The economics of enforcing air pollution controls

The goal of this paper is to determine the likely effect on a firm's control actions of alternative implementation and enforcement policies available to the control agency. Three alternatives are studied, legal enforcement through the new source performance standards set forth by EPA, and two effluent fee enforcement alternatives. First, a generalized model of the effects of implementation and enforcement policies on the firm's control action is developed. This model assumes that the firm is an expected cost minimizer. The model is then applied to the case of particulate matter discharges from coal-fired power plants in order to estimate empirically the effect of policy alternatives on the firm's control efforts. Finally, the results of the model and its empirical application are used to develop policy functions which relate control to the values of various policy parameters. These results lead us to several policy recommendations.     

Optimal quasi-market choice in the presence of pollution externalities

When the relationship between emissions and ambient pollution is known, it is possible to implement a program to achieve economically efficient pollution levels, even when the control agency knows nothing about the victim's valuation of pollution damages or about emission abatement costs. Unlike a Pigouvian tax, the program provides the correct incentives for entry and exit whether or not marginal damages from a firm's emissions vary over the range of these emissions. Through the provision of “missing” markets, sizable revenues are raised while allocative distortions are corrected.     

Firm behavior under imperfectly enforceable pollution standards and taxes

Assuming expected profit maximization, the behavior of the firm under imperfectly enforceable pollution standards is examined. Among other results, it is found that cost subsidies can reduce the size of violation and amount of wastes, and that the shape of the expected penalty function determines the direction of the firm response to tighter standards. Under imperfectly enforceable pollution taxes, it is found, among other results, that the firm's actual level of wastes is independent of proportional changes in the expected penalty for pollution tax evasion, and that the marginal cost of actual waste reduction equals the unit tax on reported wastes. Some normative aspects of the results are discussed.     

On optimal congestion

A number of classic papers conclude that if a congestible facility is the property of a profit maximizing entrepreneur, he will impose a charge for use that induces the socially optimal level of use and congestion. All these papers happen to deal with a special case in which that conclusion holds, but it is not true in general. In general, the socially optimal level of use of a congestible facility is the level at which the marginal cost of providing the service is equal to the sum of the decreases in the users' willingnesses to pay for a unit of service when the level of congestion is optimal, and need not coincide with the level resulting from a profit-maximizing charge. This sum is derived from the integral under a fictitious demand curve constructed by imagining that the level of congestion is the same (and optimal) at all levels of the use-charge.     

Measuring values for environmental resources under uncertainty

The relationship between conventional Hicksian measures of the benefits from changes in environmental amenities under certainty, and corresponding measures of valuation when the conditions of access to an uncertain environmental resource are changed, is considered. The analysis utilizes a contingent commodity framework with the assumption of state-dependent preferences. The findings suggest that the valuation of these changes will depend upon the availability of fair markets for diversifying risk. Moreover, conventional measures of compensating or equivalent surplus will not necessarily bound the individual's valuation of a change in access to an uncertain environmental resource.     

The theory of power and efficiency in ecology

Some previous work on the theory of power and optimal efficiency in ecology is shown to be either incorrect or of limited applicability. The standard analysis based on Atwood's machine is not valid, and the optimal efficiency for maximum power production depends on the characteristics of the individual system. For optimally foraging aquatic organisms the theoretical efficiency is less than 50% when the hydrodynamic flow is laminar, but under turbulent conditions the optimal efficiency can rise as high as 67%. Despite these restrictions it still appears plausible that ecological efficiency should be the same for broad classes of living organisms.     

Markets and environmental management with a storable pollutant

Lee [J. Environ. Econ. Manag., in press] investigates possibilities where pollutants may be stored for a period of time and later released into the environment when adverse effects are minimal. The treatment and storage of pollutants before their release into the environment is a crucial part of many abatement programs. Surprisingly, emission charges will not induce optimal abatement when storage is possible. This occurs because the firms' response to the dynamic tax is indeterminant. We suggest alternative controls, whereby rights to emit pollutants are sold competitively and demonstrate that markets provide incentives for the optimal generation-storage-emission of pollution by firms. In deriving this result an important difference between markets and taxes is revealed. With markets there is still indeterminacy at the firm level, but the aggregate response of all firms is dictated by market forces that insure pollution is reduced by some desired amount.     

Free energy flow in the process of collecting material for body build up of aquatic organisms

A general formula defining the free energy expenditures in the processes of algal nutrition and zooplankton feeding has been derived. It appears to be symmetrical in respect of space and time scales. In conditions of optimal control the theoretical relationship between effective free energy expenditures and losses appears to be the ‘golden proportion’. The general trends of the system due to the first and second laws of thermodynamics and Prigogine's theorem form a theoretical basis for phenomenological rules of ecosystem's development.     

The economic theory of species extinction: Comment on smith

A widely recognized article by Smith suggests that harvesting leading to species extinction may be socially optimal, provided that the species growth-potential is sufficiently low. It is shown that this conclusion hinges on special assumptions about harvest technology which, despite a superficial compatibility with neoclassical production theory, contradict a basic postulate of a pioneering article by Gordon. As soon as Gordon's postulate is taken into account, while all other aspects of Smith's model are maintained, it turns out that even a species with a very low growth potential should not become extinct.     

