nep-ene New Economics Papers
on Energy Economics
Issue of 2010‒07‒17
24 papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Merchant Electricity Transmission Expansion: A European Case Study By Tarjei Kristiansen; Juan Rosellón
  2. Investment Incentives and Electricity Spot Market Design By Grimm, Veronika; Zöttl, Gregor
  4. Overreporting Oil Reserves By Sauré, Philip
  5. The Implications of Alternative U.S. Domestic and Trade Policies for Biofuels By Yano, Yuki; Blandford, David; Surry, Yves
  6. Optimizing Ethanol Production in North Dakota By Taylor, Richard D.; Koo, Won W.
  7. Biofuels and economic development in Tanzania By Arndt, Channing; Pauw, Karl; Thurlow, James
  8. Economic growth and the environment By Everett, Tim; Ishwaran, Mallika; Ansaloni, Gian Paolo; Rubin, Alex
  9. Are compact cities environmentally friendly? By Carl Gaigné; Stéphane Riou; François Thisse
  10. Developing Asia's Competitive Advantage in Green Products: Learning from the Japanese Experience By Iino, Fukuya; Lim, Alva
  11. Modeling Greenhouse Gas Emissions on Diversified Farms: The Case of Dairy Sheep Farming in Greece By Sintori, A.; Tsiboukas, K.
  12. Copenhagen meets Doha: greenhouse gas emission reduction and trade liberalization in Norwegian agriculture By Blandford, David; Gaasland, Ivar; VÃ¥rdal, Erling
  13. Impact of Global Recession on Sustainable Development and Poverty Linkages By Anbumozhi, Venkatachalam; Bauer, Armin
  14. Incentive Based Approaches for Mitigating Greenhouse Gas Emmissions : Issues And Prospects for India By Shreekant Gupta
  15. Pigouvian Tax, Abatement Policies and Uncertainty on the Environment By M. Menegatti; D. Baiardi
  16. Targeted Enforcement and Aggregate Emissions With Uniform Emission Taxes By Coria, Jessica; Villegas-Palacio, Clara
  17. Modeling and explaining the dynamics of European Union allowance prices at high-frequency By Conrad, Christian; Rittler, Daniel; Rotfuß, Waldemar
  18. The Market Microstructure of the European Climate Exchange By Bruce Mizrach; Yoichi Otsubo
  19. An Economic Theory of Emission Cap Determination By an International Agreement By Sudhir A. Shah
  20. Climate change implications for water resources in the Limpopo River Basin By Zhu, Tingju; Ringler, Claudia
  21. Effects of Global Climate Change on Nigerian Agriculture: An Empirical Analysis By Apata, T.G; Ogunyinka, A.I; Sanusi, R.A; Ogunwande, S
  22. Global Climate Change and the Resurgence of Tropical Disease: An Economic Approach By Douglas Gollin; Christian Zimmermann
  23. Droughts and floods in Malawi By Pauw, Karl; Thurlow, James; van Seventer, Dirk
  24. The Porter Hypothesis and Hyperbolic Discounting By Roy Chowdhury, Prabal

  1. By: Tarjei Kristiansen; Juan Rosellón
    Abstract: We apply a merchant transmission model to the trilateral market coupling (TLC) arrangement among the Netherlands, Belgium and France as a generic example, and note that it can be applied to any general market splitting or coupling of Europe's different national power markets. In this merchant framework; the system operator allocates financial transmission rights (FTRs) to investors in transmission expansion based upon their preferences, and revenue adequacy. The independent system operator (ISO) preserves some proxy FTRs to deal with potential negative externalities due to an expansion project. This scheme proves to be capable in providing incentives for investment in transmission expansion projects within TLC areas.
