nep-env New Economics Papers
on Environmental Economics
Issue of 2009‒03‒14
23 papers chosen by
Francisco S.Ramos
Federal University of Pernambuco

  1. Environmental Regulation and Investment: Evidence from European Industries By Andrea M. Leiter; Arno Parolini; Hannes Winner
  2. On the Relation between Dual-Rate Discounting and Substitutability By Kögel, Tomas
  3. The Impact of Trade and Economic Growth on the Environment: Revisiting the Cross-Country Evidence By Awudu Abdulai; Linda Ramcke
  4. Productive Base Sustainability under Climate Change: Theoretical Results and Empirical Evidence By Dimitra, Vouvaki; Anastasios, Xepapadeas
  5. Policy Instruments for Evolution of Bounded Rationality: Application to Climate-Energy Problems By Nannen, Volker; van den Bergh, Jeroen C. J. M.
  6. International Support for Domestic Climate Policies By Neuhoff, K.
  7. Ecosystem Services By Kline, Buck; Satyal, Vijay A.
  8. Now or Never: Environmental Protection under Hyperbolic Discounting By Winkler, Ralph
  9. A Symmetric Safety Valve By Burtraw, Dallas; Palmer, Karen; Kahn, Danny
  10. The WTO and Environmental Provisions: Three Categories of Trade and Environment Linkage By Setareh Khalilian
  11. Environmental Policy under Ambiguity By Leon Vinokur
  12. Earth Observations in Social Science Research for Management of Natural Resources and the Environment: Identifying the Contribution of the U.S. Land Remote Sensing (Landsat) Program By Macauley, Molly K.
  13. International Environmental Cooperation: A New Eye on the Greenhouse Gases Emissions’ Control By Mélanie Heugues
  14. Climate Mitigation or Technological Revolution? A Critical Choice of Futures By Graeme Donald Snooks
  15. Public, private and nonprofit regulation for environmental quality By Lucie Bottega; Jenny De Freitas
  16. The Tinbergen & Hueting Approach in the Economics of Ecological Survival By Colignatus, Thomas
  17. Buy local, pollute less: What drives households to join a community supported farm? By Douadia Bougherara; Gilles Grolleau; Naoufel Mzoughi
  18. Is the “curse of natural resources” really a curse? By Pietro F. Peretto
  19. The Renewable Resource Management Nexus: Impulse versus Continuous Harvesting Policies By Alain Jean-Marie; Mabel Tidball; Michel Moreaux; Katrin Erdlenbruch
  20. A Model of Eco-Efficiency and Recycling By Cogoy, Mario
  21. Simulating a Sequential Coalition Formation Process for the Climate Change Problem: First Come, but Second Served? By Finus, Michael; Rundshagen, Bianca; Eyckmans, Johan
  22. Siblings, not triplets: social preferences for risk, inequality and time in discounting climate change By Atkinson, Giles D.; Dietz, Simon; Helgeson, Jennifer; Hepburn, Cameron; Sælen, Håkon
  23. The Connection between Biodiversity and Well-Being: A New Zealand Case Study By Richard Yao; Pamela Kaval

  1. By: Andrea M. Leiter; Arno Parolini; Hannes Winner
    Abstract: This paper contributes to the empirical literature on the relationship between environmental regulation and firm behavior. In particular, we ask whether and how strongly investment decisions of firms respond to stringency in environmental regulation. Environmental stringency is measured as (i) an industry's total current expenditure on environmental protection, and (ii) a country's revenue from environmental taxes. Focusing on European industry level data between 1995 and 2005, we estimate the differential impact of environmental stringency on four types of investment: gross investment in tangible goods, in new buildings, in machinery, and in `productive' investment (investment in tangible goods minus investment in abatement technologies). Both environmental variables enter positively, and their quadratic terms exhibit significantly negative parameter estimates. This, in turn, indicates a positive but diminishing impact of environmental regulation on investment.
    Keywords: Investment, environmental regulation, pollution abatement costs
    JEL: D92 H23 Q52
    Date: 2009–03
  2. By: Kögel, Tomas
    Abstract: To justify substantial emission reductions, recent literature on cost-benefit analysis of climate change suggests discounting environment consumption with an environmental discount rate instead of a consumption discount rate that is usually used in cost-benefit analysis. The present study clarifies that whether or not this dual-rate discounting approach succeeds in justifying substantial emission reductions depends on whether or not environment and goods consumption are substitutes in the Hicks-Allen sense and in the Edgeworth-Pareto sense (substitutes in the Hicks-Allen sense implies the Hicksian goods demand to be increasing in the relative price of environmental goods, while substitutes in the Edgeworth-Pareto sense implies the marginal utility of goods consumption to be decreasing in environment consumption). Moreover, a low intratemporal elasticity of substitution between environment and goods consumption within a period contributes to a low environmental discount rate in comparison to the consumption discount rate, while a low intertemporal elasticity of substitution between composite consumption of different periods contributes to declining discount rates over time.
