborhood effects and social behavior the case of irrigated and rainfed farmers in bohol the philippines artifactual field experiments spatial econometrics and household surveys are combined in a single study to investigate the neighborhood effects of social behaviors the dictator and public goods games are conducted among rice farmers in irrigated and non irrigated areas in the philippines we find the neighborhood effects but the magnitude and statistical significance of endogenous social effects vary with the irrigation availability type of social behavior and type of neighborhood altruistic and cooperative behaviors are significantly influenced by the behaviors of neighbors only in the irrigated area where social ties are strengthened through collective irrigation management through this effect irrigated farmers social behaviors become similar to those of one another neighborhood effects for cooperative behavior are stronger among farm plot neighbors than among residential neighbors which may reflect their interactions in irrigation management although non dynamic these findings are consistent with the theory of social norm evolution through common pool resource management

meta data envelopment analysis finding a direction towards marginal profit maximization abstract this paper discusses a new meta dea approach to solve the problem of choosing direction vectors when estimating the directional distance function the proposed model emphasizes finding the direction for productivity improvement rather than estimating the score of efficiency focusing on planning over evaluation in fact the direction towards marginal profit maximization implies a step by step improvement and wait and see decision process which is more consistent with the practical decision making process an empirical study of u s coal fired power plants operating in 2011 validates the proposed model the results show that the efficiency measure using the proposed direction is consistent with all other indices with the exception of the direction towards the profit maximized benchmark we conclude that the marginal profit maximization is a useful guide for determining direction in the directional distance function

market design in cap and trade programs permit validity and compliance timing abstract cap and trade programs have considerable heterogeneity in permit validity and compliance timing for example permits have different validities across time e g banking borrowing and seasons and space e g zonal restrictions and compliance timing can be annual in overlapping cycles or in multi year periods we discuss nine prominent cap and trade programs along these dimensions and construct a general model of permit validity and compliance timing we derive sufficient conditions under which abatement is invariant to compliance timing i e compliance timing cannot smooth abatement cost shocks under these conditions i expected compliance costs are invariant ii the variance of compliance costs increases with the delayed compliance iii equilibrium prices may not be unique and iv the delayed compliance equilibrium may rely on degenerate prices not determined by marginal abatement costs we demonstrate the model s broad applicability by illustrating different types of temporal permit validity

an assessment of two environmental and economic benefits of cash for clunkers abstract this research aims to provide a more comprehensive life cycle accounting of two categories of environmental and economic benefits associated with the 3 billion us cash for clunkers vehicle scrappage program first using a life cycle emissions methodology developed in lenski et al 2010 we find that about 29 000 metric tons of criteria pollutant emissions were avoided for a benefit of about 23 million avoided carbon dioxide emissions by comparison provided a benefit worth 90 million second we compare the market value of scrapped vehicles to the rebates provided calculating the consumer surplus or gift to participants to be up to 2 billion about 2000 to 3000 per vehicle this is significantly more than offered in previous vehicle scrappage programs and suggests opportunities to get more environmental and economic bang for the buck finally these two categories of benefits are found to be heavily concentrated geographically around urban centers about 2 of us counties 50 counties received 50 and 30 of the aggregate benefits from avoided criteria pollutant emissions and consumer surplus from the rebates respectively

currency momentum carry trade and market illiquidity this study empirically examines the effect of equity market illiquidity on the excess returns of currency momentum and carry trade strategies results show that equity market illiquidity explains the evolution of currency momentum strategy payoffs but not carry trade returns on currency momentum are low following months of high equity market illiquidity however in the recent decade illiquidity positively predicts the associated payoffs the findings withstand various robustness checks and are economically significant approximating in value to one third of average monthly profits

distinguishing operational performance in power production a new measure of effectiveness by dea measuring the efficiency of power plant systems requires capturing fluctuations in the level of sales to customers as well as accounting for the effects of regulatory caps on emissions this study proposes a novel effectiveness measure considering desirable outputs and undesirable outputs via data envelopment analysis dea the new measure complements typical efficiency measures we test the validity of the proposed measure with an empirical case study of the fifty u s states and the district of columbia we find that the current interregional electricity transmission plan increases 8 56 in effectiveness for the emissions control we suggest a 9 8 reduction in electricity generation towards an effective production frontier we conclude that the proposed effectiveness measure s ability to distinguish sales and regulation effects from typical productive efficiency eliminates the bias often found in currently used measures

