Contingent valuation techniques for assessing environmental impacts: Further evidence

This paper provides further evidence on the development and application of the iterative bidding technique used to assess environmental impacts. Three specific issues—the hypothetical nature of the survey technique, the questionnaire information structure, and the bidding procedure starting point—are examined theoretically and empirically to determine their effect on individual bid behavior. The empirical results indicate that the importance of these influences may have been overstated in earlier studies.     

Nash Implementation of a Proportional Solution to International Pollution Control Problems

For a very general class of pollution control models involving strictly quasi-concave utility functions over consumption and environmental quality and strictly convex emission abatement cost functions, a proportional cost sharing mechanism is presented inspired by the ratio equilibrium introduced by7. It is shown that the proportional solution yields a cost efficient allocation of abatement efforts and that the resulting utility imputation always lies in the stand alone core of the cost sharing game. In order to decentralize the proportional cost sharing equilibrium, a financial compensation mechanism implementing the proportional solution in complete information Nash equilibrium is presented.     

基于合作博弈论的感潮河网区污染物排放总量削减分配模型研究

在给定污染物削减目标的情况下,如何确定各排污区域的分配比例一直是污染物总量分配技术的核心问题,博弈论是解决这一问题的有效尝试。采用合作博弈论方法,以感潮河网区各排污区域为研究对象,充分考虑各区域的污染治理成本、排污策略与环境质量的相互影响,建立了在给定污染物总削减比例条件下各区域环境合作的博弈模型,计算了各种可能联盟的特征函数值,利用Shapley值法进行合作收益的公平分配。结合珠江三角洲西江-石岐河河网区3个区域的环境合作案例说明削减合作的可行性,在总削减比例为15%的约束下,3区域合作削减比例是20.77%、12.82%和12.99%,与合作前相比,3个区域合作后环境成本分别减少了11.83%、2.13%和2%。     

The valuation of aesthetic preferences

This paper reports on a bidding game applied to estimate aesthetic damages from possible construction of the Kaiparowits power plant near Lake Powell. Three problems associated with the interpretation of bidding games are explored theoretically and empirically: (1) incentives for biased responses, (2) divergences between compensating and equivalent variation and (3) problems of interpersonal comparison in the aggregation of individual bids.     

Environmental policy with upstream pollution abatement technology firms

This paper examines how the existence of an upstream abatement technology sector affects optimal environmental policy. We explore whether the policy should be especially stringent in order to spur a successful export industry based on abatement technology. Furthermore, we investigate if a stringent policy can be used to increase competition in the upstream sector. Our point of departure is a three-stage game between a government in a country with a polluting downstream industry, and a limited number of upstream firms supplying abatement technologies. The government moves first, and may use its environmental policy strategically to influence the behavior of the upstream technology firms. We find that an especially stringent environmental policy towards the polluting downstream sector may be well founded, as it increases competition between the technology suppliers, leading to lower abatement costs. However, to our surprise, an especially stringent environmental policy is not a particularly good industrial policy with respect to developing successful new export sectors based on abatement technology.     

An economic analysis of air pollution from coal-fired power plants

The benefits of air pollution control techniques on a coal-fired power plant are Simulated with a scientifically based environmental model. Air pollution abatement techniques are assessed in terms of their resource cost (measured in dollars) and their effectiveness in reducing environmental damage (measured in dollars and healthy days lost). Which air pollution techniques are most efficient depend upon how much a day of health should be valued. Other factors of potential interest such as uncertainty and equity are also simulated through the model. The paper demonstrates that scientific evidence can be organized around economic principles in order to develop more rational and effective environmental policies.     

International environmental agreements with support

We augment the standard cartel formation game from non-cooperative coalition theory, often applied in the context of international environmental agreements, with the possibility that singletons support coalition formation without becoming coalition members themselves. We assume their support takes the form of a monetary transfer to the coalition, in order to induce larger coalitions, higher levels of public good provision and higher payoffs. We show that, under mild conditions on the costs and benefits of contributing to the public good (e.g. abatement of greenhouse gas emissions), there exist equilibria with support. Allowing for support increases payoffs to each of three types of agents: members, supporters and free-riders.     