    Keywords: Discounting, dual-rate discounting, environmental discount rate, cost-benefit analysis, climate change
    JEL: D90 H43 Q28
    Date: 2009
  3. By: Awudu Abdulai; Linda Ramcke
    Abstract: This paper explores the interrelations between economic growth, international trade and environmental degradation both theoretically and empirically. Panel data from developed and developing countries for the period of 1980 to 2003 is used and previous critique, especially on the econometric specification, is embedded. In particular, it is not assumed that there is a single link for all countries. Several environmental factors and one sustainability indicator are analyzed for the full sample, regions and income groups. The results indicate that there is an Environmental Kuznets Curve (EKC) for most pollutants, but with several reservations. None of the various hypotheses that concern the link between trade and environmental degradation can be entirely confirmed. If anything, there is modest support for the Pollution Haven Hypothesis (PHH). In addition, there are signs that trade liberalization might be beneficial to sustainable development for rich countries, but harmful to poor ones. However, a sustainable development path is particularly important for developing countries, as the poor are most exposed and vulnerable to the health and productivity losses associated with a degraded environment. Given that developing countries do not usually have the institutional capacities to set up the appropriate environmental policies, it is on developed countries to take the lead in addressing environmental degradation issues and assisting developing countries
    Keywords: sustainable development, Pollution Haven Hypothesis, Environmental Kuznets curve, Adjusted Net Saving
    JEL: F18 Q56
    Date: 2009–03
  4. By: Dimitra, Vouvaki; Anastasios, Xepapadeas
    Abstract: Climate change is one of the most urgent and severe problems on the international agenda and one of the basic factors that determine sustainability conditions. This paper attempts to reveal the connection between productive base sustainability for two large groups of countries, developed and developing, and the state of the environment, which is proxied by the stock of carbon dioxide (CO2) which is mostly responsible for the creation of the global warming phenomenon. Three different policy scenaria for the evolution of global CO2 emissions empirically con.rm the strong association between the state of the environment and productive base sustainability, and provide the foundations for the formulation of sustainability policy.
    Keywords: Productive base sustainability, current change in social welfare, accounting prices, non-optimizing economies
    JEL: Q01
    Date: 2009
  5. By: Nannen, Volker; van den Bergh, Jeroen C. J. M.
    Abstract: We demonstrate how an evolutionary agent-based model can be used to evaluate climate policies that take the heterogeneity of strategies of individual agents into account. An essential feature of the model is that the fitness of an economic strategy is determined by the relative welfare of the associated agent as compared to its immediate neighbors in a social network. This enables the study of policies that affect relative positions of individuals. We formulate two innovative climate policies, namely `prizes', altering directly relative welfare, and `advertisement', which influences the social network of interactions. The policies are illustrated using a simple model of global warming where a resource with a negative environmental impact---fossil energy---can be replaced by an environmentally neutral yet less cost effective alternative, namely renewable energy. It is shown that the general approach enlarges the scope of economic policy analysis.
    Keywords: agent-based modeling; behavioral economics; climate policy; evolutionary economics; relative welfare; social network
    JEL: B52 H23 Q54 C73
    Date: 2009–01–14
  6. By: Neuhoff, K.
    Abstract: Domestic climate policies play an important part in shifting countries towards a low-carbon development trajectory. Six case studies explore the domestic drivers and barriers for policies with climate (co-)benefits in developing countries. International support can help to overcome these constraints by providing additional resources for incremental policy costs, technical assistance, and technology cooperation to build local capacity. Any such cooperation has to build on domestic stakeholder support for policies with climate co-benefits. Policy indicators play an important role for successful policy implementation. They facilitate monitoring of intermediate policy outcomes, international comparison of best practice, internal management for effective implementation and can be linked to international incentive schemes. As they are more responsive to successful implementation, indicators can be aligned with political time scales to provide early reward and reduce the uncertainty associated with predicting the long-term impacts of transformational policies on emissions reductions.
