evaluating welfare reform in the united states this paper reviews the economic literature on welfare reform over the 1990s a brief summary of the policy changes is followed by a discussion of the methodological techniques that analyze the effects of these changes on outcomes the paper then critically reviews the econometric and experimental literature on caseload changes labor force changes poverty and income changes and family formation changes a growing body of evidence suggests that recent policy changes have influenced economic behavior and well being one particular set of new style welfare programs seems to show especially promising results with significantly increased work and earnings and reduced poverty

price setting in online markets does it click using a unique dataset of daily u s and u k price listings and the associated number of clicks for precisely defined goods from a major shopping platform we shed new light on how prices are set in online markets which have a number of special properties such as low search costs low costs of monitoring competitors prices and low costs of nominal price adjustment we document that although online prices are more flexible than offline prices they nevertheless exhibit relatively long spells of fixed prices large size and low synchronization of price changes considerable crosssectional dispersion and low sensitivity to predictable or unanticipated changes in demand conditions qualitatively these patterns are similar to those observed for offline prices a finding that suggests a need for more research on the sources of price rigidities and dispersion

environmental regulation technological diversity and the dynamics of technological change inducing technological progress is an important objective of environmental regulation we investigate under which conditions regulation induced technological progress pursues the best technological option we analyze a setting with vertical and horizontal technological progress cost uncertainty time limited patent protection and a case that is typical for some emissi4on intensive industries like electricity generation or the chemical industry under taxes and standards only the current least cost technology is used and developed implying a lock in into a possibly inferior technology tradable permits yield slower progress but can facilitate the simultaneous development of technologies rendering lock ins less likely

public regulation of agricultural biotechnology field tests economic implications of alternative approaches federal oversight of agricultural biotechnology field testing is based on public concerns that unknown consequences could arise from such tests and that firms may not adequately consider the public consequences of their research and development activities in this paper four general types of ex ante and ex post approaches to manage public risks from field testing are explored the analysis shows that the approaches are least effective at facilitating the research process yet controlling public risks when the research firm is small in size and potential damages exceed the value of the firm

do doctors practice defensive medicine defensive medicine is a potentially serious social problem if fear of liability drives health care providers to administer treatments that do not have worthwhile medical benefits then the current liability system may generate inefficiencies much larger than the costs of compensating malpractice claimants to obtain direct empirical evidence on this question we analyze the effects of malpractice liability reforms using data on all elderly medicare beneficiaries treated for serious heart disease in 1984 1987 and 1990 we find that malpractice reforms that directly reduce provider liability pressure lead to reductions of 5 to 9 percent in medical expenditures without substantial effects on mortality or medical complications we conclude that liability reforms can reduce defensive medical practices

strategic judgment proofing a liquidity constrained entrepreneur raises capital to finance a business activity that may harm bystanders the entrepreneur raises senior secured debt to shield assets from the tort victims in bankruptcy for a fixed level of borrowing senior debt creates better incentives for precaution taking than either junior debt or outside equity the entrepreneur s level of borrowing is however socially excessive giving tort victims priority over senior debtholders in bankruptcy prevents overleveraging but leads to suboptimal incentives lender liability exacerbates the incentive problem even further a limited seniority rule dominates these alternatives shareholder liability mandatory liability insurance and punitive damages are also discussed

prices vs quantities the effects on technology choice abstract it is well known that price and quantity based regulation approaches provide different investment incentives but usually only the effect on the level of investment is studied in this paper we show that under uncertainty they also lead to the adoption of different technologies due to the disparate risks that a regulated firm is exposed to different regulatory instruments induce different technologies and this effect cannot be compensated by varying the design of the instruments furthermore price based instruments lead to the adoption of a socially suboptimal technology so that the inclusion of technology choice provides a bias in favor of a quantity based regulation compared with weitzman s weitzman m l 1974 prices vs quantities review of economic studies 41 477 491 criterion

regulatory attitudes and environmental innovation in a model combining internal and external r d the extent to which environmental regulatory institutions are either green or brown impacts not just the intensity of regulation at any moment but also the incentives for the development of new pollution control technologies we set up a strategic model of r d in which a polluter can deploy technologies developed in house or license technologies developed by specialist outsiders an eco industry polluters exert r d effort and may even develop redundant technologies to improve the terms on which they procure technology from outside we find that while regulatory bias has an ambiguous impact on the best available technology strategic delegation to systematically biased regulators can improve social welfare

should renewable energy policy be renewable political flexibility brings about trade offs for policy makers aiming to support the deployment of renewable energy sources res on the one hand it allows incorporating new information on ex ante uncertain benefits and costs of res policy on the other hand it may deter res investments this paper scrutinizes how these trade offs play out economically and politically when res policy makers choose the degree of flexibility as well as the instruments to implement flexibility the analysis builds on a theoretical framework distinguishing between flexibility by design and by adjustment it is complemented by a discussion of three case studies res support schemes in germany and the united kingdom and the eu emissions trading scheme theoretical as well as empirical results suggest that the politically chosen degree of flexibility by policy design may be sub optimally low in contrast flexibility by policy adjustment is often excessively high