the culture of policy making in the transition from socialism price policy in mongolia in this article we argue that the history of policy making can deeply influence current economic policy decisions in reforming socialist countries history s impact lies beyond the rigidity of inherited organizations it acts separately from the inherited allocation of power and property rights notions and practices that are a product of past historical experience are an autonomous force in the development of policy and they endure even when policymakers deeply desire change many labels could be attached to the phenomena we describe we have chosen the word culture because the most common interpretation of that term captures the essence of what we hope to convey the central element of culture a common set of beliefs and practices resulting from a shared historical experience is exactly the phenomenon on which we focus as explained in section ii our treatment of culture is consistent with standard methodology applied to a setting in which informational and learning processes are all important in fact our conclusions on mongolian price policy exemplify douglass c north s point that the historically derived perceptions of the actors shape the choices that they make and the imperfect and fumbling efforts of the actors reflect the difficulties of deciphering a complex environment with the available mental constructs ideas theories and ideologies 2 the article s stimulus was provided by observation of the tortuous progress of price reform in mongolia with much fanfare mongolia s government proclaimed a policy of rapid and complete price liberalization the commitment to liberalization was both genuine and widespread there was a general aspiration within society to move to a market economy however in the turn from abstraction to action the details of legislation the rules embodied in regulations and policy

behavior of the firm under regulatory constraint a recent article by akira takayama discusses an earlier paper by harvey averch and leland l johnson on fair rate of return regulation of public utilities although takayama p 255 agrees with averch and johnson s general conclusions that a firm will tend to increase its investment with the introduction of an active constraint on its rate of return he criticizes the a j argument as being confusing ambiguous and in error takayama then attempts a clarification and presents a new formulation which leads to the a j result quoted above this comment will discuss several of takayama s criticisms in addition to showing that the so called a j effect cannot be derived from the basic assumptions made by both averch and johnson and takayama 1 we will show that the very assumptions used to prove the a j effect by defining the region of x require an assumption that the a j effect exists in the first place

pollution accumulation and abatement policy in a supply chain abstract this paper seeks to determine how the double marginalization phenomenon affects the tradeoff between polluting emissions and abatement activities related to pollution accumulation in a supply chain composed of one manufacturer and one retailer the environmental consequence of this inefficiency which emerges in a non cooperative vertical setting governed by a single parameter contract is overlooked in the literature on pollution control in the setup of a two stage game we investigate the impact of double marginalization for non cooperative equilibrium to check whether there are differences between dynamic and strategic effects of double marginalization on pollution accumulation both the open loop and feedback nash equilibria are derived over a finite time horizon with the cooperative solution as a benchmark

emissions trading electricity restructuring and investment in pollution abatement this paper analyzes an emissions trading program that was introduced to reduce smog causing pollution from large stationary sources using variation in state level electricity industry restructuring activity i identify the effect of economic regulation on pollution permit market outcomes there are two main findings first deregulated plants in restructured electricity markets were less likely to adopt more capital intensive environmental compliance options as compared to regulated or publicly owned plants second as a consequence of heterogeneity in electricity market regulations a larger share of the permitted pollution is being emitted in states where air quality problems tend to be more severe jel l51 l94 l98 q53 q58 when the us federal government first began regulating major sources of air pollution in the 1960s the conventional approach to meeting air quality standards involved establishing maxi mum emissions rates or technology based standards for regulated stationary sources however economists have long maintained that an emissions permit market could more efficiently coor dinate pollution abatement activities provided a series of assumptions are met over the past few decades market based cap and trade cat approaches to regulating emissions from industrial point sources have become a centerpiece of environmental regulation in the united states in the theoretical first best permit market equilibrium the total social cost of meeting an emis sions cap is minimized each firm chooses a level of pollution abatement such that its marginal cost of reducing pollution is set equal to the social marginal benefit from emissions reduction in practice preexisting distortions in product markets that are subject to cat regulation may interfere with the emissions permit market s ability to operate efficiently this paper studies the effects of electricity market regulation on permit market outcomes in the context of a major us emissions trading program the nox budget program the recent wave of electricity industry restructuring in the united states has resulted in significant interstate variation in economic regulation consequently facilities in the same cat program face very different economic regu lation and investment incentives in their respective electricity markets whereas rate base regu lated plants are guaranteed to earn a rate of return on prudent investments in pollution abatement equipment deregulated plants operating in restructured electricity markets are offered no such