    Keywords: Policy instrument, international cooperation, intermediate indicators, climate policy
    JEL: D78 H0 O38
    Date: 2009–03
  7. By: Kline, Buck; Satyal, Vijay A.
    Abstract: Presented to USDA Economists group, Washington, DC
    Keywords: Ecosystem Services (PowerPoint), Environmental Economics and Policy,
    Date: 2008–05–14
  8. By: Winkler, Ralph
    Abstract: The author analyzes the optimal investment in environmental protection in a model of an infinite series of non-overlapping hyperbolically discounting agents. He shows that without a commitment mechanism society is eventually stuck in a situation where all agents prefer further investment in the long run, yet neither present nor future agents will actually ever invest. Such an outcome is not only unsatisfactory for each generation but may also be inefficient in a Pareto sense. The author’s results are consistent with real world observations, and thus provide a new explanation for weak environmental policy performance.
    Keywords: Environmental policy, environmental protection, hyperbolic discounting, Markov perfect equilibria, tme-inconsistency
    JEL: D90 Q50 Q58
    Date: 2009
  9. By: Burtraw, Dallas (Resources for the Future); Palmer, Karen (Resources for the Future); Kahn, Danny
    Abstract: How to set policy in the presence of uncertainty has been central in debates over climate policy. Concern about costs has motivated the proposal for a cap-and-trade program for carbon dioxide, with a “safety valve” that would mitigate against spikes in the cost of emission reductions by introducing additional emission allowances into the market when marginal costs rise above the specified allowance price level. We find two significant problems, both stemming from the asymmetry of an instrument that mitigates only against a price increase. One is that most important examples of price volatility in cap-andtrade programs have occurred not when prices spiked, but instead when allowance prices collapsed. Second, a single-sided safety valve may have unintended consequences for investment. We illustrate that a symmetric safety valve provides environmental and welfare improvements relative to the conventional one-sided approach.
    Keywords: emission allowance trading, climate change, safety valve, cost management, cap and trade, market-based policies
    JEL: Q4 L94 L5
    Date: 2009–02–27
  10. By: Setareh Khalilian
    Abstract: The current WTO jurisdiction on linkages of trade and environment is not free of contradictions and has provided for heated debate due to some inconsistencies in past WTO rulings. The article argues that the WTO jurisdiction is not only unclear but also lacks economic reasoning. It aims to structure WTO provisions and WTO case rulings so that their application to three separate dimensions of environmental damage is set out clearly: domestic, cross-border and global pollution. The paper concludes is that only cases of cross-border and global pollution can legitimize trade measures against environmental pollution, albeit only direct trade interventions are really effective in these cases
    Keywords: WTO, environment, trade sanctions
    JEL: F13 F18 K33 B52
    Date: 2009–02
  11. By: Leon Vinokur (Queen Mary, University of London)
    Abstract: The aim of this paper is to extend existing literature on carbon allowance allocation, investigating the impact of uncertainty and ambiguity, due to the lack of future Environmental policy, on the total production in the market. Specifically, we show that an increase in uncertainty has no effect on the total output, whereas an increase in ambiguity leads to a decrease in the total output. An output-based allocation model in Cournot Oligopoly will be used. We will adopt the National Allocation Plan (NAP) of UK for the Second Phase (2005-07) as a case study.
    Keywords: Carbon allowances, Permits allocation, EU ETS, Uncertainty
    JEL: D2 D8 Q4
    Date: 2009–03
  12. By: Macauley, Molly K. (Resources for the Future)
    Abstract: This paper surveys and describes the peer-reviewed social science literature in which data from the U.S. land remote sensing program, Landsat, inform public policy in managing natural resources and the environment. The Landsat program has provided the longest collection of observations of Earth from the vantage point of space. The paper differentiates two classes of research: methodology exploring how to use the data (for example, designing and testing algorithms or verifying the accuracy of the data) and applications of data to decisionmaking or policy implementation in managing land, air quality, water, and other natural and environmental resources. Selection of the studies uses social science-oriented bibliographic search indices and expands results of previous surveys that target only researchers specializing in remote sensing or photogrammetry. The usefulness of Landsat as a basis for informing public investment in the Landsat program will be underestimated if this body of research goes unrecognized.
    Keywords: natural resources policy, environmental policy, Landsat, social science, environmental management
    JEL: Q0 Q2 Q3
    Date: 2009–03–02
  13. By: Mélanie Heugues
    Abstract: We examine the formation of International Environmental Agreements (IEAs) modelled as a two-stage non cooperative game. Following Barrett (1994), Finus (2001) and Diamantoudi & al. (2006) and filling out their approach, we analyse the level of cooperation that can be reach when countries’ strategies are complementary. We find that when strategies exhibit weak complementarities, the unique stable agreement can consist of half the countries involved in the negotiation and thus, without any form of commitment, linkage or transfers between countries. These results, established analytically, strongly contrast with those of the previous authors and are a lot more optimistic. Nonetheless, even if the incentives to free-ride are less strong, we do not observe the formation of the “grand” coalition: not all the countries sign the agreement. We also provide some results of comparative static. We analyse, for example, the level of cooperation which only depends on the number of countries concerned with the problem of climate change and on the perception they have of its seriousness.
