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on Environmental Economics |
| By: | Inés Macho-Stadler; David Pérez-Castrillo |
| Abstract: | We analyze a model where firms chose a production technology which, together with some random event, determines the final emission level. We consider the coexistence of two alternative technologies: a "clean" technology, and a "dirty" technology. The environmental regulation is based on taxes over reported emissions, and on penalties over unreported emissions. We show that the optimal inspection policy is a cut-off strategy, for several scenarios concerning the observability of the adoption of the clean technology and the cost of adopting it. We also show that the optimal inspection policy induces the firm to adopt the clean technology if the adoption cost is not too high, but the cost levels for which the firm adopts it depend on the scenario. |
| Keywords: | Production technology, random emissions, environmental taxes, optimal monitoring policy. |
| JEL: | K32 K42 D82 |
| Date: | 2006–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:672.06&r=env |
| By: | Inés Macho-Stadler |
| Abstract: | Compliance is an important issue in environmental regulation. In this paper, we discuss some of the key elements of the problem and analyze a situation where emissions are not random and firms are risk-neutral. We study the firm's decision on emissions and compliance when the environmental regulation is based on standards and the enforcement agency audits the firm with a certain probability. We then compare total emissions when environmental regulation is based on different instruments: standards, taxes, and tradable permits. We show that when compliance is an issue, environmental taxes are superior to the other instruments. We also analyze the (static) efficiency of the solution. |
| Keywords: | environmental regulation, audits and compliance, environmental standards, other instruments. |
| JEL: | K32 K42 D82 |
| Date: | 2006–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:673.06&r=env |
| By: | Jordi Roca; Monica Serrano (Universitat de Barcelona) |
| Abstract: | The relationships between economic growth and environmental pressures are complex. Since the early nineties, the debate on these relationships has been strongly influenced by the Environmental Kuznets Curve hypothesis, which states that during the first stage of economic development environmental pressures increase as per capita income increases, but once a critical turningpoint has been reached these pressures diminish as income levels continue to increase. However, to date such a delinking between economic growth and emission levels has not happened for most atmospheric pollutants in Spain. The aim of this paper is to analyse the relationship between income growth and nine atmospheric pollutants in Spain. In order to obtain empirical outcomes for this analysis, we adopt an input-output approach and use NAMEA data for the nine pollutants. First, we undertake a structural decomposition analysis for the period 1995-2000 to estimate the contribution of various factors to changes in the levels of atmospheric emissions. And second, we estimate the emissions associated with the consumption patterns of different groups of households classified according to their level of expenditure. |
| Keywords: | environmental kuznets curve, income growth, atmospheric pollution, input-output analysis, spain |
| JEL: | Q51 C67 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bar:bedcje:2006164&r=env |
| By: | Gerhard Glomm (Indiana University Bloomington); Daiji Kawaguchi (Hitotsubashi University); Facundo Sepulveda (Universidad de Santiago de Chile) |
| Abstract: | This paper examines a revenue neutral green tax reform along the lines of the Double Dividend hypothesis. Using a dynamic general equilibrium model calibrated to the US economy, we find that increasing gasoline taxes and using the revenue to reduce capital income taxes does indeed deliver both types of welfare gains: from higher consumption of market goods (an efficiency dividend), and from a better environmental quality (a green dividend), even though in the new steady state environmental quality may worsen. We also find that, given the available evidence on how much households are willing to pay for improvements in air quality, the size of the green dividend is very small in absolute magnitude, and much smaller than the efficiency dividend. |
| Keywords: | Green taxes, Double Dividends, Capital Accumulation, Welfare |
| JEL: | E6 H2 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2006017&r=env |
| By: | Massimiliano Mazzanti (University of Ferrara); Antonio Musolesi (CERIS DSE CNR); Roberto Zoboli (CERIS DSE CNR) |
| Abstract: | This paper investigates the EKC curves for CO2 emissions in a panel of 109 countries during the period 1959-2001. The length of the series makes the application of a heterogeneous estimator suitable from an econometric point of view. The results, based on the hierarchical Bayes estimator, show that different EKC dynamics are associated with the different sub samples of countries considered. On average, more industrialized countries show an EKC evidence in quadratic specifications, which are nevertheless probably evolving into an N shape, emerging from cubic specifications. Less developed countries consistently show that CO2 emissions still rise positively with income, though some signals of an EKC path arise. |