firm incentives to promote technological change in pollution control reply abstract the process of technological change in pollution control is broken into three basic steps innovation diffusion and optimal agency response firm incentives to promote these steps are then examined under five regulatory regimes direct controls emission subsidies emission taxes free marketable permits and auctioned marketable permits on a relative basis emission taxes and auctioned permits provide the highest firm incentives to promote technological change at times free permits generate lower incentives direct controls which are common regulatory tools usually provide the lowest relative firm incentives to promote technological change

ranking contingent monitoring systems this paper seeks to provide a ranking of information systems in a setting of contingent monitoring control strategies that make the acquisition of additional information conditional on observing certain outcomes largely elude the existing ranking criteria we show that this happens because contingent monitoring involves more than the classical trade off between risk sharing and incentives it also requires a balancing of incentives and downside risk we then develop a refinement of the most common information system orderings that conveys this feature this allows us to reinterpret and generalize some of the literature s key results concerning for instance auditing policies with independent or with correlated signals and monitoring systems where the precision of an added signal is endogenous

booms busts and price dispersion using grocery store data we study the relationship between dispersion and the business cycle our findings reveal that overall there is no robust and significant relationship however these mask important heterogeneity in the cyclicality of dispersion at the category level

price dispersion over the business cycle evidence from the airline industry this study provides empirical evidence documenting how price dispersion moves with the business cycle in the airline industry performing a fixed effects panel analysis on seventeen years of data covering two business cycles we find that price dispersion is highly pro cyclical this effect is especially pronounced for legacy carriers relative to low cost carriers we show that our empirical result is consistent with firms implementing second degree price discrimination tactics

how do the us and canadian social safety nets compare for women and children the past quarter century has seen substantial change in the social safety nets for families with children in the united states and canada both countries have moved away from cash welfare but the

pollution abatement subsidies and the eco industry this paper considers the combination of pollution taxes and abatement subsidies when some polluting firms procure their abatement goods and services from an oligopolistic eco industry the regulator must here cope with two simultaneous price distortions one that comes from pollution and the other which is caused by the eco industry s market power in this context we show that taxing emissions while subsidizing polluters abatement efforts cannot lead to first best but the opposite occurs provided it is the eco industry s output which is subsidized when public transfers also create distortions welfare can be higher if the regulator uses only an emission tax but subsidizing abatement suppliers while taxing emissions remains optimal when the eco industry is concentrated

environmental innovation and environmental performance abstract by estimating a simultaneous panel data model of environmental innovation and toxic air pollution this paper identifies bi directional causal links between the two we study a panel of 127 manufacturing industries over the period 1989 2004 pollutant emissions are an implicit measure of policy stringency and environmental patent counts are used to measure environmental innovation after accounting for the joint endogeneity we find that environmental innovation is an important driver of reductions in us toxic emissions conversely we find that tightened pollution targets induce environmental innovation however our estimates indicate that the environmental policy multiplier the proportionate contribution of induced innovation to long run emission reduction is small

environmental policy based on strict liability implications of uncertainty and bankruptcy a firm level model is developed to analyze the impacts of bankruptcy and uncertain firm wealth on incentives for safety under a strict liability rule future damages and wealth are uncertain and a firm s income earning activities that possibly create damages are incorporated into the model this analysis shows that firms do not always undertake more of a risky activity than is socially desirable for the extremely hazardous industry case larger firms always undertake less of a risky activity than smaller firms for the cyclical industry case larger firms do not always conduct less of a risky activity than smaller firms

environmental policy incentives to adopt advanced abatement technology abstract we investigate incentives through environmental policy instruments to adopt advanced abatement technology first we study the case where the regulator makes long term commitments to policy levels and does not anticipate arrival of new technology we show that taxes provide stronger incentives than permits auctioned and free permits offer identical incentives and standards may give stronger incentives than permits second we investigate scenarios where the regulator anticipates new technologies we show that with taxes and permits the regulator can induce first best outcomes if he moves after firms have invested whereas this does not always hold if he moves first

all or nothing climate policy when assets can become stranded abstract this paper develops a new perspective on stranded assets in climate policy using a partial equilibrium model of the energy sector political economy related aspects are considered in the government s objective function lobbying power of firms or fiscal considerations by the government lead to time inconsistency the government will deviate from a previously announced carbon tax which creates stranded assets under rational expectations we show that a time consistent policy outcome exists with either a zero carbon tax or a prohibitive carbon tax that leads to zero fossil investments an all or nothing policy although stranded assets are crucial to such a bipolar outcome they disappear again under time consistent policy which of the two outcomes all or nothing prevails depends on the lobbying power of owners of fixed factors land and fossil resources but not on fiscal revenue considerations or on the lobbying power of renewable or fossil energy firms

pollution policy and trade liberalization of environmental goods during the doha round at the world trade organization reductions in trade barriers on environmental goods eg were put forward as a means of helping developed and developing countries alike deal with current environmental problems we examine the potential effectiveness of such a strategy in a developing country that imports all its consumption of eg from an imperfectly competitive foreign eco industry we point out that trade liberalization of eg might in fact lead to less stringent pollution taxes which can result in an actual rise in pollution levels we then show that the environmental effectiveness objective of this trade reform can be achieved when the regulator uses quantitative abatement standards as an alternative pollution policy instrument however this environmental achievement comes at the expense of social welfare