    Date: 2009–03
  14. By: Graeme Donald Snooks
    Abstract: Mankind currently is not only facing a major environmental challenge, it is embarking on a hugely risky enterprise — that of climate mitigation. This unprecedented global adventure is an attempt to change the nature and shape of human society on the grounds that our traditional market system has failed us. The current enterprise is hugely risky because it is based not on what has happened but on what we are told by “climate-mitigation engineers” might happen. The argument in this essay is simple but powerful, and can be outlined in the following five propositions: • The science of climate change is challenging but compelling, based as it is on an impressive and growing body of expert empirical research. What it shows is that recent climate change is human induced. Hence, further climate change and its mitigation are problems primarily for the social not natural sciences. • The “science” of climate mitigation is nonexistent, because orthodox social science has failed to model the dynamics of human society. And it is the dynamics of human society that will largely determine future climate change. • Orthodox economics, which has attempted to fill the void, has failed completely. Economic theory is suitable only for the analysis of small, shortrun issues that can be accommodated within a static framework — such as the price of a cup of tea; whereas the issue of climate mitigation is one of the biggest and most important issues humanity will ever face, it is long-run in nature, and it can only be adequately handled within a dynamic framework. As orthodox economics has been unable to develop a realist general dynamic theory, its practitioners have been forced to employ simplistic historicist models when analyzing future climate change. • What we need is a new science of human dynamics. The basis for this new science is provided by the author’s dynamic-strategy theory. It is a realist theory in the sense that it has been derived from a long-term, systematic observation of the fluctuating fortunes of both human society over the past 2 million years (myrs) and life over the past 4,000 myrs. • Economists have massively underestimated the costs of their proposed climate mitigation program aimed at stabilizing greenhouse-gas concentrations, because they have employed the inadequate static cost–benefit methodology. This essay takes a very different approach. By estimating the dynamic costs — essentially the costs of suppressing the imminent technological revolution that can only be identified in a realist dynamic framework — I have found that total costs will be almost 100 times greater than current estimates by the year 2100. This puts a comprehensive mitigation program totally out of the question. What, then, is to be done? This essay provides the answer.
    Keywords: climate mitigation, technological revolution, human dynamics, economic intervention, dynamic costs and benefits
    JEL: Q54 Q40 Q20 O30 O40 O47 P1
    Date: 2009–02
  15. By: Lucie Bottega (LAMETA, Université de Montpellier 1); Jenny De Freitas (Universitat de les Illes Balears)
    Abstract: This paper studies the welfare implications of different institutions certifying environmental quality supplied by a monopoly. The monopolist can voluntarily certify the quality of the product through an eco-label provided either by an NGO or a for-proft private certifier (PC). The NGO and the PC may use advertisement to promote the label. We compare the NGO and PC regimes with the regime where the regulator imposes a minimum quality standard. The presence of a private certifier in the market decreases the scope for public intervention. The availability of green advertisement reinforces the above result.
    Keywords: Environmental quality, certification, green advertisement, NGO, self-regulation.
    JEL: D62 L15 L31 L51 Q50
    Date: 2009
  16. By: Colignatus, Thomas
    Abstract: Tinbergen & Hueting (1991) provide an approach to the economics of ecological survival that still is unsurpassed. Various “green GDPs” have been proposed such as ISEW, Ecological Footprint, Genuine Savings and Genuine Progress Indicator, and lately there is an increased interest in happiness as a re-interpretation of economic utility and social welfare. With respect to both ecological survival and requirements of economic theory these alternatives however fail. The Tinbergen & Hueting (1991) approach is (1) rooted in the fundamentals of economic analysis, (2) rooted in fundamentals of ecology, (3) applicable within the statistical framework of national accounting and henceforth fully practical, (4) demanding in economic and environmental expertise but concerning the resulting indicator of (environmentally) Sustainable National Income (eSNI) easy to understand by policy makers and the general public. Currently, statistical offices and economic advisory agencies over the world are implementing NAMEA systems for national accounting and derived indicators both for statistical observation and projections for the future. Policy discussions on ecological survival will be much served when researchers study in detail what these great economists have wrought. When an economist hasn’t read Tinbergen & Hueting (1991) and Hueting and De Boer (2001) then an advice on economic growth and ecological survival is at risk to be misguided – as indeed is shown in the various cases.
