Income inequality and willingness to pay for environmental public goods

We study how the distribution of income among members of society, and income inequality in particular, affects social willingness to pay (WTP) for environmental public goods. We find that social WTP for environmental goods decreases (increases) with income inequality if and only if environmental goods and manufactured goods are substitutes (complements). We derive adjustment factors for benefit transfer to control for differences in income distributions between a study site and a policy site. For illustration, we quantify how social WTP for environmental public goods depends on the respective income distributions for empirical case studies in Sweden and the World at large. We find that the adjustment for income inequality can be substantial.     

International environmental agreements for local and global pollution

Increasing concerns about climate change have given rise to the formation of International Environmental Agreements (IEAs) as a possible solution to limit global pollution effects. In this paper, we study the stability of IEAs in a repeated game framework where we restrict to strategies which are simple and invariant to renegotiation. Our main contribution is that we characterize necessary and sufficient conditions for stability of an IEA when pollution has both a global and local effect. Local pollution spillovers are represented by a network structure. We find that stable IEAs exist if the network structure is balanced. Too large asymmetries in the degree of local spillovers may, however, lead to non-existence of stable structures. We also discuss the implications of our results for welfare. The generality of our approach allows for several applications, in particular the provision of public goods.     

Pollution havens and industrial agglomeration

This paper examines the pollution haven hypothesis using a spatial-economy model of two countries and two sectors. The manufacturing sector generates cross-border pollution which reduces cross-sectoral productivity of agricultural goods, and lowers local income. We derive a demand-reducing effect that discourages firms to move to the country with laxer environmental regulations, in the absence of any comparative advantage. Our analysis also demonstrates that manufacturing agglomeration forces can alleviate the pollution-haven effect: a pollution haven may not arise if environmental regulation is slightly more stringent in the larger country.     

Social networks and non-market valuations

This paper considers the role of social networks in the non-market valuation of public goods. In the model individuals derive utility both from their own direct enjoyment of the public good and from the enjoyment of those in their network. We find that network structure almost always matters, both for utility and for valuation. The network increases aggregate valuation when it assigns higher importance, that is, stronger connections, to individuals with higher private values for the public good. The model provides a theoretical foundation for the idea of opinion leaders who have disproportionate influence over their communities. Specifically, opinion leaders are individuals assigned high importance by the network, and projects favored by opinion leaders tend to be favored by the network as a whole. The model can also guide future empirical studies by enabling a more structural approach to non-market valuation in a socially connected group.     

Geography of conservation spending,biodiversity, and culture

We used linear and multivariate models to examine the associations between geography, biodiversity, per capita economic output, national spending on conservation, governance, and cultural traits in 55 countries. Cultural traits and social metrics of modernization correlated positively with national spending on conservation. The global distribution of this spending culture was poorly aligned with the distribution of biodiversity. Specifically, biodiversity was greater in the tropics where cultures tended to spend relatively less on conservation and tended to have higher collectivism, formalized and hierarchical leadership, and weaker governance. Consequently, nations lacking social traits frequently associated with modernization, environmentalism, and conservation spending have the largest component of Earth's biodiversity. This has significant implications for setting policies and priorities for resource management given that biological diversity is rapidly disappearing and cultural traits change slowly. Therefore, we suggest natural resource management adapt to and use characteristics of existing social organization rather than wait for or promote social values associated with conservation spending. Supporting biocultural traditions, engaging leaders to increase conservation commitments, cross‐national efforts that complement attributes of cultures, and avoiding interference with nature may work best to conserve nature in collective and hierarchical societies. Spending in modernized nations may be a symbolic response to a symptom of economic development and environmental degradation, and here conservation actions need to ensure that biodiversity is not being lost.     

Valuing nature in a general equilibrium

We explore the consequences of modeling the demand for environmental quality improvements as a fully integrated part of a general equilibrium demand system in an applied general equilibrium (or CGE) analysis. Demand for non-market goods depends on a full range of relative prices as well as environmental outcomes. We simulate the effects of reducing two air pollutants to improve human health and three ecosystem services provided to households. The ecosystem services make non-separable contributions to household utility. We find that willingness to pay measures of use-based ecosystem services are impacted by changes in demand for complementary market goods. Demand for these goods shifts due to pollution reductions that enhance ecosystem services. Partial equilibrium estimates of these use values can be measured with substantial error if they fail to account for the general equilibrium adjustments caused by pollution. Over 300 calibrations of the model identify the model features important to these errors. We find that effects on ecosystem services associated with non-use values have important implications for the feedback effects on use related measures of economic tradeoffs. This is due to how our model integrates market and non-market effects, reflecting the non-market services importance to general equilibrium market outcomes.     