economic development legality and the transplant effect abstract we analyze the determinants of effective legal institutions legality using data from 49 countries we show that the way the law was initially transplanted and received is a more important determinant than the supply of law from a particular legal family countries that have developed legal orders internally adapted the transplanted law and or had a population that was already familiar with basic principles of the transplanted law have more effective legality than countries that received foreign law without any similar predispositions the transplanting process has a strong indirect effect on economic development via its impact on legality while the impact of particular legal families is weaker and not robust to alternative legality measures

in search of the holy grail policy convergence experimentation and economic performance we consider a model of policy choice in which appropriate policies depend on a country s own circumstances but the presence of a successful leader generates an informational externality and results in too little policy experimentation corrupt governments are reined in while honest governments are disciplined inefficiently our model yields distinct predictions about the patterns of policy imitation corruption and economic performance as a function of a country s location vis aa vis successful leaders in particular it predicts a u shaped pattern in economic performance as we move away from the leader in the relevant space of characteristics close neighbors should do very well distant countries moderately well on average with considerable variance and intermediate countries worst of all an empirical test with the experience of post socialist countries provides supportive results

the globalization of liberalization policy diffusion in the international political economy one of the most important developments over the past three decades has been the spread of liberal economic ideas and policies throughout the world these policies have affected the lives of millions of people yet our most sophisticated political economy models do not adequately capture influences on these policy choices evidence suggests that the adoption of liberal economic practices is highly clustered both temporally and spatially we hypothesize that this clustering might be due to processes of policy diffusion we think of diffusion as resulting from one of two broad sets of forces one in which mounting adoptions of a policy alter the benefits of adopting for others and another in which adoptions provide policy relevant information about the benefits of adopting we develop arguments within these broad classes of mechanisms construct appropriate measures of the relevant concepts and test their effects on liberalization and restriction of the current account the capital account and the exchange rate regime our findings suggest that domestic models of foreign economic policy making are insufficient the evidence shows that policy transitions are influenced by international economic competition as well as the policies of a country s sociocultural peers we interpret the latter influence as a form of channeled learning reflecting governments search for appropriate models for economic policy

exclusionary manipulation of markets for pollution rights abstract strategic price manipulation can affect the distribution of transferable pollution rights across polluters and the efficiency of pollution control efforts prior research has concentrated on market manipulation by firms seeking only to minimize the sum of pollution rights costs and pollution abatement costs in this paper we explore the potential for the exclusionary manipulation of pollution permit markets intended to drive up the costs of one s rivals and we distinguish between the resource allocation effects of exclusionary manipulation and cost minimizing manipulation we find that exclusionary manipulation can sometimes worsen and sometimes ameliorate the abatement inefficiency which occurs under cost minimizing manipulation and that an overbuying rule can obviate or at least limit damages from this form of strategic behavior

federalism and the soft budget constraint the government s incentives to bail out inefficient projects are determined by the trade off between political benefits and economic costs the latter depending on the decentralization of government two effects of federalism are derived first fiscal competition among local governments under factor mobility increases the opportunity costs of bailout and thus serves as a commitment device the competition effect second monetary centralization together with fiscal decentralization induces a conflict of interests and thus may harden budget constraints and reduce inflation the checks and balance effect the authors analysis is used to interpret china s recent experience of transition to a market economy copyright 1998 by american economic association

