A microeconomic approach to climate change
Creators: name: Park, Youngseok
Publisher: name: No Publisher Supplied
Year: 2016

description: This thesis is applied microeconomics in climate change and environmental economics.  Climate scientists express strong consensus on anthropogenic climate change. Although  science is based on "hard facts" , there have been cases where scientists have  been found to misrepresent data, or to hide relevant facts. Since politicians in general  have no scientific background and they often suspect that scientific data could  be misrepresented or manipulated, it is worthwhile to study the strategic interaction  between a climate scientist and a politician who suspects the scientist may be manipulating  the data. This thesis is a rigorous analysis of these controversial topics  by applying formal game-theoretic models and empirical techniques. In Chapter 2, I  develop a cheap-talk game of the three parties associated with climate change: the  government, the climate scientist, and the median voter. I show that a credibility gap  is created between the scientist and the government if the preference of the scientist is  not perfectly aligned with that of the government. In the case where climate change  is likely to be a serious problem, the credibility gap leads to too much burning of fossil  fuels. The credibility gap is eliminated and the ex-ante social welfare is maximized if  and only if the scientist's preference is perfectly aligned with that of the government.  This is endogenously achieved when the government is allowed to appoint its optimal  scientist without election concerns. In the case where the government has election concerns, if the median voter perceives an alarming message from the climate scientist,  then even a "right-wing"  government must choose an aggressive climate change  policy to avoid losing the election. Accordingly, it will prefer to appoint a climate  scientist who is unlikely to send an alarming message. Thus the government deliberately  creates a credibility gap which may cause distorted climate change policies in a  democratic society. Nevertheless, the model predicts that countries with more democratic  political institutions will have climate change policies that are more targeted  towards renewable energy.  In Chapter 3, I test this theoretical prediction. In the analysis of international  panel data of 1980-2012, I find that a one-unit increase in the Polity II index is associated  with approximately 11-13 percent increase in the proportion of electricity due  to renewable energy. I also find that a one-unit increase in the Polity II index is associated  with approximately 3 percent decrease in the CO2 emissions per capita. That  is, countries with more democratic institutions practice more environment-friendly  policies; and they also produce lower CO2 emissions. I further study how the population  environmental preferences, as measured by the LCV scores, influence state  governors to become more concerned about the environment. From a U.S. panel  data in the period of 1971-2007, I find the Republican state governors increase the  environmental expenditure per capita by approximately 1.5 percent as the Democrat  LCV scores increase by 1 percent; and they increase the environmental expenditure  per capita by 4.8 percent as the Republican LCV scores decrease by 1 percent. That  is, Republican governors respond positively to the LCV scores of the Democrats, but  not to Republican LCV scores.  In Chapter 4, I extend the strategy of manipulating conflict developed by Baliga  and SjÂ¨ostrÂ¨om (2012) and apply it to climate-change politics between two asymmetric  decision-makers under incomplete information. The decision-makers choose progressive  or conservative actions towards climate change. A decision-maker from a country  with greater damage from climate change is more likely to be progressive than a country  with lesser damage. Climate scientists can manipulate this decision-making by  sending publicly observed cheap-talk messages. The likelihood of both players choosing  progressive action on climate change decreases if both players are â€œcoordinationâ€   types and the scientist is conservative. The conservative scientist can cause this by  sending skeptical messages that trigger a spiral of climate change skepticism. This  reduces the welfare of both decision-makers. If both players are opportunistic types, a  progressive scientist can send alarming messages that cause the decision-maker from  the country with greater damage from climate change to be more progressive. This  reduces his welfare but benefits the other decision-maker. I show that there does  not exist any communication equilibrium for either kind of scientist, for any other  combination of player types.