instrument choice for environmental protection when technological innovation is endogenous this paper compares qualitatively and quantitatively the welfare effects of emissions taxes auctioned emissions permits and free grandfathered permits when technological innovation is endogenous we find that there is no unambiguous case for preferring any of these policy instruments the relative welfare ranking of instruments depends on the costs of innovation the extent to which innovations can be imitated the slope and level of the marginal environmental benefit function and the number of polluting firms we illustrate the types of situations when there can be significant welfare discrepancies between the policies and when there are not

the climate policy hold up green technologies intellectual property rights and the abatement incentives of international agreements the success of global climate policies over the coming decades depends on the diffusion of green technologies this requires that international environmental agreements ieas and trade related intellectual property rights trips interact productively using a simple and tractable model we highlight the strategic reduction in abatement commitments on account of a hold up effect in anticipation of rent extraction by the innovator signatories might abate less than non signatories turning the iea brown self enforcing ieas have fewer signatories and diffusion can reduce global abatement under trips countries hosting patent holders extract rents from trips but may be better off without them

irreversible abatement investment under cost uncertainties tradable emission permits and emissions charges abstract a major concern with tradable emission permits is that stochastic permit prices may reduce a firm s incentive to invest in abatement capital or technologies relative to other policies such as a fixed emissions charge however under efficient permit trading the permit price uncertainty is caused by abatement cost uncertainties which affect investment under both permit and charge policies we develop a rational expectations general equilibrium model of permit trading and irreversible abatement investment to show how cost uncertainties affect investment under permits we compare the resulting investment incentive with that under charges after controlling for the assumption that random shocks affect the abatement cost linearly we find that firms investment incentive decreases in cost uncertainties but more so under emissions charges than under permits therefore tradable permits in fact may help maintain firms investment incentive under uncertainty

liability insurance under the negligence rule we analyze the e ciency properties of the negligence rule with liability insurance when the tort feasor s behavior is imperfectly observable both by the insurer and the court e ciency is shown to depend on the extent to which the evidence is informative on the evidentiary standard for nding negligence and on whether insurance contracts can condition directly on the same evidence as used by courts to assess behavior when evidence is not directly contractible the negligence rule with compensatory damages is generally ine cient

incentives to diffuse advanced abatement technology under environmental liability law polluting firms with advanced abatement technology at their disposal have incentives or disincentives to share this technology with other polluting firms the direction and extent of those incentives depends on the liability rule applicable and the way technical change impacts marginal abatement costs we establish that incentives for diffusion are socially optimal under strict liability and socially suboptimal under negligence if technical change lowers marginal abatement costs for all levels of abatement negligence may however induce better diffusion incentives than strict liability if technical change decreases increases marginal abatement costs for low high levels of abatement

does more stringent environmental regulation induce or reduce technology adoption when the rate of technology adoption is inverted u shaped abstract we show that for a broad class of technologies the relationship between policy stringency and the rate of technology adoption is inverted u shaped this happens when the marginal abatement cost mac curves of conventional and new technologies intersect which invariably occurs when emissions are proportional to output and technological progress reduces emissions per output this outcome does not result from policy failure on the contrary in social optimum the relationship between the slope of the marginal damage curve and the rate of technology adoption is also inverted u shaped under more general conditions these curves can look even more complicated e g such as inverted w shaped

an economic model of welfare stigma perhaps the most basic assumption of the economic theory of consumer demand is that more is better than less virtually all of the major propositions of consumer theory can in a certain sense be derived from the assumption that goods are good interestingly however this tenet seems to be violated by the behavior of many individuals in the low income population for many turn out to be eligible for a positive welfare benefit but do not in fact join the welfare rolls for example it has been estimated that in 1970 only about 69 percent of the families eligible for afdc aid to families with dependent children participated in the program see richard michel 1980 the corresponding percentage for afdc u the program for which families with an unemployed male are eligible was only 43 percent and the participation rate in the food stamp program was only 38 percent see maurice mcdonald 1977 this phenomenon has puzzled many investigators because such individuals do not locate on the boundaries of their budget sets consequently most investigators ignore the problem when studying the effects of welfare programs on behavior in this paper this seemingly irrational rejection of an increase in income is modeled as resulting from welfare stigma that is from disutility arising from participation in a welfare program per se 1 the existence of stigma has been amply documented in the sociological literature patrick horan and patricia austin 1974 lee rainwater 1979 where interviews of recipients have often uncovered feelings of lack of self respect and negative self characterizations from participation in welfare nevertheless this phenomenon has not been modeled and many questions consequently remain when is the disutility of participation strong enough to prevent participation shouldn t we expect individuals to weigh the disutility of participation against the potential benefit in their decisions what is the elasticity of participation with respect to the potential benefit also in a slightly different vein how are the work disincentives of welfare affected by stigma these questions have been given scant attention by economists yet they are crucial for our ability to predict the impact of various welfare programs on the lowincome population here these questions are addressed by modeling nonparticipation as a utility maximizing decision the model is developed and estimated for the afdc program 2 the model posits an individual utility function containing not just disposable income but