climate policy learning and technology adoption in small countries a significant reduction in global greenhouse gas emissions requires international cooperation in emission abatement as well as individual countries investment in the adoption of abatement technology the existing literature on climate policy pays insufficient attention to small countries which account for a substantial proportion of global emission in this study we investigate how climate policy and learning about climate damage affect investment in abatement technology in small countries we consider three alternative climate policy instruments emission standards harmonized taxes and auctioned permits we say that learning is feasible if an international environmental agreement iea is formed after the resolution of uncertainty about climate damage we find that either with learning and quadratic abatement costs or without learning harmonized taxes outperform emission standards and auctioned permits in terms of investment efficiency without learning a large cost of nonparticipation that a country incurs in the iea can be beneficial to the country whether learning improves investment efficiency depends on the size of this nonparticipation cost

climate change environmental and technology policies in a strategic context there are a number of features of climate change which make it one of the most challenging problems confronting policy makers and policy analysts in this paper we consider three such features i climate change is a global pollutant so there are strategic interactions between governments over climate policy ii cutting greenhouse gas emissions can have significant cost effects across a number of sectors of the economy raising concerns about the implications of climate change policy on competitive advantage iii the long time scales on which climate change operates means that an important dimension of climate change policy is policy towards r d to cut the costs of dealing with climate change in ulph and ulph 1996 ulph a ulph d 1996 in carraro c katsoulacos y xepapadeas a eds environmental policy and market structure kluwer dordrecht pp 181 208 we presented a model to analyse these issues but considered only environmental policies in this paper we extend that analysis to allow for both a richer set of policy instruments environmental and technology policies and a richer strategic context

determinants of democracy a panel study of over 100 countries from 1960 to 1995 finds that improvements in the standard of living predict increase in democracy as measured by a subjective indicator of electoral rights the propensity for democracy rises with per capita gdp primary schooling and a smaller gap between male and female primary attainment for a given standard of living democaracy tends to fall with urbnization and with a greater reliance on natrual resources democracy has little relation to country size but rises with the middle class share of income the apparently strong relation of democracy to colonial heritage mostly disappears when the economic variables are held constant similarly the allowance for these economic variables weakens the interplay between democracy and religious affiliation however negative effects from muslim and non religious affiliations remain intact

environmental policy a la carte letting firms choose their regulation under uncertainty the optimal choice between price and quantity instruments depends on the technology of the regulated firms which is often private information we consider an environmental policy that delegates the prices versus quantities decision to the firms by offering them the choice between an emissions tax and permit trading such an approach is currently used in swiss climate policy we provide a detailed characterization of the optimal policy and show that this approach reduces expected social costs compared to a pure tax or permit trading regime we demonstrate that an optimal allocation of firms to instruments can be achieved despite substantial informational constraints and that all firms gain from the introduction of the instrument choice compared to optimally designed single instrument policies furthermore we discuss the conditions under which this approach is likely to be preferable to a hybrid regulation

do renewable energy policies reduce carbon emissions on caps and inter industry leakage abstract in a parsimonious two sector general equilibrium model we challenge the widely held tenet that within a cap and trade system renewable energy policies have no effect on carbon emissions if the cap does not capture all sectors we demonstrate that variations of a renewable energy subsidy change aggregate carbon emissions through an inter industry leakage effect we decompose this effect into intuitively intelligible components that depend in natural ways on measurable elasticity parameters raising the subsidy always reduces emissions if funded by a lump sum tax reinforcing recent findings that tightening environmental regulation can cause negative leakage however if the subsidy is funded by a levy on electricity it can increase emissions these results provide a valuable basis for an informed design of renewable energy policies and an accurate assessment of their effectiveness we highlight how a state of the art statistic used by governments to gauge such effectiveness virtual emission reductions is biased because inter industrial leakage effects are not captured

market power and transferable property rights the appeal of using markets as a means of allocating scarce resources stems in large part from the assumption that a market will approximate the competitive ideal when competition is not a foregone conclusion the question naturally arises as to how a firm might manipulate the market to its own advantage this paper analyzes the issue of market power in the context of markets for transferable property rights first a model is developed that explains how a single firm with market power might exercise its influence this is followed by an examination of the model in the context of a particular policy problem the control of particulate sulfates in the los angeles region

spatial price competition a semiparametric approach we investigate the nature of price competition among firms that produce differentiated products and compete in markets that are limited in extent we propose an instrumental variables series estimator for the matrix of cross price response coefficients demonstrate that our estimator is consistent and derive its asymptotic distribution our semiparametric approach allows us to discriminate among models of global competition in which all products compete with all others and local competition in which products compete only with their neighbors we apply our semiparametric estimator to data from u s wholesale gasoline markets and find that in this market competition is highly localized