| Keywords: | Environmental Kuznets Curve, CO2 Emissions, Bayesian Approach, Heterogeneous Panels |
| JEL: | C23 Q25 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2006.121&r=env |
| By: | Jean-Marie Grether (University of Neuchâtel); Nicole A. Mathys (University of Lausanne); Jaime de Melo (University of Geneva and CEPR) |
| Abstract: | This paper contributes to the debate on the existence of pollution haven effects by systematically measuring the pollution content of trade (measured by the polluction content of imports (PCI)) and decomposing it into three components: a ‘deep’ (i.e. unrelated to the environmental debate) component and two components (factor endowments and environmental policies) that occupy centerstage in the debate on trade and the environment. The decomposition is carried out for 1986-88 for an extensive data set covering 10 pollutants, 48 countries and 79 ISIC 4-digit sectors. Illustrative decompositions presented for 3 of the 10 pollutants in the data set indicate a significant pollution haven effect and highlight the role of factor endowments in each region’s PCI. However, because the bulk of trade is intra-regional with a high North-North share, these effects are small relative to the ‘deep’ determinants of the worldwide pollution content of trade. |
| Keywords: | Trade and the Environment, Pollution Haven |
| JEL: | F18 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2006.122&r=env |
| By: | Pietro Caratti (Regione Lombardia and Fondazione Eni Enrico Mattei); Ludovico Ferraguto (Fondazione Eni Enrico Mattei) |
| Abstract: | Defining what Sustainability and Sustainable Development mean is a critical task, as they are global objectives, which cover different aspects of life often difficult to quantify and describe. Talking about sustainable development means dealing with the development and implementation of SD strategies at international as well as at local level. With this regard, SD information plays a key role in monitoring SD performances at different administration levels. The aim of this paper is to give an overview of sustainable data availability on the internet at international, European, national and regional level. The paper is novel in the fact that the attention of the whole analysis focused on internet, considered as the principal mean for accessing data. In fact, the web has become through the years a fundamental tool for exchanging information amongst people, organisations, institutes, governments, thanks to its easy accessibility for a wide knowledge exchange. Sustainable development data collected at different administrative levels are classified and processed according to different methods and procedures; they are gathered at different scales, in different periods and they have a different frequency of updating. Data accuracy and meta-information on available data considerably vary, too. Few organisations at the international and at the European level such as, for example, World Bank, United Nations, OECD, FAO, Eurostat, EEA committed themselves to process information belonging to different sources aiming at standardising and producing comparable data sets for several nations and regions. Following the above considerations, various international, European and national organisations’ databases were investigated in order to check the availability of data at different administrative levels, mostly focusing on those sectors considered as pillars for the definition and monitoring of the implementation of the EU Sustainable Development Strategy, as pointed out in the Communication of the EC SEC(2005) 161 final. |
| Keywords: | Sustainability, Indicators, Regional Development, Internet, Database |
| JEL: | Q5 Q56 Q58 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2006.125&r=env |
| By: | Silvia Silvestri (Agro-forestry Systems and University of Padova); M. Pellizzato (Agri.Te.Co. and University of Venice); V. Boatto (Agro-forestry Systems and University of Padova) |
| Abstract: | Fishing has always been an important activity for those Venetians who live near the Lagoon, and it still enjoys an important economic and social role in the region. Over the last few years, however, the fishing industry has been subject to a profound transformation both in the reduction of the variety and the abundance of the species found in the lagoon, and in the change from a complex and well-structured type of activity to one which has become monospecialist, that is based principally on the fishing of the bivalve Tapes philippinarum (Adam & Reeve). The widespread diffusion of this bivalve and its considerable commercial value have resulted in an increased harvest, initially carried out by hand but now by more sophisticated methods which are capable of obtaining much higher yields. The social, economic and environmental problems resulting from this automated