International externalities, strategic interaction, and domestic politics

Domestic politics can sometimes play an influential role when externalities have strategic and international implications. If voters delegate the choice to policymakers and if individual countries independently determine their environmental policy using a consumption tax on the emissions generating good, the result could be an outcome that is inferior to the one preferred by the median voter in the absence of delegation. On the other hand, if the international externality is unilateral in nature, rather than reciprocal, we find that delegation is largely irrelevant, since voters’ choice of policymaker is no longer strategic in character. Similarly, if voters anticipate policymakers successfully coordinating their policies at a later stage, there also will be no difference between the policymakers’ and the median voters’ aggregate weighting of environmental emissions.     

Pigou meets Mirrlees: On the irrelevance of tax distortions for the second-best Pigouvian tax

This paper extends the Mirrlees (1971) model of optimal income redistribution with optimal corrective taxes to internalize consumption externalities. Using general utility structures and exploring both linear and non-linear taxes, it is demonstrated that the optimal second-best tax on an externality-generating good should not be corrected for the marginal cost of public funds, since it equals one in the optimal tax system. In the optimum, distortions of income taxes are equal to marginal redistributional gains. If the government does not have access to a non-distortionary marginal source of finance, the marginal cost of public funds can be either larger or smaller than one depending on subjective preferences for income redistribution. The optimal second-best corrective tax is then either higher or lower than the Pigouvian level. The findings in this paper generalize and amend prior results based on representative-agent models, shedding new light on the weak double-dividend hypothesis, and on the welfare gains of recycling revenue from environmental taxes.     

Externalities, Market Power, and Resource Extraction

This article analyzes the effect of market power in the presence of dynamic and biological externalities. When several countries harvest fish in international waters the evolution of fish population is affected by their joint action, thus generating a biological and a dynamic externality. If there is trade, the market-clearing prices depend on the harvesting and consumption in all countries. Therefore, market-clearing prices also generate an externality. We find a subgame perfect Cournot–Nash equilibrium and study the conditions under which it may be efficient. We also analyze the role of different externalities in generating inefficiency.     

A revised calculation of the econometric factors α- and β for the Extended Exergy Accounting method

Extended Exergy Accounting (“EEA”) is a method to compute the space- and time integral of the primary exergy required to produce a good or a service: the extended exergy of a commodity measures its “embodied exergy”, including externalities (Labour, Capital and Environmental Costa). A crucial point of the method is the calculation of two econometric coefficients, commonly referred to as “α” and “β”,used to calculate the extended exergy equivalents of Labour and Capital respectively. In previous applications of the EEA method, these coefficients have been assigned approximate values estimated on the basis of global system considerations. In this paper, a novel procedure is described that leads to the calculation of “exact” values of both econometric coefficients, based on detailed exergy- and monetary balances of the Society to which the EEA is applied. It is shown that both α and β depend in a non-trivial way from the consumption patterns, the technological level and the life- and socio-economic standards of each Country. It is also shown that the values are substantially different for developed (OECD) and underdeveloped Countries, and representative samples of values are calculated and critically analysed. On the basis of these new model coefficients, the specific exergy equivalents of Labour (ee_L) and of Capital (ee_K) are calculated, and shown to differ from the values used in previous EEA calculations.     

Time delay,complexity and support for taxation

People often experience the benefits of taxation over time. We design an intertemporal market experiment with negative externalities to examine how delaying the benefits of taxation affects support for taxes. We find that when negative externalities occur immediately, people learn to adopt Pigouvian taxes, which are aimed at reducing negative externalities and restoring market efficiency. By contrast, when negative externalities are delayed, people are less receptive to taxation. This effect persists over time. Our data reveal that the strong negative delay effect can be explained in large part by narrow bracketing and the increased perceived complexity of the environment, rather than by time discounting per-se. We argue and demonstrate that increasing the transparency of intertemporal tradeoffs can effectively promote support for taxation.     