some welfare effects of emission allowance trading in a twice regulated industry abstract the 1990 clean air act amendments establish a national market in emission allowances to dramatically reduce so 2 emissions from electric utilities who already face economic regulation regulatory treatment of allowances will affect the new market we present simulation results for a simple industry in which two electric utilities face a common averch johnson regulatory constraint and an emissions constraint in this model the performance of the allowance market depends importantly upon the rate making treatment of compliance assets by utility regulators compared to a command and control scheme the allowance market substantially reduces the cost of achieving a given environmental standard

public policy influence on renewable energy investments a panel data study across oecd countries this paper examines the impact of public policy measures on renewable energy re investments in electricity generating capacity made by institutional investors using a novel combination of datasets and a longitudinal research design we investigate the influence of different policy measures in a sample of oecd countries to suggest an effective policy mix which could tackle failures in the market for clean energy the results call for technology specific policies which take into account actual market conditions and technology maturity to improve the conditions for institutional investments advisable policy instruments include economic and fiscal incentives such as feed in tariffs fit especially for less mature technologies additionally market based instruments such as greenhouse gas ghg emission trading systems for mature technologies should be included these policy measures directly impact the risk and return structure of re projects supplementing these with regulatory measures such as codes and standards e g rps and long term strategic planning could further strengthen the context for re investments

harnessing the political economy of environmental policy david pearce s contribution to oecd during 34 years david pearce made major contribution to oecd work on environmental economic issues with a particular focus on cost benefit analysis economic instruments biodiversity and distributive issues this article provides a brief review of david pearce s contributions this work was particularly useful in enhancing the political economy of environmental policy which is at the core of oecd work

aviation and the eu emissions trading scheme lessons learned from previous emissions trading schemes designing an emissions trading scheme requires in depth knowledge regarding several aspects this paper attempts to clarify some important design points of the forthcoming emissions trading scheme

heterogeneous preferences regarding global climate change we examine the structure of preferences for mitigating impacts of global climate change that will not occur during the lifetimes of most who are alive today because no market data exist for such distant markets a statedpreference approach is used the analysis is based on the random parameters logit model and the results indicate substantial heterogeneity in respondent preferences that mean willingness to pay is a significant and increasing function of the scope of the impact and provocatively that respondents have the same preferences over the two very different time horizons that we consider e examine the structure of preferences for mitigating impacts of global climate change that will not occur during the lifetimes of most who are alive today studies using current market data have estimated the potential costs of climate change on agriculture mendelsohn nordhaus shaw 1994 and on other aspects of measured production nordhaus 1994 but market data can not reveal the willingness of those currently alive to pay for measures to mitigate impacts that may not happen for 100 years or more there is serious public discussion involving diplomats at the highest levels about measures to mitigate emissions that would cost the united states alone 100 to 200 billion dollars annually therefore estimating the willingness of those currently alive to pay for mitigation measures is not a fanciful exercise but rather a crucial effort to determine how much mitigation should be undertaken it is the preferences of those alive today regarding acceptable levels of climate impacts and not the unknowable preferences of those who do not yet exist that will ultimately determine how much mitigation we pursue in the next quarter century as this question cannot be answered with market data we use the stated preference sp approach and elicit preferences for preventing climate change induced impacts a host of climate change impacts have been enumerated this study focuses on one type of impact that may be important but has received little attention from economists scientists have predicted that widespread ecosystem shifts may accompany changes in climate vemap 1995 ecosys tem shifts are likely to evolve slowly indicating that lost use values are likely to be small for those alive today yet the public may still be willing and asked to pay for mitigation measures that are designed to slow the transformation of ecosystems the current debate over climate change demon strates two things the first is that some people do care about long term changes that will never affect them or perhaps even their children the second is that preferences regarding the impacts of climate change are very heterogeneous as other members of the public appear much less concerned long term horizons combined with heterogeneous prefer ences makes ecosystem shifts a useful place to begin analyzing preferences for mitigating climate change im pacts a stated preference survey was designed that asked respondents to choose their most preferred program to reduce ecological impacts from a set menu of five or six different programs the programs varied in terms of costs the degree of ecosystem change and in the mitigation method four different menus provided to each respondent yielded four distinct valuation responses section ii de scribes the random parameters logit model for repeated choices that allows for a flexible correlation structure based on heterogeneous preferences the ecosystem change and the stated preference survey are discussed in section iii in section iv we estimate the random parameters model and estimate the willingness to pay to prevent various levels of ecosystem change section v concludes with a discussion of how the scope of the impact preference heterogeneity and the time horizon affect willingness to pay