fishing have stimulated research into alternative strategies to manage the alieutic resources of the lagoon which will allow fishing to become a sustainable activity without inflicting long-term environmental damage. This present work will try and prepare the foundations for a system of eco-compatible management, based on an analysis of the functioning of the lagoon’s eco-system, defined as a paralic model, the observation of the traditional forms of fishing practiced over the centuries, a technical analysis of the present typology of lagoon fishing (fishing with fyke nets, “vallicoltura” and fishing of fish fry for rearing, clam fishing (Tapes philippinarum), mussel culture) with particular reference to the species fished, the distribution of the activity throughout the year and the technology employed, to the productivity of the various fishing methods. |
| Keywords: | Venice Lagoon, Fyke nets, Clam Fishing management, Fish Farming |
| JEL: | Q22 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2006.126&r=env |
| By: | Giovanni Bella (University of Cagliari) |
| Abstract: | The Environmental Kuznets Curve (EKC) hypothesis is one of the most debated economic issues. Despite its fascinating appeal for any policy maker, neither theoretical nor certain empirical evidence has been found to clean up all doubt. The aim of this paper is to present an economy where environmental quality and polluting emissions do enter the maximisation problem, and provide a transitional dynamics analysis to pursue a new different version of the EKC, depending on the level of development finally achieved. |
| Keywords: | Environmental Quality, Endogenous Economic Growth, Sustainable Development |
| JEL: | O41 Q01 Q32 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2006.129&r=env |
| By: | Andrew K. Rose; Mark M. Spiegel |
| Abstract: | We examine the role of non-economic partnerships in promoting international economic exchange. Since far-sighted countries are more willing to join costly international partnerships such as environmental treaties, environmental engagement tends to encourage international lending. Countries with such non-economic partnerships also find it easier to engage in economic exchanges since they face the possibility that debt default might also spill over to hinder their non-economic relationships. We present a theoretical model of these ideas, and then verify their empirical importance using a bilateral cross-section of data on international crossholdings of assets and environmental treaties. Our results support the notion that international environmental cooperation facilitates economic exchange. |
| Keywords: | Debt |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2006-33&r=env |
| By: | Jérémy Laurent-Lucchetti (IEA, HEC Montréal); Andrew Leach (IEA, HEC Montréal) |
| Abstract: | We propose a model of climate change consistent with four principal stylized facts. First, the benefits and costs of climate change mitigation policies are not evenly distributed across generations. Second, capital accumulation is not determined jointly with emissions policy, but rather as a choice made by self-interested economic agents. Third, most research and development activity in the energy sector is undertaken by private firms. Fourth, significant imperfections exist in the market for technology. The model is calibrated to match global trends in GWP, energy production, and investment in research and development, and is used for the evaluation of policies including research and development subsidies and carbon taxes. |
| Keywords: | Alternative energy sources; climate change; technological change; research and development; induced innovation. |
| JEL: | J24 J61 C23 C35 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:iea:carech:0602&r=env |
| By: | Daniel Leigh; Jan-Peter Olters |
| Abstract: | While models based on Friedman's (1957) permanent-income hypothesis can provide oilproducing countries with long-run fiscal targets, they usually abstract from short-run costs associated with consolidation. This paper proposes a model that takes such adjustment costs (or "habits") into account. Further operational realism is added by permitting differential interest rates on sovereign debt and financial assets. The approach is applied to Gabon, where oil reserves are expected to be exhausted in 30 years. The results suggest that Gabon's current fiscal-policy stance cannot be maintained, while the presence of habits justifies smoothing the bulk of the adjustment toward the sustainable level over three to five years. |
| Keywords: | Sustainable fiscal policy , habit formation , permanent-income hypothesis , Gabon , Fiscal policy , Gabon , Income , Investment , Economic models , |
| Date: | 2006–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/193&r=env |
| By: | Yue, Chengyan; Alfnes, Frode; Jensen, Helen H. |