    Keywords: transmission expansion, trilateral market coupling, Europe, financial transmission rights, congestion management
    JEL: L51 L91 L94 Q40
    Date: 2010
  2. By: Grimm, Veronika; Zöttl, Gregor
    Abstract: In liberalized electricity markets strategic firms compete in an environment characterized by fluctuating demand and non-storability of electricity. While spot market design under those conditions by now is well understood, a rigorous analysis of investment incentives is still missing. Existing models, as the peak-load-pricing approach, analyze welfare optimal investment and find that optimal investment is higher with more competitive spot markets. In this article we want to extend the analysis to investment decisions of strategic firms that anticipate competition on many consecutive spot markets with fluctuating (and possibly uncertain) demand. We study how the degree of spot market competition affects investment incentives and welfare and provide an application of the model to electricity market data. Our results show that more competitive spot market prices strictly decrease investment incentives of strategic firms. The reduction of investment incentives can be so intense to even offset the beneficial impact of more competitive spot market design. Those results obtain with and without free entry. Our analysis thus demonstrates that investment incentives necessarily have to be taken into account for a meaningful assessment of proper electricity spot market design.
    Keywords: Investment; demand fluctuation; cost fluctuation; spot market design
    JEL: D43 L13 D41 D42 D81
    Date: 2010–06
  3. By: Isabel Soares (CEF.UP, Faculdade de Economia, Universidade do Porto, Portugal); Paula Sarmento (CEF.UP, Faculdade de Economia, Universidade do Porto, Portugal)
    Abstract: In this paper we discuss the European regulation policy regarding vertical separation in communications and electricity industries. In the electricity sector the discussion concerns ownership unbundling while in communications the regulatory debate is about functional separation. We conclude that for electricity, ownership unbundling seems to be the best option to achieve competition in wholesale markets although there is still some risks concerning investment. Instead, for the communication sector the regulatory options are deeply dependent on the intensity of network competition between operators that combine different technological platforms. Technology also seems to be a key driver for diverse regulatory approaches concerning the unbundling requirement.
    Keywords: unbundling, communications, electricity, next generation networks
    Date: 2010–07
  4. By: Sauré, Philip (Swiss National Bank)
    Abstract: An increasing number of oil market experts argue that OPEC members substantially overstate their oil reserves. While the economic implications could be dire, the incentives for overreporting remain unclear. This paper analyzes these incentives, showing that oil exporters may overreport to raise expected future supply, thereby discouraging oil-substituting R&D and improving their own future market conditions. In general, however, overreporting is not costless: it must be backed by observable actions and therefore induces losses through supply distortions. Surprisingly, these distortions offset others that arise when suppliers internalize the buyers’ motives for R&D. In this case, overreporting is rational, credible, and cheap.
    Keywords: Exhaustible Resource; Substitution Technology; Signaling
    JEL: D82 F10 F16
    Date: 2010–01–31
  5. By: Yano, Yuki; Blandford, David; Surry, Yves
    Abstract: The U.S. Renewable Fuel Standard program (RFS), which involves mandates for various biofuels, is complex and has been often misinterpreted or oversimplified in previous studies. In this paper we analyze the implications of the RFS for the U.S. domestic and international ethanol markets. We demonstrate the vital role of the advanced biofuel mandate within the RFS. Impacts of changes in tariffs on imported fuel ethanol and subsidies for U.S. domestic ethanol production are examined. One of our important findings is that the RFS could result in serious misallocation of resources in both a national and international context. There is a possibility that the United States could be required to import sugarcane-based ethanol to meet the advanced biofuel mandate, simultaneously exporting corn-based ethanol, while satisfying the national overall mandate. Since the provision of subsidies for domestic ethanol production can stimulate exports of corn-based ethanol, they are equivalent to export subsidies in this situation. The removal of tariffs can reduce the burden imposed on consumers in the United States from the operation of the RFS. Our analysis shows that it is extremely important to understand the potential impact of the RFS on agricultural and energy markets.
    Keywords: Ethanol, trade liberalization, Renewable Fuel Standard, mandate, subsidies, Industrial Organization, F13, Q18, Q42, Q48,
    Date: 2010–03–29
  6. By: Taylor, Richard D.; Koo, Won W.
    Abstract: A spatial equilibrium model based on a non-linear mathematical programming algorithm was developed to determine the optimal number, location, and size of cellulose ethanol plants for North Dakota. The objective function of the model is to minimize processing cost of biomass for ethanol and the transportation cost of shipping biomass to processing plants and ethanol to blending facilities. A heuristic approach, combined with a spatial equilibrium model, was used to determine the optimal number, location and size of biomass processing plants.