making a difference how environmental economists can influence the policy process a case study of david w pearce can environmental economists influence policy if so how this paper addresses these two questions using the late david pearce s career as a case study influence can be exercised but pearce s career shows that certain conditions must be met the first is desire he wanted to influence policy and directed a high proportion of his efforts to doing so he focused particular attention on the power centres of his time the oecd world bank european commission un uk government his influence was aided by his status and location as a professor in a prestige university ucl in a major global city london his messages were consistent and clear theory is important and can be used to frame most environmental challenges as regards both explanation and solution externalities can be valued assessing benefits and costs of options is important market signals taxes etc and incentives generally are powerful shapers of behaviour stock of capital human built natural is a key measure of sustainability he communicated simply and clearly in words and phrases that ministers for finance and journalists could understand all of the broadsheet newspapers in england financial times guardian independent telegraph times were grist to pearce s mill of advocacy for environmental economics he provided the blueprint books that could be read on a commute and summaries to the media that they could fit into a 1 000 word piece he didn t seek out but neither did he shirk controversy he worked with various interest groups and politicians but never to the point were he was co opted he initiated and directed the msc in environmental and resource economics that created an ever widening and influential pool of advocates for his ideas finally he achieved a prodigious academic output that ensures a sort of immortality and provided the intellectual ballast the enabled his policy influence

on the welfare cost of economic fluctuations in developing countries macroeconomic fluctuations are much stronger in developing countries than in the united states yet while a large literature debates the welfare cost of economic fluctuations in the united states it remains an open question how large that cost is in developing countries using several models we provide such a measure we find that the welfare cost of consumption volatility per se is far from trivial and averages a substantial multiple of the corresponding u s estimate moreover in many poor countries the welfare gain from eliminating volatility may in fact exceed the welfare gain from an additional percentage point of growth forever

prices vs quantities technology choice uncertainty and welfare technological improvements have proven essential in mitigating environmental problems such as climate change depletion of the ozone layer and acid rain while it is well known that price and quantity based regulatory instruments provide different investment levels the effects on the choice between different technologies have received scant attention this paper expands on the prices versus quantities literature by investigating firms technology choice in the face of demand and supply side uncertainty i show that the regulator can not design tradable emissions permits and an emissions tax such that the two regimes are equivalent even in terms of expected values moreover a tax encourages the most flexible abatement technology if and only if stochastic costs and the equilibrium permit price have sufficiently strong positive covariance compared with the variance in consumer demand for the good produced finally the firms technology choices are socially optimal under tradable emissions permits but not under an emissions tax

assessing the performance of the uk emissions trading scheme the uk s climate change programme introduced an emissions trading scheme ets for greenhouse gases firms in over 40 industrial sectors which have negotiated climate change agreements setting quantitative energy efficiency targets can use the ets to trade over and under compliance with these targets in parallel a limited number of firms have become major participants in the ets as a result of an auction of subsidies for additional abatement commitments the paper describes the uk arrangements and assesses the economic efficiency and environmental effectiveness of the ets drawing on evidence of participants behaviour both in the incentive auction and in subsequent trading