trade in environmental goods evidences from an analysis using elasticities of trade costs negotiations on the liberalization of environmental goods egs and services within the wto doha round mandated in november 2001 are facing specific challenges conflicting interests and differing perceptions of the benefits of increased trade in egs were reflected in different approaches proposed for determining egs using import data of 34 organisation for economic co operation and development oecd member countries and from a sample of 167 countries from 1995 to 2012 we discuss the trade effect of reducing barriers on egs we analyze the lists of egs proposed by the asia pacific economic cooperation and oecd using a translog gravity model we found that removing tariff barriers for egs will have a modest impact because for the biggest importers and exporters elasticities of trade costs are very low while for most trading relationships they are very high making it difficult for exporters to maintain their markets overall our results suggest that because of their substantial effect on international trade future negotiations on egs should also address the issues of standards and nontariff barriers

property transfers and environmental pollution incentive effects of alternative policies this paper considers how trans ferring some or all future responsibility for cleanup of a contaminated site affects the cur rent owner s incentives to reduce contamina tion given that he anticipates selling his prop erty in the future the results depend on the probabilities that the parties will be judgment proof the distribution of surplus and whether there is joint and several liability contrary to popular belief we show that transferring liabil ity can actually increase the seller s incentive to invest in pollution abatement furthermore abatement incentives are at least as great and generally greater with joint and several liability than without it jel q2

environmental taxation and vertical cournot oligopolies how eco industries matter this article specifies what an optimal pollution tax should be when dealing with a vertical cournot oligopoly polluting firms sell final goods to consumers and outsource their abatement activities to an environment industry it is assumed that both markets are imperfectly competitive thus the tax is a single instrument used to regulate three sorts of distortions one negative externality and two restrictions in production consequently the optimal tax rate is the result of a trade off that depends on the firms market power along the vertical structure a detailed analysis of cournot nash equilibria in both markets is also performed in this context the efficiency of abatement activities plays a key role it gives a new understanding to the necessary conditions for the emergence of an eco industrial sector

using differences in knowledge across neighborhoods to uncover the impacts of the eitc on earnings we develop a new method of estimating the impacts of tax policies that uses areas with little knowledge about the policy s marginal incentives as counterfactuals for behavior in the absence of the policy we apply this method to characterize the impacts of the earned income tax credit eitc on earnings using administrative tax records covering all eitc eligible lers from 19962009 we begin by developing a proxy for local knowledge about the eitc schedule the degree of sharp bunching at the exact income level that maximizes eitc refunds by individuals who report self employment income the degree of self employed sharp bunching varies signi cantly

commitment versus discretion in climate and energy policy to decarbonize the power sector policy makers need to commit to long term credible rules for climate and energy policy otherwise risk of opportunistic policy making will impair investments into low carbon technologies however the future benefits and costs of decarbonization are subject to substantial uncertainties thus there may also be societal gains from allowing policy makers the discretion to adjust the policies as new information becomes available we examine how this trade off between policy commitment either unconditional or state contingent and discretion affects the optimal intertemporal design of market based instruments in the power sector using a dynamic partial equilibrium model we show that commitment to a state contingent level of ambition for the market based instrument leads to higher welfare than both unconditional commitment and discretion with benefit uncertainty the choice between the practically more feasible approaches of unconditional commitment and discretion is analytically ambiguous a basic numerical illustration suggests that policy discretion may outperform unconditional commitment in terms of welfare however this result is reversed when only a limited fraction of benefit uncertainty resolves in reasonable time when future policy makers have own agendas or when investors are risk averse with cost uncertainty policy discretion is welfare superior if the government can commit to a technology deployment target

the compensation regime in liability law incentives to curb environmental harm ex ante and ex post this paper analyzes private incentives for precautions against environmental harm before accidents occur and for clean up after the fact we consider the compensatory regimes used in various jurisdictions which differ in terms of the basis for compensation the level of harm clean up costs or some combination of the two and the resulting levels of compensation we establish that socially optimal decisions are usually not induced by liability law in any of the compensatory regimes however the different types and levels of compensation have distinct effects allowing the policy maker to identify the most appropriate regime for specific circumstances

taxes and subsidies for pollution intensive industries as trade policy abstract this paper constructs a model of international oligopoly with negative externalities in production in which optimal environmental policy responses to foreign emission tax and subsidy programs can be calculated it is shown that by granting subsidies for abatement efforts or for a heavily taxed polluting input domestic net welfare is improved by capturing a greater share of the world market since the subsidy programs are supposed to improve the quality of the global environment they can be justified on environmental grounds in addition we show that a pigouvion emission tax restores efficiency in natural resource allocation whereas subsidy programs are in principle used as instruments in imperfectly competitive international markets

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

robust technology policy against emission leakage the case of upstream subsidies asymmetric regulation of a global pollutant between countries can alter the competitiveness of industries and lead to emissions leakage which hampers countries welfare in order to limit leakage governments consider supporting domestic trade exposed firms by subsidizing their investments in abatement technology the suppliers of such technologies tend to be less than perfectly competitive particularly when both emissions regulations and advanced technologies are new in this context of twin market failures we consider the relative effects and desirability of subsidies for abatement technology we find a more robust recommendation for upstream subsidies than for downstream subsidies downstream subsidies tend to increase global abatement technology prices reduce pollution abatement abroad and increase emission leakage on the contrary upstream subsidies reduce abatement technology prices and hence also emissions leakage