Strategic investment in reputation

Although collective efforts are common in both animal and human societies, many human and probably animal social dilemmas have no obvious cooperative solution, which is a challenge for evolutionary biologists. In public goods games, i.e. the experimental paradigm for studying the sustainability of a public resource with human subjects, initial cooperation usually declines quickly. Recently, it has been shown that the interaction with another social game in which good reputation attracts help, can maintain a high level of cooperation in the public goods game. Here we show experimentally that humans use different strategies in the public goods game conditional on whether the player knows that his decisions will be either known or unknown in another social game. The knowledge of being recognized as the same individual in both scenarios motivates players to invest in their reputation and thus sustain the public resource. However, cooperation declines immediately when individual identities switch from being recognizable to being unrecognizable between the two interacting games.Communicated by M. Borgerhoff-Mulder     

An integrated model of regional and local residential sorting with application to air quality

We examine the interconnectedness of demand for regionally and locally varying public goods using a residential sorting model. We propose a version of the model that describes household choices at the city (MSA) level and, conditional on city, the neighborhood (census tract) level. We use a two-stage budgeting argument to develop an empirically feasible sorting model that allows us to estimate preferences for regionally varying air quality while accounting for sorting at the local level. Our conceptual and empirical approach nests previous sorting models as special cases, allowing us to assess the importance of accounting for multiple spatial scales in our predictions for the cost of air pollution. Furthermore our preferred specification connects the city and neighborhood sorting margins to the upper and lower elements of a nested logit model, thereby establishing a useful correspondence between two stage budgeting and nested logit estimation. Empirically we find that estimates from a conventional model of sorting across MSAs imply a smaller marginal willingness to pay for air quality than estimates from our proposed model. We discuss how the difference is attributable in part to the omitted variable problems arising when tract level sorting is ignored.     

The economics of cooperation over collective bads

Pollution reciprocated among nations is analyzed graphically as a traded collective bad. The model is contrasted to analogous methods of studying trade in public goods. The model then is interpreted in terms of pollution taxes. Equilibrium and optimal outcomes are characterized by the tax policies needed to support them. Finally, obstacles to tax-trade solutions are noted and institutional solutions are suggested.     

Reputation is valuable within and outside one’s own social group

To find conditions under which humans cooperate within groups of unrelated individuals has been of major interest in the behavioral sciences. The experimental paradigm for studying potential cooperation in social dilemmas is the public goods game. Here humans regularly fail to sustain a public resource cooperatively. However, the need to maintain good reputation for other social interactions, such as indirect reciprocity, has been identified as an effective mechanism to sustain cooperation in public goods situations. As a side effect of building a good reputation through cooperative actions, an individual provides direct benefits to members of his/her own social group. These benefits could be an incentive to reward a good reputation of group members. Here we show experimentally that building a good reputation through cooperative behavior in a public goods situation is rewarded in future social interactions, not only within ones own social group but also, at a similar level, in other social groups: humans regard cooperative behavior of others as an honest signal irrespective of past direct personal benefits. Reputation gained within as well as outside ones own social group can be a driving force for selfish individuals to cooperate in public goods situations, and thereby sustain any public resource.Communicated by T. Czeschlik     

Green clubs

This paper treats programs in which firms voluntarily agree to meet environmental standards as “green clubs”: clubs, because they provide non-rival but excludable reputation benefits to participating firms; green, because they also generate environmental public goods. The model illuminates a central tension between the congestion externality familiar from conventional club theory and the free-riding externality familiar from the theory on private provision of public goods. We compare three common program sponsors—governments, industry, and environmental groups. We find that if monitoring of the club standard is perfect, a government constrained from regulating club size may prefer to leave sponsorship to industry if public-good benefits are sufficiently low, or to environmentalists if public-good benefits are sufficiently high. If monitoring is imperfect, an important question is whether consumers can infer that a club is too large for its standard to be credible. If they can then the government may deliberately choose an imperfect monitoring mechanism as a way of regulating club size indirectly. If they cannot then this reinforces the government's preference for delegating sponsorship.     