Shifting cultivation, forest fallow, and externalities in ecosystem services: Evidence from the Eastern Amazon

This study examines the value of fallow ecosystem services in shifting cultivation, including hydrological externalities that may affect other farms. Using farm-level survey data from the Brazilian Amazon, I estimate a production function to assess the value of forest fallow and test whether it provides local externalities to agricultural production. Soil quality controls, instrumental variables, and spatial econometric approaches help address endogeneity issues. I use GIS data on external forest cover at the farm level and model the hydrological externality as an upstream-to-downstream process. The estimated parameters indicate that fallow contributes significantly to productivity both on farm and downstream. In addition, most farms allocate sufficient land to fallow, accounting for both the value of hydrological spillovers and the opportunity cost of land left out of cultivation. These results suggest that farming communities may have some self-interest in preserving forest cover locally—a finding that may bolster policy efforts aimed at conserving tropical forests for their global public goods.     

Production externalities and corrective subsidies: A general equilibrium analysis

Several recent attempts have been made to demonstrate that corrective subsidies and taxes do not have symmetric allocation effects. These demonstrations have utilized graphical partial equilibrium analysis. In this paper a general equilibrium model is introduced to show that a standard partial equilibrium result may be incorrect and that subsidies may lead to equilibrium states which are socially preferred to the status quo position.     

Negative Off‐Site Impacts of Ecological Restoration: Understanding and Addressing the Conflict

Abstract: Ecological restoration is a key component of biological conservation. Nevertheless, unlike protection of existing areas, restoration changes existing land use and can therefore be more controversial. Some restoration projects negatively affect surrounding landowners, creating social constraints to restoration success. Just as negative off‐site impacts (i.e., negative externalities) flow from industrial areas to natural areas, restoration projects can generate negative externalities for commercial land uses, such as agriculture. Negative externalities from industry have led to government regulation to prevent human health and environmental impacts. Negative externalities from restoration projects have elicited similar legal constraint on at least one large‐scale conservation project, riparian restoration in the Sacramento River Conservation Area. The negative externalities of restoration that are perceived to be the direct result of specific goals, such as endangered species management, are likely to be more contentious than externalities arising from unintended phenomena such as weed invasion. Restoration planners should give equal consideration to off‐site characteristics as to on‐site characteristics when choosing sites for restoration and designing projects. Efforts to control externalities can lead to off‐site ecological benefits.     

Modelling the hydrological externalities of agriculture in wetlands: the case of rice in Esteros del Iberà, Argentina

The conversion of wetlands to alternative uses, or land uses that affect either water levels or water quality, have profound implications for the ecological and hydrological services wetlands provide. This study considers the hydrological externalities of agricultural production in one freshwater wetland: the Esteros del Iberà in north-eastern Argentina. Two externalities are considered. First, an international hydroelectric power project, the Yacyretà dam, has significantly increased the extent of the Iberà wetland and will continue to do so over the next decade. This has negatively affected the production of rice. Second, production of rice positively affects the area of the wetland. Further increases in water levels in Iberà are expected to induce a reallocation of rice production within the region and in particular within the wetland. The paper models the externality and estimates the costs involved.     

Ecofriendly approach of urban solid waste management: a case study of Jalgaon city, Maharashtra

In India, the traditional methods are used for urban solid waste management. These practices are associated with degradation of the urban environment Hence, an environmentally sound garbage management system is required for the urban waste management. The concept of waste minimization needs to be adopted in such systems. It is possible to implement certain corrective measures at collection, storage, transport and disposal of urban solid waste to minimize the adverse impacts on the environment The present investigations are emphasized on generation, characterzation and ecofriendly disposal of solid waste generated in Jalgaon city, Maharashtra. In the present study the waste generation at source was studied in the various income groups of the city. The per capita waste generation was studied by sampling the waste directly from the source of generation. The study reveals that the waste generation is large in the high-income group followed by middle and low-income group public. Further the physicochemical characterization of the waste was also studied. The data generated will help to develop environmentally sound and economically feasible solid waste management system for Ihe city.     

