Effluent taxation in monopoly markets

This article derives an optimal effluent tax for monopoly markets following the methodology of Asch and Seneca [J. Environ. Econ. Manag.3, 69–79 (1976)].     

Noninformative trends in natural resource commodity prices: U-shaped price paths exonerated

M. J. Mueller and D. R. Gorin (J. Environ. Econ. Manag.12, 83–89 (1985)) claim that the U-shaped price paths found in M. E. Slade (J. Environ. Econ. Manag.9, 122–137 (1982a)) result from a misspecification and disappear when the equation is properly specified. To produce their result, they rely on a radical shift in technology that is claimed to have occurred in 1920. There is, however, no evidence of a technology shift in that year. Instead, a gradual adoption of new mining techniques beginning in 1904 is seen. In addition to this misspecification, they incorrectly locate other exogenous influences such as wars and recessions. When corrections are made, a radically different picture emerges. With the new equation, the U-shaped price pattern persists, and the only exogenous influence that is consistently insignificant is the technology shift.     

Losses from effluent taxes and quotas under uncertainty

Recent theoretical papers by Adar and Griffin (J. Environ. Econ. Manag.3, 178–188 (1976)), Fishelson (J. Environ. Econ. Manag.3, 189–197 (1976)), and Weitzman (Rev. Econ. Studies41, 477–491 (1974)) show that,different expected social losses arise from using effluent taxes and quotas as alternative control instruments when marginal control costs are uncertain. Key assumptions in these analyses are linear marginal cost and benefit functions and an additive error for the marginal cost function (to reflect uncertainty). In this paper, empirically derived nonlinear functions and more realistic multiplicative error terms are used to estimate expected control and damage costs and to identify (empirically) the mix of control instruments that minimizes expected losses.     

Modeling the supply of wastepaper

Utilizing a price expectations model of wastepaper supplies Edwards [J. Environ. Econ. Manag.6, 332–334 (1979)] claims to be able to explain certain anomalies in earlier empirical work while reaffirming the view that wastepaper supply is generally price inelastic. This paper presents evidence to show that the price expectations model does not offer an adequate explanation of the state of affairs in the U.K. wastepaper market. The low price elasticity of supply findings are, however, confirmed.     

The empirical properties of two classes of designs for transferable discharge permit markets

Previous work by Atkinson and Lewis (J. Environ. Econ. Manag.1, 237–250 (1974)) and Anderson et al. (“An Analysis of Alternative Policies for Attaining and Maintaining a Short-Term NO₂ Standard,” MATHTECH, Inc., Princeton, N.J., 1979) has indicated the tremendous cost advantages to be achieved by moving from a policy based on emission standards to one based on marketable emission permits. As Tietenberg (Land Econ.56, 391–416 (1980)) points out, however, neither of the major permit designs treated in the literature are optimal from all points of view. This has triggered a search for alternative permit designs, which, while they may not minimize compliance costs, have sufficient other virtues as to make them attractive on other grounds. The purpose of this paper is to examine, within the context of an empirical mathematical programming model, the air quality, emission, and cost consequences of two classes of the permit designs which can be implemented in the absence of information on control costs. This case study involves particulate control in St. Louis.     

Public mosquito abatement

One can say very little about the relative merits of temporary versus permanent salt marsh mosquito control from the Carlson and DeBord study (J. Environ. Econ. Manag. 3, 142–153 (1976)). Their conclusion that temporary control is more cost effective than permanent control is suspect because of their interpretation and use of the data which entered their analyses and because of their interpretation of analytical results.     

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.     

Secondary materials and international trade: A comment on the domestic market

Concentrating on wastepaper, Grace et al. [J. Environ. Econ. Manag. 5, 172–186 (1978)] have argued that international trade in secondary materials can effectively help to stabilize their prices. In their modeling, however, they erroneously assume that pulp sets the upper bound for the price of wastepaper. This paper presents evidence to the contrary. Pulp contracts are typically long term, so wastepaper is frequently an input of last resort. The wastepaper price can therefore easily exceed the price pulp when output demand is high. A geometric model is presented to formalize this explanation, and it is argued from there that the increased stability offered by trade is more significant than suggested by Grace et al.     

Reserve and land prices with exploration under uncertainty

Arrow and Chang (J. Econom. Environ. Manag.9, 1–10 (1982) analyze an exploration-extraction model with uncertainty about the distribution of deposits. Reserve prices do not exhibit any rising trend when the unexplored land area is big but, in order to know what happens when the unexplored area is smaller, “a probabilistic analysis not yet performed” (ibid. p. 10) is required. Their conjecture of a rising trend at less than the discount rate is confirmed. However, land prices can be expected to grow faster than reserve prices, which helps discriminate between Arrow and Chang's, and other rationalizations of the failure of resource prices to rise at the discount rate.     