Intra-industry trade in intermediate products, pollution and internationally increasing returns

This paper examines the relationship between intra-industry trade in intermediate products, pollution and increasing returns. We develop a two-country model in which production occurs in two stages, final and intermediate good production. Intermediate goods are produced under monopolistic competition and final good production exhibits increasing returns with respect to the number of varieties of intermediates. Pollution occurs in the production of the final good when polluting intermediates are used. We analyze the effects of international trade in intermediate products on pollution, output and welfare under an endogenous tax scenario and with two types of pollution functions. The results show that, because of increasing returns, international trade either leads to lower total pollution in each country or lower pollution per unit of output in at least one country. In addition, intra-industry trade causes countries to import the environmental quality of their trading partners.     

Intra-industry trade in intermediate products,pollution and internationally increasing returns

This paper examines the relationship between intra-industry trade in intermediate products, pollution and increasing returns. We develop a two-country model in which production occurs in two stages, final and intermediate good production. Intermediate goods are produced under monopolistic competition and final good production exhibits increasing returns with respect to the number of varieties of intermediates. Pollution occurs in the production of the final good when polluting intermediates are used. We analyze the effects of international trade in intermediate products on pollution, output and welfare under an endogenous tax scenario and with two types of pollution functions. The results show that, because of increasing returns, international trade either leads to lower total pollution in each country or lower pollution per unit of output in at least one country. In addition, intra-industry trade causes countries to import the environmental quality of their trading partners.     

Green clubs

This paper treats programs in which firms voluntarily agree to meet environmental standards as “green clubs”: clubs, because they provide non-rival but excludable reputation benefits to participating firms; green, because they also generate environmental public goods. The model illuminates a central tension between the congestion externality familiar from conventional club theory and the free-riding externality familiar from the theory on private provision of public goods. We compare three common program sponsors—governments, industry, and environmental groups. We find that if monitoring of the club standard is perfect, a government constrained from regulating club size may prefer to leave sponsorship to industry if public-good benefits are sufficiently low, or to environmentalists if public-good benefits are sufficiently high. If monitoring is imperfect, an important question is whether consumers can infer that a club is too large for its standard to be credible. If they can then the government may deliberately choose an imperfect monitoring mechanism as a way of regulating club size indirectly. If they cannot then this reinforces the government's preference for delegating sponsorship.     

Criteria for jurisdictional design: Issues in defining the scope and structure of river basin authorities and other public decision-making bodies

Multifunction decision-making bodies are often advocated for representative environmental authorities on the basis that by facilitating vote-trading they generate better social decisions. This paper demonstrates that vote-trading may in fact lead to suboptimal social decisions. From this conclusion, it is argued that consideration should be given to designing environmental authorities responsible for separate activities, i.e., water pollution control, air pollution control, land use, etc., rather than having only one authority responsible for these several functions. Criteria as to when a single function. authority is appropriate are provided.     

Redistribution and pollution taxes with non-linear Engel curves

This paper analyses optimal corrective taxation and optimal income redistribution. The Pigouvian pollution tax is higher if pollution damages disproportionally hurt the poor due to equity weighting of pollution damages. Moreover, under general utility functions, optimal pollution taxes should be set below the Pigouvian tax if the poor spend a disproportionate fraction of their income on polluting goods. However, if Engel curves are linear, optimal pollution taxes should follow the first-best rule for the Pigouvian corrective tax even if the government wants to redistribute income and the poor spend a disproportional part of their income on polluting goods. The often-used quasi-linear, CES and Stone-Geary utility functions all have linear Engel curves. If Engel curves are linear, and if pollution taxes are not optimised, Pareto-improving green tax reforms exist that move the pollution tax closer to the Pigouvian tax. Simulations demonstrate that optimal corrective taxes should be Pigouvian if the demand for polluting goods is derived from a LES demand system, but deviate from the Pigouvian taxes if demand for polluting goods demand is derived from a PIGLOG demand system.     