| Abstract: | Organic producers have limited methods of avoiding plant diseases that result in cosmetic damage to produce. Therefore, the appearance of organic produce is often less than perfect. We use an experimental auction to investigate how cosmetic damage affects consumers’ willingness to pay for organic apples. We find that 75% of the participants are willing to pay more for organic than for conventional apples given identical appearance. However, at the first sight of any imperfection in the appearance of the organic apples, this segment is significantly reduced. Furthermore, we find that there is a significant effect of interaction between cosmetic damage and product methods. Even though most consumers say they buy organic products to avoid pesticides, we find that cosmetic damage has a larger impact on the willingness to pay for organic apples than for conventional apples. |
| Keywords: | appearance, apples, experimental auctions, organic, willingness to pay. |
| Date: | 2006–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12693&r=env |
| By: | James Boyce; Matthew Riddle; Mark D Brenner |
| Abstract: | The introduction of carbon charges on the use of fossil fuels in China would have a progressive impact on income distribution. This outcome, which contrasts to the regressive distributional impact found in most studies of carbon charges in industrialized countries, is driven primarily by differences between urban and rural expenditure patterns. If carbon revenues were recycled on an equal per capita basis via a ‘sky trust,’ the progressive impact would be further enhanced: low-income (mainly rural) households would receive more in sky-trust dividends than they pay in carbon charges, and high-income (mainly urban) households would pay more than they receive in dividends. Thus a Chinese sky trust would contribute to both lower fossil fuel consumption and greater income equality. |
| Keywords: | carbon charges, fossil fuels, China, income distribution, carbon revenues, fuel consumption, income equality |
| JEL: | Q32 Q52 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp_brenner_riddle_boyce&r=env |
| By: | Parrachino, Irene; Zara, Stefano; Patrone, Fioravante |
| Abstract: | Game theory provides useful insights into the way parties that share a scarce resource may plan their use of the resource under different situations. This review provides a brief and self-contained introduction to the theory of cooperative games. It can be used to get acquainted with the basics of cooperative games. Its goal is also to provide a basic introduction to this theory, in connection with a couple of surveys that analyze its use in the context of environmental problems and models. The main models (bargaining games, transfer utility, and non-transfer utility games) and issues and solutions are considered: bargaining solutions, single-value solutions like the Shapley value and the nucleolus, and multi-value solutions such as the core. The cooperative game theory (CGT) models that are reviewed in this paper favor solutions that include all possible players and ignore the strategic stages leading to coalition building. They focus on the possible results of the cooperation by answering questions such as: Which coalitions can be formed? And how can the coalitional gains be divided to secure a sustainable agreement? An important aspect associated with the solution concepts of CGT is the equitable and fair sharing of the cooperation gains. |
| Keywords: | Environmental Economics & Policies,Economic Theory & Research,Livestock & Animal Husbandry,Education for the Knowledge Economy,Education for Development |
| Date: | 2006–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4072&r=env |
| By: | Zara, Stefano; Dinar, Ariel; Patrone, Fioravante |
| Abstract: | This paper provides a review of various applications of cooperative game theory (CGT) to issues of natural and environmental resources. With an increase in the level of competition over environmental and natural resources, the incidents of disputes have been at the center of allocation agreements. The paper reviews the cases of common pool resources such as fisheries and forests, and cases of environmental pollution such as acid rain, flow, and stock pollution. In addition to providing examples of cooperative solutions to allocation problems, the conclusion from this review suggests that cooperation over scarce environmental and natural resources is possible under a variety of physical conditions and institutional arrangements. CGT applications to international fishery disputes are especially useful in that they have been making headway in policy-related agreements among states and regions of the world. Forest applications are more local in nature, but of great relevance in solving disputes among communities and various levels of governments. |
| Keywords: | Environmental Economics & Policies,Fisheries & Aquaculture,Common Property Resource Development,Economic Theory & Research,Ecosystems and Natural Habitats |
| Date: | 2006–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4073&r=env |
| By: | Parrachino, Irene; Dinar, Ariel; Patrone, Fioravante |