A proposal for improving the measurement of benefits from pollution abatement

Two basic and competing approaches for measuring the benefits of pollution abatement have found support in the recent literature-the property value approach and the health damage function approach. The purpose of this paper is to show that conditions will often exist when the property value approach will not accurately measure all benefits and conditions will always be present that cause the health damage function approach to underestimate benefits. In general, neither approach can stand alone. It is possible, however, that the two approaches can be combined in such a way as to improve the measurement of abatement benefits. We present an approach for combining these two methods and do so by introducing an “information coefficient” that measures the degree of knowledge about pollution effects held by the public. Approaches to estimating the information coefficient are suggested.     

International environmental agreements with consistent conjectures

We introduce consistent conjectures into Barrett (1994) canonical model of international environmental agreements. The existing literature assumes inconsistent Nash conjectures, despite the fact that policymakers recognize that abatement levels are strategic substitutes and increases in abatement generate carbon leakage. With consistent conjectures much of the conventional wisdom is reversed. The non-cooperative abatement level is below the Nash equilibrium. The difference between Nash and consistent conjectures is greatest when benefits are large and costs are small. We find that large coalitions cannot form. However, small coalitions can result in substantial increases in abatement relative to the non-cooperative outcome.     

A laboratory study of auctions for reducing non-point source pollution

Non-point source pollution, such as nutrient runoff to waterways from agricultural production, is an environmental problem that typically involves asymmetric information. Land use changes to reduce pollution incur opportunity costs that are privately known to landholders, but these changes provide environmental benefits that may be more accurately estimated by regulators. This paper reports a testbed laboratory experiment in which landholder/sellers in sealed-offer auctions compete to obtain part of a fixed budget allocated by the regulator to subsidize abatement. In one treatment the regulator reveals to landholders the environmental benefits estimated for their projects, and in another treatment the regulator conceals the potential projects’ “environmental quality.” The results show that sellers’ offers misrepresent their costs more for high-quality projects when quality is revealed, so total abatement is lower and seller profits are higher when landholders know their projects’ environmental benefits. This suggests that concealing this information may improve regulatory efficiency.     

Voluntary Auctions for Noxious Facilities: Incentives to Participate and the Efficiency of Siting Decisions

This paper explores the efficiency properties of a voluntary auction under which the city submitting the low bid hosts the region′s noxious facility and receives the high bid as compensation. In the Nash equilibrium of the auction game, the auction mechanism is individually rational (participation is rational for all values of the local environmental costs of the facility), incentive-compatible (the facility is located in the low-cost city), and revenue-neutral. If the compensation of the host city distorts location choices, participation in the auction is rational for all values of local environmental costs if the scale economies associated with the noxious facility are large relative to the average local environmental cost and the distortionary cost per dollar of compensation.     

Trade''s Dynamic Solutions to Transboundary Pollution

This study develops a differential game to examine the effects of trade liberalization on transboundary water pollution. Water pollution is due to wastewater emissions from countries in a shared waterway along the U.S.–Mexico border with available data of pollution abatement costs, public health damages, and trade benefits. Noncooperative and cooperative games are examined with changes in trade policy and public health damages. Results show trade liberalization leads Mexico to curtail pollution in both games. Cooperation and trade liberalization limit emissions from both countries and curtail strategic behavior of the United States from Mexico's pollution control efforts in the noncooperative game.     

Are there reasons against open-ended research into solar radiation management? A model of intergenerational decision-making under uncertainty

Solar radiation management (SRM) has been proposed as a means of last resort against dangerous climate change. We propose a stylized model of intergenerational decision making on SRM research, greenhouse-gas abatement and SRM deployment, under uncertainties about (a) the extent of future climate damage and (b) effectiveness and potential harmful side-effects of SRM. Open-ended research may reveal either that SRM effectively reduces climate damage, or that it would cause more harm than benefits. We find that SRM research increases the likelihood of deployment (“slippery slope”), and derive conditions that it decreases abatement effort in expectation (“moral hazard”). Neither of these provides a rationale against SRM research, though. The rational decision is to perform SRM research, unless (i) discounting is hyperbolic and (ii) the absolute prudence of expected climate damage is smaller than absolute risk aversion. These results generalize to the case where SRM research also provides information on climate sensitivity.     