Theory and estimation of the household production function for wildlife recreation

The household production function is an intuitively appealing way to model man's interaction with nature. This paper models the interaction between the household's behavior and publicly provided inputs into wildlife recreation. The paper shows how to compute benefits, assuming that the household production function is known. The household production function approach collapses to the simple travel cost approach when households are unable to substitute their own inputs for publicly provided inputs. In addition, the paper demonstrates the conditions under which the parameters of cost and preference functions can be identified. The conditions for identification are quite restrictive when several choices are endogenous.     

Some political aspects of pollution control

In this paper some principles of optimal control theory are applied to an examination of the possible differences that political and economic decisions making may have in the area of pollution control. The main points are that (1) Pollution Control Boards (PCB's) may behave as though they place weights on control and benefit functions that differ from market determined weights, (2) divergencies between political and market weights impose welfar; losses, and (3) given that PCB's may be succeeded by another board the current PCB may adapt its behavior to counteract or enforce the expected future behavior of the new PCB.     

Modeling the annual thermal regime of lake Ohrid,Yugoslavia, using daily weather data

The time-dependent characteristics of the five weather variables which control the annual thermal response of Lake Ohrid are analyzed in detail. These are daily values for solar radiation, air temperature, humidity, wind speed and cloud cover. A simple numerical model of the lake's thermal response, forced by thermally driven density mixing, is developed and tested using observed thermal profiles for verification. The numerical model successfully reproduces the major features of the lake's thermal regime over a 6 y period from 1972 to 1977, the average root mean square value for the simulated profiles being 1.2°C with extremes of 2.2 and 0.3°C and a standard deviation of 0.4°C.     

The contribution of L. C. Gray to the economic theory of exhaustible natural resources and its roots in the history of economic thought

The paper opens with an assessment of natural resources economics up to 1913–14 when Gray published his two pioneering articles in natural resources economics (Part I). An in-depth study of Gray, weighing his contribution to the microeconomic theory of the mine and the macroeconomic theory of conservation against current literature, constitutes the main body of the paper (Part II). Gray and Hotelling's contributions to the theory of the mine are compared (Part III). The paper concludes with a comparison drawn between the author's findings and the scant attention previously paid to Gray's contributions to natural resources economics.“So far as I know, this is the first attempt to apply economic theory to this particular problem of conservation.” (H. C. Taylor, unpublished letter to C. R. Van Hise, May 23, 1913, a reference to Gray's “Economic Possibilities of Conservation”).     

Welfare cost of eutrophication-caused production losses: A case of aquaculture in Lake Kasumigaura

A general model for man's utilization of water resources is presented, in which the linkage between man's production activities and environmental systems is formulated based on Whitcomb's generalized joint production model and Kneese's transfer function. The general model is specified for a particular case of aquaculture in Lake Kasumigaura so as to evaluate in terms of the price data of 1978 the welfare cost of eutrophication-caused production losses under the assumption of horizontal demand curve.     

Optimal investment policies with exhaustible resources: An information-based model

An information-based model of the “optimal control” type is developed using concepts from information theory to explore the dynamics of fossil resource exhaustion and the phenomenon of substitution by other forms of capital and technological knowledge. All exhaustible resources stocks and forms of capital (and knowledge) are taken to be equivalent to forms of information in the physical sense. It is shown that, with optimal policies, the planning period, or cycle, has several distinct phases, with different optimal investment patterns. The model has two important qualitative implications: (1) economic growth rates are inherently discontinuous and (2) the model predicts an evolutionary structural change, viz., the creation of a new sector in response to the progressive exhaustion (or obsolescence) of previously essential resources or capital stocks. A multiperiod extension is suggested, leading to a tentative explanation for the Kondratieff long-wave phenomenon.     

Cybernetic formulation of control in ecosystems

Hierarchical control formulations are given for a simple predator-prey model: self-optimization of one subsystem, natural multi-goal optimization, man's multiparameter control of an ecosystem and man's control of a self-optimizing ecosystem. Natural multigoal optimization suggests how several levels of an ecosystem can be optimized simultaneously. The idea of management of a self-optimizing ecosystem takes into account the reactions of the ecosystem to man's activity.     

A political economy model of implementing pollution laws

A model of the implementation process as applied in pollution control is developed. It differs from previous bureaucracy models in that it subjects the control agency to pressures from both firms and procontrol citizen groups. Each of these three actors maximizes utility over environmental quality and some other variable. Environmental quality may be in the actor's preference function or it may represent derived demand. Working through the agency budget and other policy variables, each actor constrains another actor's attempts to move policy in preferred directions. This results in movement toward a concensus environmental quality, not necessarily the efficient quality. Several institutional changes are analyzed to demonstrate the workings of the model.     

Simulating fish production using exponential smoothing

The variation over time of the total annual production of pe and the United Kingdom has been described quantitatively using the exponential smoothing technique. The exercise was repeated on annual mackerel landings for the same two countries. It is suggested that in some cases, the production figure for the current year can be used to simulate the following year's value. The greater variations in South Africa's annual production probably gave rise to the poorer results for these data.     

Nonseparability and the voluntary approach to externality problems

Ronald Coase asserted that voluntary two-party bargaining with zero transaction costs results in an optimal resource allocation, which is invariant with respect to the liability rule. It has been argued that nonseparabilities destroy the validity of Coase's theorem. In this paper it is shown that this criticism is based on implausible assumptions about the externality-receivers adjustment to the externality level.