Critical environmental indicators: performance indices and assessment models for sustainable rural development planning

Sustainable development planning must be based on environmental and biophysical baseline indices that effectively define comparative development potential and environmental constraints. As such, indices must define the comparative advantage of the natural resource base and measure the fundamental capacity to sustain production rates of natural resource goods and services used to create societal well being. Complex biophysical and socioeconomic characteristics affect the identification and selection of sustainable development strategies. When derived from effective baseline indicators, indices may be used to define the spatial and temporal distribution of economically viable production opportunities and may be expressed in derived indices that realistically describe basic production opportunities and guide the selection of feasible, long-term development strategies. Specifically, representative indices are critical in the identification of development goals and realistic objectives and can be used to evaluate, select and implement sustainable development strategies and plans. It is stressed that the relevancy and effectiveness of public policies depend on the identification of representative evaluation models and baseline indices to define development strategies that are both environmentally sustainable and economically viable. In this context, the role of baseline indicators that define natural resource production capacities is discussed. This includes potential resource uses, derived benefits and their economic and environmental impacts. Key thematic indicators are suggested that may be especially useful in identifying development alternatives and impacts. This suggested that clearly defined environmental pollution limits or impact standards be used to define public risk tolerance limits and carrying capacity constraints. It is argued that these measures may be more effective in directing policy choices than economic valuation of non market goods and services that represent environmental externalities associated with resource exploitation options and economic development strategies. To this end, examples of thematic indicators and derived indices are introduced that may prove effective in resource assessment, economic evaluation and strategic development planning.     

The Relationship between the Income Elasticities of Demand and Willingness to Pay

The relationship between income and willingness to pay for collectively provided public/environmental goods is investigated. We show that while the income elasticity of willingness to pay and the ordinary income elasticity of demand are related, knowledge of one is insufficient to determine the magnitude or even the sign of the other. The income elasticity of willingness to pay is influenced by additional factors which are generally unobservable. Examples are provided to illustrate the degree to which the two income elasticities may diverge. Our results indicate that even when goods are demand luxuries they may or may not have income elasticities of willingness to pay which are greater than one.     

Die Rolle von Kommunikation in der Umweltbewertung

Goal and Scope

Planning projects concerning the environment often provoke problems due to a lack of transparency of the applied scales and the appropriate evaluation methods. This paper therefore examines the general structure of all valuation processes before describing the character of the economic evaluation method in detail. From this point of view, requirements on planning processes are coming out which are to be achieved if their duty — the provision of public goods — is to be carried out efficiently.

Features

It will be shown that from an economist’s perspective a planning procedure acts as a surrogate of the market in coordinating individual’s preferences. The reasons for the inefficient level of the provision of environmental goods by private producers are their main characteristics: non-rivality and non-excludability; therefore public goods do not possess prices. Thus environmental goods have to be produced by cooperation and planning processes have to guarantee this. The main character of planning procedures is be seen in communication processes which is documented by a narrative study.

Results and Conclusions

Planning projects concerning the environment are strongly contingent on communication processes. Thus, they are also controllable by communication. The interdisciplinary research in communications shows that cooperative behaviour which is required for planning projects that should provide public goods can be benefited by applicative communication technologies. In this juncture (social) norms more and more emerge to act an important part in conveying cooperative behaviour. Especially so called ‘Sozialtechniken’ seem to be able to activate such norms.

Outlook

From the economist’s point of view planning projects concerning the environment mostly desiderate two things: Firstly, the procedures and methods which are applied to evaluate the regarding environmental goods in many cases suffer from transparency. Secondly, individual’s preferences predominant by the local population and accordingly by the directly involved parties are mostly not acquired adequately to achieve an efficient allocation of environmental goods. Applying more communication technologies to solve these two problems in the future both an increase of efficiency and an increase of the acceptability of such planning projects can be expected.     

Toward a delineation of the circumstances in which cooperation can be sustained in environmental and resource problems

Play in standard laboratory Public Good games suggests that on average, humans are quite prone to cooperate. Yet cooperation is often absent in real world social dilemmas, including many environmental problems. We propose that this discrepancy arises because in the Public Good game, the worst freeriders can do is to not contribute to the public account, while in many real world environmental situations freeriders can even appropriate contributions made by others before the public good is produced. We introduce the Claim Game that modifies the Public Good game by allowing for appropriating the contributions of others before the public good is produced. The impact of such possible takings on public good production is dramatic. No public good is produced, not even in the initial stages of interaction. We link our findings to the relevance of common pool games for modeling environmental problems, and stress the need to experimentally test environmental institutions within harsher social dilemmas than the standard Public Good game.