    Keywords: Cellulosic ethanol, biomass, mathematical programming, heuristic, production costs, Agribusiness,
    Date: 2010–02
  7. By: Arndt, Channing; Pauw, Karl; Thurlow, James
    Abstract: Biofuels provide a new opportunity to enhance economic development in Tanzania. Drawing on detailed cost estimates, we develop a dynamic computable general equilibrium model to estimate the impact of different biofuel production scenarios on growth and poverty. Our results indicate that maximizing the poverty-reducing effects of a biofuels industry in Tanzania requires engaging and improving the productivity of smallholder farmers. Evidence shows that cassava-based ethanol production is more profitable than other feedstock options. Our findings also indicate that cassava generates higher levels of pro-poor growth than do sugarcane-based systems. However, if smallholder yields can be improved rather than expanding cultivated land, then sugarcane and cassava outgrower schemes can produce similar pro-poor outcomes. We conclude that in so far as the public investments needed to establish a biofuels industry in Tanzania are in accordance with national development plans, producing biofuels will contribute to achieving the country’s overall development objectives.
    Keywords: Biofuels, Cassava, Computable general equilibrium (CGE) model, Growth, Poverty,
    Date: 2010
  8. By: Everett, Tim; Ishwaran, Mallika; Ansaloni, Gian Paolo; Rubin, Alex
    Abstract: As the UK economy emerges from the downturn, attention is shifting to how best to return it to sustained and durable economic growth. But what does sustained and durable economic growth mean in the context of the natural environment? The UK and the global economy face significant environmental challenges, from averting dangerous climate change to halting biodiversity loss and protecting our ecosystems. There has been debate over whether it is possible to achieve economic growth whilst also tackling these challenges. This paper does not try to answer the question of what the sustainable level of economic growth might be, but instead examines the link between economic growth and the environment, and the role of environmental policy in managing the provision and use of natural assets. Many question the value of continued growth in GDP, given its limitations – including as a measure of wellbeing – and some evidence of its diminishing benefits within rich countries. However, it remains essential to support continued improvements in factors that affect people’s wellbeing, from health and employment to education and quality of life, and to help the government deliver on a range of policy objectives – economic, social, and environmental.
    Keywords: Environmental policy: Natural Environment: Natural Capital: Growth: Sustainable Growth:
    JEL: E62 Q56 Q58
    Date: 2010–03
  9. By: Carl Gaigné; Stéphane Riou; François Thisse
    Abstract: .There is a large consensus among international institutions and national governments to favor urban-containment policies –the compact city– as a way to improve the ecological performance of the urban system. This approach overlooks a fundamental fact: what matters for the ecological outcome of cities is the mix between the level of population density and the global pattern of activities. As expected, when both the intercity and intra-urban distributions of activities are given, a higher population density makes cities more environmentally friendly. However, once we account for the fact that cities may be either monocentric or polycentric as well as for the possible relocation of activities between cities, the relationship between population density and the ecological performance of cities appears to be much more involved. Indeed, because changes in population density affect land rents and wages, firms and workers are incited to relocate, thus leading to new commuting and shipping patterns. We show that policies favoring the decentralization of jobs in big cities may be more desirable because they both reduce pollution and improve welfare.