Estimating the benefits of recreation under conditions of congestion congestion

In a recent issue of J. Environ. Econ. Manag. Wetzel showed that the standard travel cost technique will understate recreation benefits under congested conditions because changes in entry fee lead to lowered congestion levels. This comment indicates that benefit projections derived from the travel cost procedure may theoretically overstate the true value of recreation if rising income levels shift the demand curve upwards but fail to account for the contrary effect of increased congestion. The magnitude and direction of the bias that results from omission of a congestion variable is, however, indeterminate when standard econometric techniques are used to develop benefit projections.     

Budget-Balancing Incentive Mechanisms

A. P. Xepapadeas [J. Environ. Econom. Management20, 113-26, 1991] developed a pollution abatement incentive mechanism that both reduces the information requirements of a regulator and is "budget-balancing," drawing only on the social gains from pollution abatement to encourage firm compliance. This paper demonstrates that, contrary to Xepapadeas, the budget-balancing system of random penalties cannot be used to induce compliance with the regulator′s objectives if firms are risk neutral. However, the mechanism can be successfully applied if firms are sufficiently risk averse [E. Rasmusen, RAND J. Econom.18, 428-435, 1987].     

Firm incentives to promote technological change in pollution control: Reply

Our paper (Firm incentives to promote technological change in pollution control, J. Environ. Econom. Management 17, 247–265 (1989)) concluded that firms will most actively search for new abatement technology under taxes and auctioned permits. However, Marin (Firm incentives to promote technological change in pollution control: Comment, J. Environ. Econom. Management, 21, 297–300 (1991)) argues that we overstated the efficacy of auctioned permits: that we used an unrealistic assumption which might affect our findings; that auctions may misallocate permits and are administratively burdensome; and that innovation detection is difficult under this regime. Here we show that our results are largely unchanged when the assumption questioned by Marin is relaxed. We also argue that he overstates the other concerns.     

Spatial economic theory of pollution control: Reflections on a paradox

In their analyses of the impact of pollution taxation on the location of polluting decisions, U. K. Mathur (J. Environ. Econom. Management 3, 16–28 (1976)) and S. S. Gokturk (J. Reg. Sci. 19, 461–467 (1979)) obtained the result that a tax increase on urban pollution concentration may not succeed in pushing the polluting firm away from the urban center. In this paper is shown that the sufficient condition for success in this case depends upon the specification of the production and pollution emissions technology and may be the opposite to the one posited by Mathur and has more intuitive appeal.     

Trade and Transboundary Pollution: Spatial Separation Reconsidered

Copeland and Taylor (1999, J. Int. Econ.47, 137–168) show that trade allows the spatial separation of two incompatible industries. Concentrating the polluting industry in one country eliminates its degenerative effects in the other. This paper extends the analysis by allowing for transboundary pollution. Thus specialization has indirect repercussions on the level of pollution in the other country. We show (i) how cross-national differences in exposure to pollution emissions can generate comparative advantage and (ii) under what condition the resulting trading pattern combined with transboundary pollution can increase pollution exposure with negative effects on productivity and welfare in both countries.     

A note on option value and the expected value of consumer's surplus

In roughly contemporaneous papers, Cicchetti and Freeman (Quart. J. Econ., 1971) and Schmalensee (Amer. Econ. Rev., 1972) reached apparently conflicting conclusions about the sign taken by option value. Cicchetti and Freeman conclude that option value is always non-negative. Schmalensee concludes that option value may be either positive or negative, depending upon the circumstances. This paper reconciles these seemingly contradictory conclusions. It is demonstrated that Cicchetti and Freeman's unambiguous conclusions concerning the sign of option value are the result of two special strong assumptions not imposed by Schmalensee.     

A note on the measurement of agglomeration economies with compensation for urban disamenities

The net agglomeration and disamenities approaches to the measurement of agglomeration economies are merged. The net agglomeration view is represented by a labor demand function derived from Segal (D. Segal, Rev. Econ. Stat. 48, 339–350 (1976)). The disamenities view is represented by an upward-sloping labor supply function derived from Izraeli (O. Izraeli, Urban Stud. 14, 275–290 (1977)). Three cases are simulated. Case I is the benchmark case and assumes a linear homogeneous production function, no agglomeration economies, and no perceived environmental quality differences between cities. Cases II and III combine Segal and Izraeli by introducing agglomeration economies, an upward-sloping labor supply function, and a change in the level of air pollution. The results demonstrate the feasibility of isolating the output of market goods and environmental goods within a common framework.     