| Abstract: | This paper reviews various applications of cooperative game theory (CGT) to issues of water resources. With an increase in the competition over various water resources, the incidents of disputes have been in the center of allocation agreements. The paper reviews the cases of various water uses, such as multi-objective water projects, irrigation, groundwater, hydropower, urban water supply, wastewater, and transboundary water disputes. In addition to providing examples of cooperative solutions to allocation problems, the conclusion from this review suggests that cooperation over scarce water resources is possible under a variety of physical conditions and institutional arrangements. In particular, the various approaches for cost sharing and for allocation of physical water infrastructure and flow can serve as a basis for stable and efficient agreement, such that long-term investments in water projects are profitable and sustainable. The latter point is especially important, given recent developments in water policy in various countries and regional institutions such as the European Union (Water Framework Directive), calling for full cost recovery of investments and operation and maintenance in water projects. The CGT approaches discussed and demonstrated in this paper can provide a solid basis for finding possible and stable cost-sharing arrangements. |
| Keywords: | Town Water Supply and Sanitation,Environmental Economics & Policies,Water Supply and Sanitation Governance and Institutions,Water Supply and Systems,Water and Industry |
| Date: | 2006–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4074&r=env |
| By: | Szymon Borak; Wolfgang Härdle; Stefan Trück; Rafal Weron |
| Abstract: | In January 2005 the EU-wide CO2 emissions trading system (EU-ETS) has formally entered into operation. Within the new trading system, the right to emit a particular amount of CO2 becomes a tradable commodity - called EU Allowances (EUAs) - and affected companies, traders and investors will face new strategic challenges. In this paper we investigate the nature of convenience yields for CO2 emission allowance futures. We conduct an empirical study on price behavior, volatility term structure and correlations in different CO2 EUA contracts. Our findings are that the market has changed from initial backwardation to contango with significant convenience yields in future contracts for the Kyoto commitment period starting in 2008. A high fraction of the yields can be explained by the price level and volatility of the spot prices. We conclude that the yields can be interpreted as market expectation on the price risk of CO2 emissions allowance prices and the uncertainty of EU allocation plans for the Kyoto period. |
| Keywords: | CO2 Emission Trading, Commodity Markets, Spot and Futures Prices, Convenience Yields. |
| JEL: | Q28 G13 C19 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2006-076&r=env |
| By: | Carlo Carraro (Department of Economics, University Of Venice Cà Foscari); Johan Eyckmans (European University College Brussels EHSAL and Center for Economic Studies, Katholieke Universiteit Leuven.); Michael Finus (Department of Economics, University of Hagen and National University of Singapore) |
| Abstract: | The literature on international environmental agreements has recognized the role transfers play in encouraging participation in international environmental agreements. However, the results achieved so far are overly specific. Therefore, we develop a more general framework that enables us to study the role of transfers in a systematic way. We propose transfers using both internal and external financial resources for making “welfare optimal agreements” self-enforcing. To illustrate the relevance of our transfer scheme, we use a stylized integrated assessment simulation model of climate change to show how appropriate transfers may induce almost all countries into signing a self-enforcing climate treaty. |
| Keywords: | Self-enforcing International Environmental Agreements, Climate Policy, Transfers |
| JEL: | C72 H23 Q25 Q28 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:44_06&r=env |
| By: | Carlo Carraro (Department of Economics, University Of Venice Cà Foscari); Barbara Buchner (Fondazione Eni Enrico Mattei) |
| Abstract: | There are increasing signals that countries that negotiate on GHG emission control are unlikely to sign and ratify a single climate protocol, even though almost all countries have subscribed the UNFCCC convention that sets the framework of international climate cooperation. In addition to the US decision not to ratify the Kyoto Protocol, New Zealand and Australia recently led to the formation of a new alliance in which technological cooperation is the main tool to achieve GHG emission control. In the U.S., some States on the Eastern coast are negotiating to adopt emission reduction targets and to establish a permit market despite the opposition of the federal government. Cooperation on climate policy is also the objective of recent negotiations between ASEAN countries. Given this background, this paper aims at examining whether the aforementioned events are simply the noise of a political process leading to a global agreement on climate change control or are instead consistent with some basic economic incentives that are pushing countries towards the formation of two (or more) parallel climate blocs. To this aim, this paper uses a well known integrated assessment climate-economy model to evaluate the incentives to cooperation in climate negotiations for the main world countries. A game-theoretic framework is adopted to analyse a country’s incentive to belong to a climate coalition. In our setting, a given country can either join one of the existing climate coalitions or can propose a new one or can decide to free-ride on the other countries’ cooperative abatement effort. We then analyse the characteristics of the main possible outcomes and assess which outcomes are most likely to prevail in future negotiations, at least as far as economic incentives are concerned. |