    Keywords: greenhouse gas, commuting costs, transport costs, cities; urban-containment policy
    JEL: D61 F12 Q54 Q58 R12
    Date: 2010
  10. By: Iino, Fukuya (Asian Development Bank Institute); Lim, Alva (Asian Development Bank Institute)
    Abstract: Right now, governments around the world are spending record amounts of money to kick-start their economies in response to the financial crisis. Fortunately, a great opportunity exists for this fiscal stimulus to be directed towards "green" economic growth, which can not only provide the new markets and jobs needed immediately for alleviating poverty, but also address the challenges of global warming. Working models already exist, proving that sustainable growth is possible. To achieve this will require social, technical and structural changes, as well as appropriate policies conducive to eco-innovation. For developing countries, there are lessons that can be learned from countries that have already gone through that process. The aim of this paper is to show what lessons can be learnt from the Japanese case. As the world's second largest economy, Japan is not only one of the most energy-efficient economies in the world; it also produces some of the world's leading green technologies. This paper focuses on current trends in the green product market and consumer behavior in Japan, which have been influenced by recent government policies, particularly the ¥15.4 trillion (more than US$100 billion) stimulus package. The aim of this paper is to provide some insight on, and present a repository of selected government policies promoting sustainable development. The scope of this paper will cover areas such as hybrid vehicles, renewable energy, energy efficient home appliances, and green certification schemes. It also provides a brief discussion on the environmental policies of the new Japanese government that came into power on 16 September 2009. The paper attempts to use the most recent data, from June to August 2009, however given the quickly-evolving global environment, these statistics may change drastically by the time this paper is presented.
    Keywords: japanese government environmental policies; sustainable development; vehicle pollution policies
    JEL: Q53 Q54 Q58
    Date: 2010–07–08
  11. By: Sintori, A.; Tsiboukas, K.
    Abstract: Agricultural activity has been identified as a considerable source of Greenhouse Gas (GHG) emissions. Emissions from ruminant livestock farms are produced particularly due to CH4 emissions from enteric fermentation. Dairy sheep farming is the most important livestock production activity in Greece, characterized by a high degree of farm diversification. This paper addresses the issue of the evaluation of GHG emissions of Greek dairy sheep farms, through the use of a whole farm mathematical programming model that uses farm level data and optimizes total gross margin. Mathematical programming models are an appropriate tool, when addressing complex issues, such as GHG emissions. The analysis is undertaken on different farm types, instead of a representative farm, to account for the heterogeneity of the sheep farming activity. Thus, marginal abatement cost and appropriate mitigation strategies for diversified farms are determined. The results indicate that intensive farms cause few emissions per produced milk (2.7kg of CO2 eq). Also, the marginal abatement cost ranges among 51-64â¬/t for all types of sheep farms (at 20% abatement level). The model used in this analysis and the results it yields are useful to researchers and policy makers, who aim to design efficient mitigation measures.
    Keywords: Dairy sheep farming, linear programming, GHG emissions, abatement cost, Environmental Economics and Policy,
    Date: 2010–03–29
  12. By: Blandford, David; Gaasland, Ivar; VÃ¥rdal, Erling
    Abstract: As a result of substantial government support, Norway is more or less self-sufficient in its main agricultural products. This contributes to both trade distortions and higher greenhouse gas (GHG) emissions. In multinational negotiations separate efforts are being made to liberalize trade (through the World Trade Organization) and to reduce global GHG emissions (through the United Nations). Using a model of Norwegian agriculture, we explore interconnections between trade liberalization and GHG emission reductions. We show that the Doha proposals would involve no major cut in either agricultural production or GHG emissions due to weakness in the disciplines on trade distorting support. We contrast further trade liberalization and the use of a carbon tax to achieve emission reductions. Trade liberalization involves relatively large impacts on agricultural activity. Trade distortions decrease, and, economic welfare increases substantially due to lower production. For a high cost country like Norway, this indicates that the GHG abatement cost is negative in the sector if no value is attributed to agricultural activity beyond the world market price of food. A more targeted policy to reduce GHG emissions is to use a carbon tax. Compared to the trade liberalization case, both production and land use can be kept at a higher level with only a modest decrease in economic welfare. The side-effect is, however, higher trade distortions