Pollution perception: A challenge for intergenerational equity

In this article we extend the recent literature on overlapping generations and pollution by allowing generations to perceive the level of pollution differently than the actual level of pollution. We call this pollution perception. Pollution perception can visualize itself as either a concern for the flow of pollution only, or for the stock, or a combination of both. We derive this extension based on empirical evidence from recent advances in behavioural economics.Pollution perception has not only significant consequences for the steady state levels of pollution and capital, but we also find a qualitative change in the dynamics from similar models without pollution perception [A. John, R. Pecchenino, An overlapping generations model of growth and the environment, Econ. J. 104 (1994) 1393–1410]. Specifically, we derive optimal non-linear dynamics through complex eigenvalues and Hopf or Flip bifurcations for a large set of parameters. This leads to violations of two standard criteria of sustainability, suggesting that pollution perception can be another source of intergenerational inequity.     

Reply to the EFSA (2016) on the relevance of recent publications (Hofmann et al. 2014, 2016) on environmental risk assessment and management of Bt-maize events (MON810, Bt11 and 1507)

In this commentary, we respond to a report of the EFSA GMO Panel (EFSA EFSA Supp Publ, 1) that criticises the outcomes of two studies published in this journal (Hofmann et al. Environ Sci Eur 26: 24, 2; Environ Sci Eur 28: 14, 3). Both publications relate to the environmental risk assessment and management of Bt-maize, including maize events MON810, Bt11 and maize 1507. The results of Hofmann et al. (Environ Sci Eur 26: 24, 2), using standardised pollen mass filter deposition measurements, indicated that the EFSA Panel model had underestimated pollen deposition and, hence, exposure of non-target organisms to Bt-maize pollen. The results implied a need for safety buffer distances in the kilometre range for protected nature reserve areas instead of the 20–30 m range recommended by the EFSA Panel. As a result, the EFSA Panel revised their model (EFSA EFSA J 13: 4127, 4), adopting the slope of the empirical data from Hofmann et al. The intercept, however, was substantially reduced to less than 1% at one point by introducing further assumptions based on the estimates of mainly panel members, citing possible ‘uncertainty’. Hofmann et al. (Environ Sci Eur 28: 14, 3) published extensive empirical data regarding pollen deposition on leaves. These results were part of a larger 3-year study involving detailed measurements of pollen release, dispersal and deposition over the maize flowering period. The data collected in situ confirmed the previous predictions of Hofmann et al. (Environ Sci Eur 26: 24, 2). Mean levels and observed variability of pollen deposition on maize and four lepidopteran host plants exceeded the assumptions and disagreed with the conclusions of the EFSA Panel. The EFSA Panel reacted in a report (EFSA EFSA Supp Publ, 1) criticising the methods and outcomes of the two published studies of Hofmann et al. while reaffirming their original recommendations. We respond here point-by-point, showing that the critique is not justified. Based on our results on Urtica leaf pollen density, we confirm the need for specific environmental impact assessments for Bt-maize cultivation with respect to protected habitats within isolation buffer distances in the kilometre range.     

Transitional politics: emerging incentive-based instruments in environmental regulation

This paper proposes a positive theory of environmental instrument choice. We study a democratic society that seeks to lower the level of pollution from industrial sources to a pre-specified target. The target can be implemented by one of three instruments: [S]: uniform emission standards; [P]: tradeable permits; and [T]: emission taxes. The conflict of interest between special-interests, representing polluters, and the electorate is resolved by an elected politician. We characterize when each of the three policy instruments is chosen in political equilibrium and show that the transition, observed in many countries, from [S] to either [P] or [T] can be understood as a natural consequence of increasingly ambitious environmental targets.     

Sellers' Hedging Incentives at EPA's Emission Trading Auction

Cason (1993, J. Environ. Econom. Management25, 177–195, doi:10.1006/jeem 1993.1041) argued that the auction which the EPA used in order to start the market for sulfur allowances may reduce the efficiency of the market since it gives sellers an incentive to understate their valuation. In this paper we show that the sellers' incentives are even more perverse than Cason suggested when we take into account that sellers can also submit a bid. We show that sellers have an incentive to set their asking price equal to 0 while simultaneously hedging their bets by submitting a positive bid.