Incomplete Information and Incentives to Free Ride on International Environmental Resources

This paper studies free-riding incentives on common environmental resources in an incomplete information repeated game where abatements are perishable and perfect substitutes. Two contrasting types of perfect Bayesian equilibria emerge: For high discount factors, or low discount factors but “pessimistic” prior beliefs, the inclusion of incomplete information has no impact on the pattern of abatements. Otherwise the countries attempt to use their private information strategically and the game becomes a war of attrition. This generates an outcome where the “pessimistic” country unilaterally abates forever, and another which involves delay until the first abatement if both countries are “optimistic”.     

Pollution Taxes and Pollution Abatement in an Oligopoly Supergame

This paper investigates the effects of an emissions tax on the incentives for oligopolists to acquire alternative pollution abatement technologies. The analysis is conducted in terms of a repeated game and it is demonstrated that there are circumstances in which the firms may reject the option of acquiring the pollution abatement equipment, even when this lowers their production costs.     

An experiment on the economic value of visibility

This paper reports on the development and application of an iterative bidding technique to examine proposed visibility reductions in the Four Corners Region of the southwest United States. The iterative bidding technique is a method to elicit honest bids for “goods” not priced in formal markets. Four issues associated with direct revelation of preferences for environmental goods are explored: (1) the establishment of linkages between the physical parameters of visibility and representation of the “good” called visibility to individuals for valuation purposes; (2) a systematic test for both observed and induced biases associated with the interative bidding technique; (3) replication of the results of previous experiments; and (4) reporting of empirical divergences between compensating and equivalent surplus measures of consumer surplus.     

Does more stringent environmental regulation induce or reduce technology adoption? When the rate of technology adoption is inverted U-shaped

We show that for a broad class of technologies the relationship between policy stringency and the rate of technology adoption is inverted U-shaped. This happens when the marginal abatement cost (MAC) curves of conventional and new technologies intersect, which invariably occurs when emissions are proportional to output and technological progress reduces emissions per output. This outcome does not result from policy failure. On the contrary, in social optimum, the relationship between the slope of the marginal damage curve and the rate of technology adoption is also inverted U-shaped. Under more general conditions, these curves can look even more complicated (e.g., such as inverted W-shaped).     

Does more stringent environmental regulation induce or reduce technology adoption? When the rate of technology adoption is inverted U-shaped

We show that for a broad class of technologies the relationship between policy stringency and the rate of technology adoption is inverted U-shaped. This happens when the marginal abatement cost (MAC) curves of conventional and new technologies intersect, which invariably occurs when emissions are proportional to output and technological progress reduces emissions per output. This outcome does not result from policy failure. On the contrary, in social optimum, the relationship between the slope of the marginal damage curve and the rate of technology adoption is also inverted U-shaped. Under more general conditions, these curves can look even more complicated (e.g., such as inverted W-shaped).     

Double-dipping in environmental markets

There is an increasing tendency to use markets to induce the provision of environmental services. As such markets increase in scope, potential market participants might sell multiple environmental services. The question we consider here is whether participants in such markets should be allowed to sell credits in more than one market simultaneously. Some have argued in favor of such “double-dipping”, because it would make the provision of environmental services more profitable. In practice however, most programs do not allow double-dipping. We show that if the optimal level of pollution abatement is sought, then double-dipping maximizes societal net benefits. However, if pollution policies are set in a piecemeal fashion, then the caps for each market are unlikely to be optimal and, in this second-best setting, a policy prohibiting double-dipping can lead to greater social net benefits. We explore conditions under which a single-market policy is preferred, or equivalently, where piecemeal policies are likely to yield particularly inefficient outcomes.     

Plant vintage, technology, and environmental regulation

We use data on productivity and pollution abatement costs at individual pulp and paper mills to test whether the impact of environmental regulation on productivity differs by plant vintage and technology. Plants with higher pollution abatement costs have significantly lower productivity levels. This relationship differs greatly based on a plant's technology, with productivity at integrated mills being greatly affected by abatement costs, while the impact at non-integrated mills is negligible. Plant vintage does not seem to matter, with older and newer plants showing similar impacts. Reported abatement costs appear to substantially understate the true costs of abatement. Accounting for the impact of technology differences makes some difference in the estimated overall impact of environmental regulation.