    Keywords: Environmental Economics and Policy,
    Date: 2010–03–29
  13. By: Anbumozhi, Venkatachalam (Asian Development Bank Institute); Bauer, Armin (Asian Development Bank Institute)
    Abstract: <p>The global financial crisis and the resulting economic slowdown may be assumed to have at least the benefit of also reducing environmental degradation in the individual countries. This paper discusses the consequences of the crisis for energy use, pollution prevention, and land use in Asia and the associated emissions of greenhouse gases-the principal global warming pollutants-as well as their linkage with poverty. <p>There are some short-term benefits to the global environment from the economic slowdown. Such benefits include reduction in the rate of air and water pollution from reduced energy use-which has direct implications for the urban poor's health. <p>However, modest benefits to global and local environments arising from the economic slowdown are likely to be much smaller than the costs associated with many environmental conservation measures, related to energy savings, natural resources protection, and water environment. <p>Both supply and demand side investments in energy and environment are being affected. Many ongoing projects are being slowed and a number of downward revisions are being made in expected profitability. Meanwhile, businesses and households are spending less on energy efficiency measures. Tighter credit and lower prices make investment in energy savings and environmental conservation less attractive financially, while the economic crisis is encouraging end users to rein in spending across the board. This is delaying the deployment of more efficient technology and equipment. Furthermore, solution providers are expected to reduce investment in research, development, and commercialization of more energy-efficient models, unless they are able to secure financial support from governments. <p>The economic slowdown is likely to alter land use patterns by increasing the pressure to clear forests for firewood, timber, or agricultural purposes-the livelihood opportunities available with the rural poor. <p>Further, the likely additional delay in many countries in the construction of effluent treatment plans for limiting the discharge of pollutants into the rivers is expected to harm the water environment. Thus on balance, the modest benefits to global and local environments arising from the economic slowdown are likely to be much smaller than the costs of many environmental conservation measures for improving the livelihood conditions of the poor. <p>Natural resources and ecosystem services provided by the environment are essential to support economic growth and better livelihood conditions of the poor. Inaction on key environmental challenges, such as climate change, could lead to severe economic consequences in the future. <p>These concerns justify government action to support investment in green growth measures, promoting direct investment or fiscal incentives for energy efficiency and clean environment low-carbon technologies. <p>But much more needs to be done. The investment needed to put national economies in low-carbon green growth pathways far exceeds what is expected to occur. Governments should be looking to increase the new funds they commit to long-term energy and environmental policies to improve livelihood conditions and to shift our development trend into an environmentally sustainable future. Hence a commitment that extends well beyond the economic stimulus packages is needed.
    Keywords: poverty reduction; greenhouse gas emissions; global financial crisis
    JEL: Q27 Q42 Q48 Q54 Q57
    Date: 2010–07–08
  14. By: Shreekant Gupta
    Abstract: As a consequence of the flexibility mechanisms incorporated in the Kyoto Protocol (KP), incentive-based policies such as emissions trading and the clean development mechanism (CDM) are being widely discussed in the context of greenhouse gas (GHG) abatement. Whether developing countries such as India will ratify the Protocol or not and whether they will eventually take part in a global emissions trading system is something that will only become clear as time passes. It is clear, however, that in either case these countries will be affected by any global architecture for GHG abatement that emerges.[Working Paper No. 85]
    Keywords: Kyoto Protocol, greenhouse gas, development mechanism, global architecture, environment, emissions
    Date: 2010
  15. By: M. Menegatti; D. Baiardi
    Abstract: The paper examines the effects of environmental uncertainty on Pigouvian tax and abatement policy used, either separately or contemporaneously, to counteract pollution. We discuss uncertainty in three aspects: environmental quality, pollution effect and the impact of abatement. For each case we determine the conditions ensuring that uncertainty increases the size of public intervention and provide an economic interpretation and some parallelisms with other risk problems. The last part of the paper generalizes some of our results to the case of N-th order risk changes.