combining price and quantity controls to mitigate global climate change abstract uncertainty about compliance costs causes otherwise equivalent price and quantity controls to behave differently and leads to divergent welfare consequences although most of the debate on global climate change policy has focused on quantity controls due to their political appeal this paper argues that price controls are more efficient simulations based on a stochastic computable general equilibrium model indicate that the expected welfare gain from the optimal price policy is five times higher than the expected gain from the optimal quantity policy an alternative hybrid policy combines both the political appeal of quantity controls with the efficiency of prices using an initial distribution of tradeable permits to set a quantitative target but allowing additional permits to be purchased at a fixed trigger price even sub optimal hybrid policies offer dramatic efficiency improvements over otherwise standard quantity controls for example a 50 trigger price per ton of carbon converts the 3 trillion expected loss associated with a simple 1990 emission target to a 150 billion gain these results suggest that a hybrid policy is an attractive alternative to either a pure price or quantity system

ex post liability for harm vs ex ante safety regulation substitutes or complements this paper concerns the regulation of hazardous economic activities economists have generally viewed ex ante regulations safety standards pigouvian fees that regulate an activity before an accident occurs as substitutes for ex post policies exposure to tort liability for correcting extemalities this paper shows that where there is uncertainty there are inefficiencies associated with the exclusive use of negligence liability and that ex ante regulation can correct the inefficiencies in such a case it is efficient to set the safety standard below the level of precaution that would be called for if the standard were used alone jel 619

do voluntary pollution reduction programs vprs spur or deter environmental innovation evidence from 33 50 abstract we study whether a government sponsored voluntary pollution reduction program vpr promotes or deters the development of new environmental technologies that yield future emission reduction benefits using a panel of 127 u s manufacturing industries defined by 3 digit sic classifications over the 1989 2004 period we estimate impacts of industry level participation in the 33 50 program a vpr initiated by government regulators in 1991 on industry level rates of environmental patenting we find that higher rates of 33 50 program participation are associated with significant reductions in the number of successful environmental patent applications five to nine years after the program ended

environmental research joint ventures under emission taxes the effect of environmentalpolicy depends crucially on the strategicbehavior of firms firms can undertakepollution abatement innovation cooperativelythrough environmental r d joint ventures rjvs environmental rjvs have not onlyenvironmental but also economic impacts threetypes of environmental rjv are discussed inthis paper r d cartelization in which firmschoose r d efforts to maximize the jointprofit rjv competition in which firms sharethe r d fruits to maximize their own profits and rjv cartelization in which firms share r dfruits and maximize the joint profit an r dcartelization minimizes output quantities maximizes the total emission and minimizes thesocial surplus an rjv cartelization with asufficiently high spillover coefficientmaximizes r d efforts minimizes the totalemission and maximizes the social surplus

end of pipe or cleaner production how to go green in presence of income inequality and pro environmental behavior in this paper we consider a vertically differentiated duopoly model in which a green producer competes with a brown rival in a market in which consumers are environmentally concerned in particular consumers are assumed to value not only the intrinsic quality of a certain product but also its environmental impact this environmental valuation has a positional content consumers attach a positive attribute to the green product while penalizing the brown one in this context we consider the choice of the green firm between cleaner and end of pipe abatement efforts we find that the interplay between the intensity of market competition consumers income disparity and environmental concern can play a crucial role in directing the green producer towards one or the other technological choice more precisely the adoption of cleaner production technologies can be discouraged by low average income and by tough competition while it can be spurred by the moral social incentive towards pro environmental behavior

strict liability as a deterrent in toxic waste management empirical evidence from accident and spill data abstract this paper examines whether strict liability imposed on polluters has reduced uncontrolled releases of toxics into the environment we fit regressions relating spills of selected chemicals to the type of liability in force in a state and to state manufacturing activity for some chemicals spills are more numerous in states imposing strict liability this could be due to unobserved state characteristics with small firms being responsible for a disproportionate number of spills regardless of the liability structure alternatively separate regressions for the two liability regimes suggest that only under strict liability are small firms responsible for a disproportionate number of spills

equilibrium price dispersion in retail markets for prescription drugs this study seeks to establish the empirical importance of price dispersion due to costly consumer search by examining retail prices for prescription drugs posted prices in two geographically distinct markets are shown to vary considerably across pharmacies within the same market even after one controls for variation due to pharmacy differences pharmacy heterogeneity accounts for at most one third of the observed price dispersion the empirical analysis hinges on the observation that consumers incentives to price shop depend on characteristics of the drug therapy cross sectional patterns in price distributions across drugs are consistent with the predictions of a search model prices for repeatedly purchased prescriptions for which the expected benefits of search are highest exhibit significant reductions in both dispersion and price cost margins

market power in the eco industry polluters incentives under environmental liability law this paper analyzes the output and abatement choices of perfectly competitive downstream polluters who are subject to environmental liability law and procure abatement from an imperfectly competitive eco industry under strict liability polluting firms choose suboptimal abatement but socially optimal output given abatement under negligence with firm specific abatement standards polluting firms choose suboptimal output but socially optimal abatement given output under negligence with industry wide abatement standards the output and abatement choices of most firms are socially suboptimal second best considerations are offered for each case under strict liability negligence these apply to the level of liability the behavioral standard