The resistibility and shiftability of depletable externalities

In their recently revised book Baumol and Oates (“The Theory of Environmental Policy,” 2nd ed., Cambridge Univ. Press, Cambridge, UK 1988) accept Bird's argument on the optimal taxation policy when externalities are shiftable and depletable. Their conclusion is that the standard Pigouvian tax which is placed upon the generator of a negative externality can be extended to tax the victims who shift the externality to others or extended to compensate recipients in order to achieve Pareto optimality. It is shown in this paper that their conclusion is not free from error, because the possibility of resisting a shifted externality and conjectural variations by recipients is not recognized. Whether an externality is shiftable depends not only on the shifting activity of the original victim but also the resisting activity of his neighbors and their conjectures about each other's action. As such, the shifters should be taxed and the recipients should be compensated at the same rate per unit of externality shifted if the tax base is the output of the shifting and resisting activities. On the other hand, if the tax base is the input which produced the shifting of the externality, then both the shifters and the recipients should be subject to a tax (or subsidy) per unit of input that they have engaged in. Whether it is a tax or a subsidy depends on the direction and magnitude of the conjectural variation. The model and its policy implication can be generalized to cover the omnipresent and wasteful rent seeking activities.     

Sensitivity analysis of the asymptotic behavior of a model for the environmental movement of radionuclides

The asymptotic behavior of a linear compartment model for the environmental movement of radionuclides is investigated. Here, the expression asymptotic behavior is used to designate the behavior of q(t) as t → ∞, where q is the solution of a vector differential equation of the form dq/dt = h + Kq. The asymptotic behavior of such equations is described. For the model and conditions under consideration, each element of q converges monotonically to a steady-state value. A hydrologic system is defined and used to illustrate this behavior. An approach to sensitivity analysis employing Latin hypercube sampling, rank transformations and stepwise regression is presented and then applied to this system. A total of 20 independent variables is introduced and the following dependent variables are investigated for the various components of the system: amount of radionuclide present at steady state. concentration of radionuclide at steady state, and time required to reach 90% of steady state. Finally, an application of asymptotic behavior in the analysis of a hypothetical site for the geologic isolation of high-level radioactive waste is described and a brief discussion of differential sensitivity analysis is given.     

The effects of pricing waste generation: A synthetic control approach

To internalize pollution externalities into household waste generation, Unit Pricing Systems (UPS) have been adopted worldwide. This paper evaluates the causal effects of a UPS on the disposal of municipal solid waste in Trento, Italy. Using a unique panel dataset of monthly waste generation in Italian municipalities, we employ the synthetic control method, which allows us to account for possible time-varying effects of unobservables. Our results show that the policy was effective, with a significant decrease of the priced waste stream, unsorted waste, by 37.5%. This effect seems to be largely driven by behavioral changes towards waste avoidance (−8.6%) and possibly by a smaller increase in recycling (+6.1%). By comparing these results to those obtained by a difference-in-differences approach, we show that failing to account for time-varying effects of unobservables may lead to a mismeasurement of policy effects.     

A model of mining and exploring for exhaustible resources

A model of extractive industries is developed, in which firms select the time-paths of exploration and extraction that maximize their present values. Two externalities unique to the exploration process are found to distort industry behavior. Industry behavior is simulated under conditions of competition, monopoly, and central management, and the effects of percentage depletion allowances and changes in the discount rate are observed. Monopolists overconserve the resource and hold excess reserves; competitors who enter mineral lands freely tend to overexplore and overextract; percentage depletion allowances decrease reserves; and higher discount rates reduce extraction in the long run.     

Trade liberalization, corruption, and environmental policy formation: theory and evidence

This study explores the linkages between trade policy, corruption, and environmental policy. We begin by presenting a theoretical model that produces several testable predictions, including: (i) the effect of trade liberalization on the stringency of environmental policy depends on the level of corruption; and (ii) corruption reduces environmental policy stringency. Using panel data from a mix of developed and developing countries from 1982 to 1992, we find evidence that supports these conjectures. We view these results as representing an attempt at understanding the myriad of complex relationships that exist in an open economy.     