    Keywords: Pigouvian tax, Abatement policies, Environment, Uncertainty, Bivariate utility
    JEL: H23 D81 Q5
    Date: 2010
  16. By: Coria, Jessica (Department of Economics, School of Business, Economics and Law, Göteborg University); Villegas-Palacio, Clara (Facultad de Minas. Universidad Nacional de Colombia &)
    Abstract: In practice, targeted monitoring seems to be a strategy frequently used by regulators. In this paper, we study the effects of targeted monitoring strategies on the adoption of a new abatement technology and, consequently, on the aggregate emissions level when firms are regulated with uniform taxes. The results suggest that a regulator aiming to stimulate technology adoption should decrease the adopters’ monitoring probability and/or increase the non-adopters’ monitoring probability. In contrast to previous literature, we find that, in some cases, a regulator whose objective is to minimize aggregate emissions should exert a stronger monitoring pressure on firms with higher abatement costs.<p>
    Keywords: technology adoption; environmental policy; imperfect compliance; targeted enforcement
    JEL: K31 K42 L51 Q55
    Date: 2010–07–07
  17. By: Conrad, Christian; Rittler, Daniel; Rotfuß, Waldemar
    Abstract: In this paper we model the adjustment process of European Union Allowance (EUA) prices to the releases of announcements at high-frequency controlling for intraday periodicity, volatility clustering and volatility persistence. We find that the high-frequency EUA price dynamics are very well captured by a fractionally integrated asymmetric power GARCH process. The decisions of the European Commission on second National Allocation Plans have a strong and immediate impact on EUA prices. On the other hand, our results suggest that EUA prices are only weakly connected to indicators about the future economic development as well as the current economic activity. --
    Keywords: EU ETS,EUA,Announcement Effects,Price Formation,Long Memory
    JEL: C22 G13 G14 Q50
    Date: 2010
  18. By: Bruce Mizrach (Rutgers University); Yoichi Otsubo (Rutgers University)
    Abstract: This paper analyzes the market microstructure of the European Climate Exchange, the largest EU ETS trading venue. The ECX captures 2/3 of the screen traded market in EUA and more than 90% in CER. Trading volumes are active, with EUA volume doubling in 2009. Spreads range from €0.02 to €0.06 for EUA futures and from €0.07 to €0.18 for CER. Market impact estimates imply that an average trade will move the EUA market by €0.0108 and the CER market €0.0429. Both Granger-Gonzalo and Hasbrouck information shares imply that approximately 90% of price discovery is taking place in the ECX futures market. We find imbalances in the order book help predict returns for up to three days. A simple trading strategy that enters the market long or short when the order imbalance is strong is profitable even after accounting for spreads and market impact.
    Keywords: carbon trading, market microstructure, bid-ask spread, market impact, information shares
    JEL: G13 G32 E44
    Date: 2010–07–03
  19. By: Sudhir A. Shah
    Abstract: Through this paper an attempt has been made to propose a conceptual and institutional framework for the first step of Kyoto procedure. This framework is formally expressed in a non-cooperative model of emission capping, i.e., the creation of emission of endowment rights. As the results apply to every solution of this model, they also apply to the solution that is optimal in terms of some normative criterion.[ Working Paper No. 88]
    Keywords: Kyoto Protocol, conceptual, institutional, emission, United Nations, mechanisims
    Date: 2010
  20. By: Zhu, Tingju; Ringler, Claudia
    Abstract: This paper analyzes the effects of climate change on hydrology and water resources in the Limpopo River Basin of Southern Africa, using a semidistributed hydrological model and the Water Simulation Module of the International Model for Policy Analysis of Agricultural Commodities and Trade (IMPACT). The analysis focuses on the effects of climate change on hydrology and irrigation in parts of the four riparian countries within the basin: Botswana, Mozambique, South Africa, and Zimbabwe. Results show that water resources of the Limpopo River Basin are already stressed under today’s climate conditions. Projected water management and infrastructure changes are expected to improve the situation by 2030 if current climate conditions continue into the future. However, under the four climate change scenarios studied here, water supply situations are expected to worsen considerably by 2030. Assessing hydrological impacts of climate change is crucial given that expansion of irrigated areas has been postulated as a key adaptation strategy for Sub-Saharan Africa. Such expansion will need to take into account future changes in water availability in African river basins.