on the timing of climate agreements a central issue in climate policy is the question whether long term targets for greenhouse gas emissions should be adopted this paper analyzes strategic effects related to the timing of such commitments using a two country model we identify a redistributive effect that undermines long term cooperation when countries are asymmetric and side payments are unavailable the effect enables countries to shift rents strategically via their r d efforts under delayed cooperation in contrast a complementarity effect stabilizes long term cooperation because early commitments in abatement induce countries to invest more in low carbon technologies and create additional knowledge spillovers contrasting both effects we endogenize the timing of climate agreements

when subsidies for pollution abatement increase total emissions in a first best deterministic world it is well known 2 28 30 that a unit tax on emissions equal to marginal damage is an efficient mechanism for internalizing the damages caused by polluting firms a unit subsidy for emissions abated also equal to marginal pollution damage has the same desirable property but only in the short run in the long run such subsidies induce polluting firms to operate at too small a scale and attract an excessive number of new firms to the polluting industry this can have the perverse result that there are more emissions when abatement is subsidized than when it is not nevertheless economists have been reluctant to give up entirely on the subsidy approach recognizing with oates 23 290 that polluters will obviously be far more receptive to measures that assist with the costs of pollution control than to those that place the burden upon themselves it is therefore not surprising that economists have continued to look for and find new justifications for subsidizing pollution control thus mestelman 20 187 argues that the subsidy scheme may be a second best alternative for externality control when the direct taxation alternative is not politically viable mchugh 17 64 shows that subsidies for pollution abatement expenditures can be a useful instrument in the case of cost increasing technological innovations harford 6 demonstrates that subsidies for pollution control inputs may be efficient when enforcement is sufficiently costly harford 7 makes still another argument for subsidies in the case in which the day to day performance of abatement equipment is uncertain but the uncertainty can be reduced by maintenance expenditures finally there are schemes for combining subsidies and taxes 14 26 given the continuing interest in subsidies it is important to examine carefully the disturbing case in which subsidies increase rather than decrease total emissions

incentives for advanced pollution abatement technology at the industry level an evaluation of policy alternatives abstract in this research we evaluate the incentive effects of five environmental policy instruments to promote the development and adoption of advanced pollution abatement technology in a heterogenous industry from most to least incentive the policy instruments can be rank ordered as follows i auctioned permits ii emissions taxes and subsidies iii issued marketable permits iv performance standards including performance standards in this list necessitates the assumption that they are differentiated between heterogeneous firms before the technology adoption in a way which replicates the initial emissions control distribution of the efficient incentive based instruments with the starting point normalized in this fashion the instrument rankings are invariant with respect to the size of firms the size of the industry or the industry s abatement cost structure

social norms and emission tax multiple equilibria in adopting pollution abatement device the effect of social norm is addressed in an adoption game where an emission tax is used to motivate oligopolistic firms to adopt a pollution abatement device we ask if the intrinsic motivation from social norm alone can motivate firms to participate in adoption the multiple equilibria in the adoption game indicates two possibilities this intrinsic motivation may or may not enhance adoption the existing literature on equilibrium selection further suggests that the most likely outcome is that it cannot enhance adoption next by keeping the assumption of symmetry we show that if cooperation is an option for firms then the presence of two coordination effects social norm on adoption and cooperation benefits on output will result in the existence of asymmetric adoptions

pollution regulation and abatement efforts evidence from china abstract this paper empirically tests pollution abatement efforts of chinese industries in response to pollution regulations especially the pollution charge instrument practiced in china for about 20 years the impacts of pollution regulation on abatement expenditures are examined for one thousand large and medium chinese industrial polluters the results show that plant level expenditures on end of pipe wastewater treatment are strongly responsive to the pollution charges the estimated elasticities of operation cost and new investment with respect to pollution price are 65 and 27 respectively other command and control regulatory approaches however are not found to have systematic and significant impacts on abatement expenditures

accidents waiting to happen liability policy and toxic pollution releases proponents of environmental policies based on liability assert that strict liability imposed on polluters induces firms to handle hazardous wastes properly we examine unintended pollution releases relating them to the liability imposed on polluters by state mini superfund laws we find that strict liability reduces the frequency and severity of pollution releases but that its effects vary with firm size smaller firms are associated with more pollution releases in states with strict liability suggesting that in these states smaller firms may have specialized in riskier production processes their number however has not necessarily grown in response to the state s liability policy

the role of markets and policies in delivering innovation for climate change mitigation this paper identifies market incentives and international and domestic policies that could technologically alter energy systems to achieve greenhouse gas stabilization targets while also meeting other societal goals i consider the conceptual basis and empirical evidence on the effectiveness and efficiency of climate technology policies the paper reviews the literature on trends and prospects for innovation in climate change mitigation and examines the evidence on induced innovation and the implications for the choice of technology policy i then consider the impact of technological advances on the environment the role of direct government support for r d and the complementarities between policies internalizing

limits to environmental bonds abstract bonds have recently been promoted as an alternative tool to control environmental damages particularly in those instances when the innovative activities of a firm have uncertain future impacts under this mechanism a firm would post a bond ex ante forfeiting all or a portion of the bond if its activities harmed environmental resources while the benefits of bonds have been developed there has been little systematic effort to explore their limitations in contrast the labor literature has extensively studied the limits of bonds as a mechanism to prevent worker shirking using insights from this parallel problem this paper explores the limits to environmental bonds focusing on the problems of moral hazard liquidity constraints and legal restrictions each limit offers a challenge to the success of environmental bonds we explore the use of bonds in surface mining and agricultural nonpoint pollution as motivating examples we also consider how other incentive schemes suggested by the labor literature might prove useful in the context of environmental management we consider the labor mechanisms of efficiency wages increasing wage profiles trust funds and rank order tournaments