Those outsiders: How downstream externalities affect public good provision

Some policy problems pit one group?s interests against another?s. One group may determine provision of a project (such as a dam) that benefits group members but hurts others. We introduce a model of such projects. In-group members may contribute to a common fund that benefits them as a public good. Benefits from the project may vary within the group. Provision has negative downstream externalities: contributions hurt agents outside the in-group (“Outsiders”), rendering them anti-social. Many models of social preferences predict that such externalities should reduce provision, although conditional cooperation or a preference for in-group members may counteract this. We test this model with a lab experiment using Outsiders with whom the in-group members have more and less contact. With homogeneous in-group benefits, the presence of negative downstream externalities reduces contributions by half when they have closer contact with Outsiders but not at all when they have had no contact. We introduce a rotating high-return position that allows subjects to trade favors. In this setting, contributions of non-privileged members diminish slightly when faced with the negative externality given closer contact with Outsiders, and not at all with less contact. Reciprocal giving occurs whether or not Outsiders are present.     

The role of body size in early mating behavior in a simultaneous hermaphrodite, <Emphasis Type="Italic">Chelidonura sandrana</Emphasis>

Intraspecific variation in mating behavior is widespread among simultaneous hermaphrodites but its underlying sources remain largely unexplored. In the sea slug Chelidonura sandrana, most matings are reciprocal. However, despite non-conditional sperm exchange and potential polygamy-mediated benefits, 30% of matings end after unilateral insemination. To resolve this apparent inconsistency, we here investigated the effect of body size on the frequency of reciprocal matings by testing the following two hypotheses. First, sex-allocation theory predicts that the likelihood of reciprocity depends on the size difference between mating partners. Second, if both sex functions temporally differ in reaching maturity, reciprocal matings should be more frequent with increasing absolute body size of the smaller partner. The likelihood of reciprocity increased with body size of the smaller partner. Moreover, smaller individuals acted more often as males among unilateral matings. These findings suggest that the ability to donate sperm develops prior to female functionality in C. sandrana.     

Social attributes and associated performance measures in marmots: bigger male bullies and weakly affiliating females have higher annual reproductive success

Studying the structure of social interactions is fundamental in behavioral ecology as social behavior often influences fitness and thus natural selection. However, social structure is often complex, and determining the most appropriate measures of variation in social behavior among individuals can be difficult. Social network analysis generates numerous, but often correlated, measures of individual connectedness derived from a network of interactions. We used measures of individual connectedness in networks of affiliative and agonistic interactions in yellow-bellied marmots, Marmota flaviventris, to first determine how variance was structured among network measures. Principal component analysis reduced our set of network measures to four “social attributes” (unweighted connectedness, affiliation strength, victimization, and bullying), which revealed differences between patterns of affiliative and agonistic interactions. We then used these extracted social attributes to examine the relationship between an individual’s social attributes and several performance measures: annual reproductive success, parasite infection, and basal stress. In male marmots, bullying was positively associated with annual reproductive success, while in females, affiliation strength was negatively associated with annual reproductive success. No other social attributes were significantly associated with any performance measures. Our study highlights the utility of considering multiple dimensions when measuring the structure and functional consequences of social behavior.     

A simulation model for the management of low density recreational areas

In order to take account of the congestion externalities associated with increased use intensity during a given period at a low density recreational resource, it is necessary to determine the effects of alternative use levels on the expected quality of each individual's experience. This paper describes a simulation model for wilderness recreation designed to provide such measures. In order to illustrate the model it is applied to the Spanish Peaks Areas in Montana.     

Community pressure for green behavior

The desire to avoid rousing community hostility may encourage firms to behave in an environmentally responsible manner. Firms may engage in corporate social responsibility (CSR) to maintain community support and/or to regain the support of a community where it has been lost. It has been conjectured that such ‘informal regulation’ could effectively replace formal intervention in some settings, and usefully complement it in others. We explore these conjectures with mixed results. Informal regulation is necessarily less efficient than a well-designed formal alternative and the pattern of green behavior induced by the threat of community hostility may increase or decrease welfare. The existence of community pressure may increase or decrease the optimal calibration of a formal intervention (in this case an environmental tax) and may complement or detract from the incentives generated by an optimally calibrated tax.