| Keywords: | Agreements, Climate, Incentives, Negotiations, Policy |
| JEL: | C72 H23 Q25 Q28 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:45_06&r=env |
| By: | Carlo Carraro (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | This paper comments and assesses “Fragmented Carbon Markets and Reluctant Nations: Implications for the Design of Effective Architectures”, a paper that David Victor presented at the international workshop on "Architectures for Agreement: Addressing Global Climate Change in the Post-Kyoto World", organized by Joe Aldy and Rob Stavins at the J.F. Kennedy School of Government in May 2006. By analyzing Victor’s proposals for an effective climate agreement post 2012, this paper emphasizes the contribution that game-theoretical analyses have provided to the design of climate agreements. It therefore emphasizes how incentives and institutions play a crucial role in affecting the final outcome of negotiations on climate change control, and how incentives and institutions can be modified to achieve a better control of climate change. This paper also discusses a wider policy approach that can enhance the effectiveness of measures designed to address the climate change problem. |
| Keywords: | Agreements, Climate, Incentives, Negotiations, Policy |
| JEL: | C72 H23 Q25 Q28 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:49_06&r=env |
| By: | Martin F. Quaas (Department of Ecological Modelling, UFZ-Centre for Environmental Research Leipzig-Halle); Stefan Baumgärtner (Centre for Sustainability, University of Lüneburg) |
| Abstract: | The ecological literature suggests that biodiversity reduces the variance of ecosystem services. Thus, conservative biodiversity management has an insurance value to risk-averse users of ecosystem services. We analyze a conceptual ecological-economic model in which such management measures generate a private benefit and, via ecosystem processes at higher hierarchical levels, a positive externality on other ecosystem processes at higher hierarchical levels, a positive externality on other ecosystem users. We find that ecosystem management and environmental policy depend on the extent of uncertainty and risk-aversion as follows: (i) Individual effort to improve ecosystem quality unambiguously increases. The free-rider problem may decrease or increase, depending on the characteristics of the ecosytsem and its management; in particular, (ii) the size of the externality may decrease or increase, depending on how individual and aggregate management effort influence biodiversity; and (iii) the welfare loss due to free-riding may decrease or increase, depending on how biodiversity influences ecosystem service provision. |
| Keywords: | biodiversity, ecosystem services, ecosystem management, free-riding, insurance, public good, risk-aversion, uncertainty |
| Date: | 2006–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:33&r=env |
| By: | Martin F. Quaas (Department of Ecological Modelling, UFZ-Centre for Environmental Research Leipzig-Halle); Stefan Baumgärtner (Centre for Sustainability, University of Lüneburg) |
| Abstract: | In the face of uncertainty, ecosystems can provide natural insurance to risk averse users of ecosystem services. We employ a conceptual ecological-economic model to analyze the allocation of (endogenous) risk and ecosystem quality by risk averse ecosystem managers who have access to financial insurances, and study the implications for individually and socially optimal ecosystem management, and policy design. We show that while an improved access to financial insurance leads to lower ecosystem quality, the effect on the free-rider problem and on welfare is determined by ecosystem properties. We derive conditions on ecosystem functioning under which, if financial insurance becomes more accessible, (i) the extent of optimal regulation increases or decreases; and (ii) welfare, in the absence of environmental regulation, increases or decreases. |
| Keywords: | ecosystem quality, ecosystem services, ecosystem management, endogenous environmental risk, insurance, risk-aversion, uncertainty |
| Date: | 2006–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:34&r=env |
| By: | Jorge Rivera (The George Washington University School of Business); Mark Starik (The George Washington University School of Business); Jennifer Oetzel (American University); Peter de Leon (University of Colorado-Denver) |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:gwu:wpaper:0010&r=env |