innovation in pollution control comparisons of the various institutional arrangements for controlling pollutant emissions from individual sources effluent fees effluent control subsidies marketable permits and direct command and control regulation have usually focused on their static efficiency properties and institutional feasibility e g dales 1968 zerbe 1970 baumol and oates 1975 kneese and schultze 1975 marin 1978 mills and white 1978 spence and weitzman 1978 russell 1979 a relatively neglected area has been the study of how each arrangement influences innovation in pollution control a few studies e g kneese and schultze 1975 marin 1978 mills and white 1978 russell 1979 have casually claimed that the control methods that rely on economic incentives provide superior incentives for innovation but there have been few systematic studies of the question this paper provides a simple model of pollution control innovation by a profitmaximizing polluter who is subject to the various control methods the consequences of the methods will be explored in three major contexts first we assume that the polluter and the innovation is a small enough part of the overall pollution problem so that none of the important marginal conditions are changed by the innovation second we assume that the polluter and the innovation are important enough so that marginal conditions are changed by the innovations but that the governmental authority determining pollution control incentives or levels fails to make the appropriate adjustments third we again assume that the innovation causes marginal conditions to change but in this case the governmental authority makes the appropriate adjustments we use the term ratcheting to describe this last phenomenon in all cases we assume that the innovating polluter correctly predicts the reactions of the governmental authority and bases his innovation decisions on that prediction a profit maximizing entrepreneur would normally be expected to adopt any innovation that promised gains present discounted value to him in excess of initial

dynamic incentives by environmental policy instruments a survey abstract in this paper i survey and discuss recent developments on the incentives provided by environmental policy instruments for both adoption and development of advanced abatement technology a main conclusion to be drawn from the literature is that under competitive conditions market based instruments usually perform better than command and control moreover taxes may provide stronger long term incentives than tradable permits if the regulator is myopic if the government can anticipate new technology or is able to react on it optimally regulatory policies by virtue of administered prices taxes and policies by setting quantities issuing tradable permits are almost equivalent the literature also shows that under competitive conditions there is no difference between auctioning permits and grandfathering moreover timing and commitment of environmental policy is not crucial for adoption under competitive conditions commitment has positive incentive effects however if an r d sector has market power in the presence of market imperfections the ranking of the different policy instruments is ambiguous

technology diffusion with market power in the upstream industry this paper compares taxes and tradable permits when used to regulate a competitive and polluting downstream industry that can purchase an abatement technology from a monopolistic upstream industry second best policies are derived for the full range of the abatement technology s emission intensities and marginal abatement costs the second best permit quantity can be both above or below the socially optimal emission level explicit consideration of the output market provides further insights on how market power distorts the allocation in the downstream industry the ranking between permits and taxes is ambiguous in general but taxes weakly dominate permits if full diffusion is socially optimal in addition it is analysed how a cap on the permit price affects the diffusion of an abatement technology

the two part instrument in a second best world abstract standard pigovian tax theory has been extended in two directions first many polluting activities are difficult to tax because they are not market transactions and so recent papers have shown that the same effects can be achieved by use of a two part instrument 2pi a tax on output or income and a subsidy for clean alternatives to pollution it is a generalization of a deposit refund system drs second a different literature concerns the second best pollution tax in the presence of other tax distortions here we combine the two extensions by looking at the second best 2pi when government needs revenue is the deposit larger and the rebate smaller we find explicit solutions for each tax and subsidy in a general equilibrium model with other tax distortions and we compare these to the rates in a first best model the tax subsidy combination is explained in terms of a tax effect an environmental effect and a revenue effect the model allows for flexible interpretation to show various applications of the 2pi we also discuss important caveats

price rigidities and market structure conventional wisdom has it that a large part of the explanation of keynesian unemployment is the observed rigidities of wages and prices what has been lacking however is a satisfactory theory or conjunction of theories which explains how wages and prices can be at non market clearing levels the objective of this paper is to sketch out several alternative theoretical explanations of this phenomenon each in contrast with keynesian theory is consistent with the observation that as the economy goes into a recession real product wages do not increase and may in fact decrease all of the theories assume rational profit maximizing firms and all entail some important departure from the standard competitive paradigm the first three explanations represent minor adaptations of standard models

timing and commitment of environmental policy adoption of new technology and repercussions on r d we investigate the interplay between environmental policy incentives to adoptnew technology and repercussions on r d we study a model where a monopolistic upstream firm engages in r d and sells advanced abatement technology to polluting downstream firms we consider four different timing and commitment regimes of environmental tax and permit policies ex post taxation or issuing permits interim commitment to a tax rate a quota of permits after observing r d success but before adoption and finally two types of ex antecommitment before r d activity one with a unique tax rate quota of permits the other one with a menu of tax rates permit quotas we study the second best tax and permit policies and rank these with respect to welfare in particular we find that commitment to a menu of tax rate dominates all other policy regimes

