nep-res New Economics Papers
on Resource Economics
Issue of 2018‒12‒10
two papers chosen by
Maximo Rossi
Universidad de la República

  1. Smog, Cognition and Real-World Decision Making By Chen, Xi
  2. Optimal Carbon Pricing and Income Taxation Without Commitment By Alex Schmitt

  1. By: Chen, Xi (Yale University)
    Abstract: Cognitive functioning is critical as in our daily life a host of real-world complex decisions in high-stakes markets have to be made. The decision-making process can be vulnerable to environmental stressors. Summarizing the growing economic and epidemiologic evidence linking air pollution, cognition performance and real-world decision making, we first illustrate key physiological and psychological pathways between air pollution and cognition. We then document the main patterns of air pollution affecting cognitive test performance by type of cognitive tests, gender, window of exposure, age profile, and educational attainment. We further extend to a review of real-world decision making that has been found to be affected by air pollution and the resulting cognitive impairments. Finally, rich implications on environmental health policies are drawn based on existing evaluations of social costs of air pollution.
    Keywords: decision making, air pollution, cognitive performance, intelligence
    JEL: I24 Q53 Q51 G11 J24
    Date: 2018–10
  2. By: Alex Schmitt
    Abstract: At what rate should a government price carbon emissions? This paper analyzes optimal carbon pricing while taking into account interactions with the taxation of labor and capital income. In an otherwise standard climate-economy model, the policy maker has to resort to a distortionary tax on labor and capital income, and is unable to commit to future policies. I show that the optimal time-consistent carbon price is in general not at its Pigouvian level, that is, at the level of marginal damages induced by climate change. This is due to the presence of costs and benefits of emitting carbon that only materialize in the presence of income taxes. Quantitatively, I find that in a standard calibration of the model, this tax-interaction effect accounts for deviation of the optimal tax from the level of marginal climate damages in the ballpark of 10%, due to the second-best effects partially offsetting each other. Compared to a setting with lump-sum income taxes, I observe a smaller optimal carbon price without commitment, with the average differences over time amounting to 14%.
    Keywords: Climate-economy modeling, carbon tax, optimal income taxation
    JEL: E61 E62 H21 H23 Q54
    Date: 2018

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