    Keywords: Climate change, hydrology, Irrigation, Limpopo River Basin, Water resources,
    Date: 2010
  21. By: Apata, T.G; Ogunyinka, A.I; Sanusi, R.A; Ogunwande, S
    Abstract: This paper presents an empirical analysis of the effects of global warming on Nigerian agriculture and estimation of the determinants of adaptation to climate change. Data used for this study are from both secondary and primary sources. The set of secondary sources of data helped to examine the coverage of the three scenarios (1971-1980; 1981-1990 and 1991-2000). The primary data set consists of 1500 respondentsâ but only 1250 cases were useful. This study analyzed determinants of farm-level climate adaptation measures using a Multinomial choice and stochastic-simulation model to investigate the effects of rapid climatic change on grain production and the human population in Nigeria. The model calculates the production, consumption and storage of grains under different climate scenarios over a 10-year scenery. In most scenarios, either an optimistic baseline annual increase of agricultural output of 1.85% or a more pessimistic appraisal of 0.75% was used. The rate of natural increase of the human population exclusive of excess hunger-related deaths was set at 1.65% per year. Results indicated that hunger-related deaths could double if grain productions do not keep pace with population growth in an unfavourable climatic environment. However, Climate change adaptations have significant impact on farm productivity.
    Keywords: Climate change, Adaptation, Economic consequences, Farm level productivity, Average Rainfall, Nigeria, Food Security and Poverty, D6, D91, E21, O13, Q01, Q2,
    Date: 2010–03–29
  22. By: Douglas Gollin (Williams College); Christian Zimmermann (University of Connecticut)
    Abstract: We study the impact of global climate change on the prevalence of tropical diseases using a heterogeneous agent dynamic general equilibrium model. In our framework, households can take actions (e.g., purchasing bed nets or other goods) that provide partial protection from disease. However, these actions are costly and households face borrowing constraints. Parameterizing the model, we explore the impact of a worldwide temperature increase of 3C. We find that the impact on disease prevalence and especially output should be modest and can be mitigated by improvements in protection efficacy.
    Keywords: DSGE model, climate change, tropical disease, incomplete markets
    JEL: I1 O11 E13 E21 Q54
    Date: 2010–06
  23. By: Pauw, Karl; Thurlow, James; van Seventer, Dirk
    Abstract: Malawi suffers frequent droughts and floods. In an economy that is heavily dependent on the agricultural sector, it is crucial to understand the implications of these extreme climate events. Not only are rural livelihoods affected due to the severe impacts on the agricultural sector, but nonfarm and urban households are also vulnerable given the strong production and price linkages between agriculture and the rest of the economy. This study uses a general equilibrium model to estimate the economywide impacts of drought- and flood-related crop production losses. Climate simulations are based on production loss estimates from stochastic drought and flood models. Model results show that the economic losses due to extreme climate events are significant: Malawi loses 1.7 percent of its gross domestic product on average every year due to the combined effects of droughts and floods. This is equivalent to almost US$22 million in 2005 prices. Given their crop choices, it is smaller-scale farmers and those in the flood-prone southern regions of the country who are worst affected. However, urban and nonfarm households are not spared. Food shortages lead to sharp price increases that reduce urban households’ disposable incomes. This study makes an important contribution by estimating the economywide impacts of extreme climate events. However, this is only the first step toward designing appropriate agricultural and development strategies that explicitly account for climate uncertainty.
    Keywords: agricultural sector, CGE Modeling, Droughts, floods, Gross Domestic Product (GDP), households, Livelihoods, Poverty,
    Date: 2010
  24. By: Roy Chowdhury, Prabal
    Abstract: We examine pollution-reducing R&D by a monopoly firm producing a dirty product. In a dynamic framework with hyperbolic discounting, we establish conditions under which the Porter hypothesis goes through, i.e. environmental regulation increases R&D, thus reducing pollution, as well as increasing firm profits. This is likely to hold whenever R&D costs are at an intermediate level, and the planning horizon of the firms is large.
    Keywords: Porter hypothesis; abatement tax; R&D; hyperbolic discounting;
    JEL: Q50 D78 D42
    Date: 2010

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