innovation and the international diffusion of environmentally responsive technology abstract new evidence is presented on environmental innovation and diffusion over the 1970s and 1980s at a global level a substantial amount of innovations occurred in the united states japan and germany the share of environmental patents in all patents varied between 0 6 and 3 and as such was higher than the corresponding share of pollution abatement expenditure in gdp japanese environmental innovation rates were consistently high certain plausible connections between environmental regulation and innovation also emerge across these three countries and over time innovation responded to pollution abatement expenditure an indicator of the severity of environmental regulations environmental patenting rates in developing countries were also high reaching 2 in many years in brazil developing country innovators obtained a non trivial number of patents most of which appear geared towards adapting imported technologies to local conditions however domestic innovation was only one path to new technologies imports of disembodied environmental technologies foreign patents registered in developing countries were substantial foreign patents were typically important or generic patents evidence also suggests that such patents protected intellectual property in equipment exported developing countries especially in east asia often chose to obtain technologies embodied in pollution abatement equipment

indivisible toxic torts the economics of joint and several liability cost effective or efficient pollution control has traditionally devoted most of its attention to analyzing the effects of legislative or regulatory policy instruments such as emission taxes or marketable emission permits recent contributions have expanded this focus to include the effects of monitoring and enforcement policies 2 with a few noteworthy exceptions 3 however the role of the court system in general and liability law in particular have not received analytical attention among environmental economists in proportion to their importance in resource allocation

the impact of cyclical demand movements on collusive behavior recent work by rotemberg and saloner 1986 investigates the effect of the business cycle on optimal collusive pricing by specifying that demand is subject to i i d shocks an implication of the i i d assumption is that firms expectations on future demand are unrelated to the current level of demand we put forth a model that allows for both the level of current demand and firms expectations on future demand to change over time thus it captures two important properties of the business cycle our analysis reveals that while the gain to deviating from a collusive agreement is greatest during booms firms find it most difficult to collude during recessions as the forgone profits from inducing a price war are relatively low an implication of this effect for pricing behavior is that at the same level of demand price is lower when demand is declining than when demand is rising consistent with previous theoretical work we find that firms price countercyclically for a range of values for the discount factor however numerical simulations reveal a greater tendency for firms to price countercyclically during recessions than during booms

price dispersion and inflation new facts and theoretical implications abstract in workhorse macroeconomic models price dispersion is a central determinant of welfare the cost of business cycles optimal inflation and the tradeoff between inflation and output stability while price dispersion increases with inflation in the models this relationship is negative in the data due to sales prices the comovement of price dispersion and inflation for regular prices is positive a model with sales can quantitatively match the comovement in the data whereas a range of similar models without sales cannot even for regular prices these findings have important implications for welfare calculations optimal inflation and the effects of monetary shocks

liability for past environmental contamination and privatization this paper examines the role ofliability for past environmental contaminationin the privatization processes of central andeastern europe in particular it establishes alink between a risk averse investor s amount ofinformation regarding the extent of pastenvironmental contamination and its cleanupcosts and the investor s willingness to payfor a particular enterprise i e bid as theinvestor obtains a more precise estimate of theuncertain cleanup costs the investor facesless risk therefore the investor s riskpremium falls and the investor s bid rises this link generates four hypotheses regarding aprivatization agency s responses to theinvestor s knowledge of clean up costs

the merits of new pollutants and how to get them when patents are granted the performance of market based environmental regulation is affected by patents and vice versa this interaction is studied for a type of innovation where a new technology reduces emissions of a specific pollutant but at the same time causes a new type of damage if the new pollutant associated with this technology is sufficiently different from existing ones such that marginal damage is increasing in each of them but additive across pollutants a diversification of the pollution portfolio is socially desirable in a situation where the incentives to develop such a technology are created by patents the efficiency of permits is affected by monopoly pricing of the patent holding firm this result carries over to other types of innovation the performance of taxes is limited by either the inability to implement specific pollution mixes or monopoly pricing for constant returns to scale at the industry level the combined use of taxes and permits ensures the first best mix of technologies and provides positive research incentives

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

the role of investment in environmental lobbying contests this paper establishes that a lobbying stage following investment decisions regarding abatement technology may imply a positive strategic effect of investment pointing to relatively more investment in pollution abatement technologies than without lobbying the intuition is that polluting firms may choose to implement more advanced abatement technology as a credible commitment device in order to lower the investment of environmentalists in the lobbying contest that will ultimately determine whether or not an emissions tax is introduced

demand pull and technology push public support for eco innovation the case of the biofuels sector the purpose of this paper is to explore the differentiated impact of demand pull and technology push policies in shaping technological patterns in the biofuels sector the empirical analysis is based on a novel and original database biopat containing patents in the field of biofuels selected using appropriate keywords and classified according to the technological content of the invention our results generally show that technological capabilities and environmental regulation spur innovative activities in the biofuels sector both demand pull and technology push factors are found to be important drivers of innovation in the biofuels sector however technology exploitation activities in first generation technologies are found to be mainly driven by quantity and price based demand pull policies on the contrary the pace of technology exploration efforts in advanced generation biofuels is shown to react positively to price based demand pull incentives but also to technology push policy the clear diversity in the impact of different public support instruments provides new insights which fuel discussion on the optimal policy mix debate and offers new elements for the design of future policy strategies