the simultaneous evolution of growth and inequality research on inequality and growth can be divided into two strands one deriving from kuznets and lewis has tried to identify a mechanistic relationship between growth or level of income and inequality the other has tried to find causal explanations of growth and inequality treating each independently in this paper we draw from both strands to test whether growth and inequality are the joint outcomes of other variables and processes we find that simultaneous examination of growth and inequality yields significantly different results and has different consequences for policy from previous independent studies the empirical literature on growth and inequality can be divided into two broad strands one following the pioneering work of kuznets and lewis is motivated by the pessimistic conjecture that the process of growth and development somehow requires increasing inequality at least in the early stages this has led to many efforts to identify a mechanical relationship between the level of development and inequality anand and kanbur 1993 or to determine whether faster growth requires higher or lower inequality the second strand has sought to identify the causal factors influencing the evolution of growth and inequality independently this research has looked either at growth for example barro and sala i martin 1995 or at inequality li et al 1997 but has not tried to identify those factors that might simultaneously influence both growth and inequality 2 thus the literature that looks simultaneously at growth and inequality descending most notably from kuznets 1955 relates them in a mechanistic manner that ignores or minimises the role of other causal factors including policy while the literature that incorporates other causal factors including policies looks independently at growth and inequality neither approach is particularly convincing from a theoretical standpoint the evolution of growth and inequality must surely be the outcome of similar processes in addition neither approach is particularly useful for the policy maker who needs to balance the impact of policies on both growth and distribution in this paper we investigate whether growth and inequality are simultaneously determined and if so whether or not they are subject to

procrastinating reform the impact of the market stability reserve on the eu ets abstract we study the impact of the market stability reserve msr on price and emission paths of the eu ets from 2019 onwards the msr will adjust the number of allowances auctioned as a function of the size of the surplus i e in times of a large surplus it shifts the issue date of allowances into the future in a perfectly competitive allowance market the msr only affects price and emission paths if the baseline equilibrium becomes unfeasible if the msr is binding prices increase in the short run but drop in the medium run relative to the baseline the msr increases price variability if uncertainty over future allowance demand is resolved while there is a surplus the long run cap is unaffected by both the msr and overlapping climate policies this contrasts the eu s objectives of improving the resilience of the eu ets and increasing synergies with overlapping climate policies

the macroeconomic effects of trade tariffs revisiting the lerner symmetry result abstract we study the robustness of the lerner symmetry result in an open economy new keynesian model with price rigidities while the lerner symmetry result i e the absence of allocative and trade flow effects of an equally sized change in import tariff and export subsidy holds up approximately for a number of alternative assumptions we obtain quantitatively important long term deviations under complete international asset markets direct pass through of tariffs and subsidies to prices and slow exchange rate adjustment can also generate significant short term deviations from lerner deviations from symmetry however do not necessarily imply an impact on global output and are often limited to a redistribution of production and consumption across countries finally we quantify the macroeconomic costs of a trade war and find that they can be substantial with permanently lower income and trade volumes however a fully symmetric retaliation to an unilaterally imposed border adjustment tax can prevent any sizable adverse real or nominal effects

has the euro changed the business cycle abstract in contrast to the notion that the exchange rate regime is non neutral there is little evidence that emu has systematically changed the european business cycle in fact we find the volatility of macroeconomic variables largely unchanged before and after the introduction of the euro exceptions are a strong decline in real exchange rate volatility and a considerable increase in cross country correlations to account for this finding we develop a two country business cycle model which is able to replicate key features of european data in particular the model correctly predicts a limited effect of emu on standard business cycles statistics however further analysis reveals that the euro has changed the nature of the cycle through its impact on the transmission mechanism cross country spillovers have become relatively more domestic shocks relatively less important in accounting for economic fluctuations under emu this explains why there is little change in unconditional volatilities

the effectiveness of incomplete and overlapping pollution regulation evidence from bans on phosphate in automatic dishwasher detergent abstract this paper examines the effectiveness of command and control policies in the presence of incomplete and overlapping regulations we study how recent bans on phosphate in household dishwasher detergent affect pollution loads to waterways costs at wastewater treatment facilities and consumer behavior we show that the effectiveness of the bans in reducing effluent depends critically on regulations at receiving treatment facilities as cost minimizers facilities with an emissions standard on phosphorus face no incentive to deviate from the standard we show that bans have weak effects on effluent especially in the most polluted waterways we also use an early isolated ban in spokane washington to study the effect of the bans on consumers we find that this ban shifted approximately 40 of dishwasher detergent sales from spokane to bordering counties until a state wide ban was implemented using these estimates we find that the welfare loss to consumers from recent bans is likely greater than the cost savings to treatment plants