    Keywords: Social welfare; national income; sustainable national income; economic growth; sustainable economic growth; sustainability; environment
    JEL: Q01 E01 A11
    Date: 2009–03–09
  17. By: Douadia Bougherara; Gilles Grolleau; Naoufel Mzoughi
    Abstract: This paper examines which factors determine the participation of households in long term contracting with local farmers. Are households motivated by reducing the environmental impacts of their food consumption? A discrete-choice model of community supported agriculture (CSA) participation is applied to a sample of 264 French households. The findings suggest that difficult-to-measure attributes, notably environmental considerations play a major role in explaining CSA participation.
    Keywords: community supported agriculture; food supply; transaction cost economics
    JEL: D13 D23 Q13
    Date: 2009
  18. By: Pietro F. Peretto
    Date: 2009–03–12
  19. By: Alain Jean-Marie; Mabel Tidball; Michel Moreaux; Katrin Erdlenbruch
    Abstract: We explore the link between cyclical and smooth resource exploitation. We define an impulse control framework which can generate both cyclical solutions and steady state solutions. For the cyclical solutions [...].
    Date: 2009–03
  20. By: Cogoy, Mario
    Abstract: This paper presents the model of an economy subject to the mass conservation principle. The economic system is related to the environment by a flow of virgin materials into the economy, and by the diffusion of waste into the environment. Ecoefficiency contributes to reducing material waste in all processes. Recycling can reduce the diffusion of waste by feeding it back into the economy. Human capital enhances productivity, eco-efficiency and the quality of all kinds of outputs. Recycling and human capital formation use productive factors and are rooted therefore, as all other activities, in the material basis of the economy. The paper studies an optimal material state of society.
    Keywords: Eco-Efficiency, Recycling, Materials Balances, Material Flows, Human Capital
    JEL: D90 O30 O41 Q00
    Date: 2009
  21. By: Finus, Michael; Rundshagen, Bianca; Eyckmans, Johan
    Abstract: We analyze stability of self-enforcing climate agreements based on a data set generated by the CLIMNEG world simulation model (CWSM), version 1.2. We consider two new aspects which appear important in actual treaty-making. First, we consider a sequential coalition formation process where players can make proposals which are either accepted or countered by other proposals. Second, we analyze whether a moderator, like an international organization, even without enforcement power, can improve upon globally suboptimal outcomes through coordinating actions by making recommendations that must be Pareto-improving to all parties. We discuss the conceptual difficulties of implementing our algorithm.
    Keywords: International Climate Agreements; Sequential Coalition Formation; Coordination through Moderator; Integrated Assessment Model; Algorithm for Computa tions
    Date: 2009–03
  22. By: Atkinson, Giles D.; Dietz, Simon; Helgeson, Jennifer; Hepburn, Cameron; Sælen, Håkon
    Abstract: Arguments about the appropriate discount rate often start by assuming a Utilitarian social welfare function with isoelastic utility, in which the consumption discount rate is a function of the (constant) elasticity of marginal utility along with the (much discussed) utility discount rate. In this model, the elasticity of marginal utility simultaneously reflects preferences for intertemporal substitution, aversion to risk, and aversion to (spatial) inequality. While these three concepts are necessarily identical in the standard model, this need not be so: well-known models already enable risk to be separated from intertemporal substitution. Separating the three concepts might have important implications for the appropriate discount rate, and hence also for long-term policy. This paper investigates these issues in the context of climate-change economics, by surveying the attitudes of over 3000 people to risk, income inequality over space and income inequality over time. The results suggest that individuals do not see the three concepts as identical, and indeed that preferences over risk, inequality and time are only weakly correlated. As such, relying on empirical evidence of risk or inequality preferences may not necessarily be an appropriate guide to specifying the elasticity of intertemporal substitution.
    Keywords: Climate change, discounting, risk aversion, intertemporal substitution, inequality aversion, intergenerational equity
    JEL: C90 D01 D63 Q51
    Date: 2009
  23. By: Richard Yao (University of Waikato); Pamela Kaval (University of Waikato)
    Abstract: The link between human well-being and biodiversity has not been well studied and was therefore the goal of this research project. Focus was placed on an increase in New Zealand native biodiversity, by an increase in the number of native trees and shrubs being planted on public lands. An increase in well-being occurred in response to an increase in native biodiversity for urban residents that have lived in their current home for less than six years. Responses were also affected by household income, whether a person was self employed and their level of education. We believe this information will be useful in targeting future community participants for voluntary biodiversity projects.
    Keywords: native biodiversity; New Zealand; well-being; utility; community volunteers
    JEL: Q57 Q2 Q51
    Date: 2009–02–28

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