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.     

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.     

Environmental solutions sparked by environmental history

Environmental solutions require a decision-making process that is ultimately political, in that they involve decisions with uncertain outcomes and stakeholders with conflicting viewpoints. If this process seeks broad alignment between the government and public, then reconciling conflicting viewpoints is a key to the legitimacy of these decisions. We show that ecological baselines can be particularly powerful tools for creating a common understanding for public support (legitimacy) and conformity to new rules or regulations (legality) that enable the solution. They are powerful because they move the discussion of solutions from the abstract to the concrete by providing a conceptual model for a common expectation (e.g., restoring habitat). They provide narratives of the past (ecological histories) that readjust the future expectations of individuals on how to perceive and respond to new policy. While ecological baselines offer scientists benchmarks for reinstating ecological functions, they also normalize public and government discussion of solutions. This social normalization of public issues may assist government policy and influence social views, practices, and behaviors that adopt the policy. For science to more effectively inform conservation, we encourage interdisciplinary thinking (science- and human-centered) because it can provide public support and government legitimacy for investing in environmental solutions.     

Announcing climate policy: Can a green paradox arise without scarcity?

Unintended consequences of a pre-announced climate policy are studied within a framework that allows for competition between polluting and clean energy sources. We show that early announcement of a carbon tax gives rise to a “green-paradox,” in that it increases emissions in the interim period (between announcement and actual implementation), irrespective of the scarcity of fossil fuels. The paradoxical outcome is driven by consumption-saving tradeoffs facing households who seek to smooth consumption over time and holds both when the announced implementation date is taken as a credible threat and when households are skeptical about the (political) will or capability of the government to implement the policy as announced.     

Announcing climate policy: Can a green paradox arise without scarcity?

Unintended consequences of a pre-announced climate policy are studied within a framework that allows for competition between polluting and clean energy sources. We show that early announcement of a carbon tax gives rise to a “green-paradox,” in that it increases emissions in the interim period (between announcement and actual implementation), irrespective of the scarcity of fossil fuels. The paradoxical outcome is driven by consumption-saving tradeoffs facing households who seek to smooth consumption over time and holds both when the announced implementation date is taken as a credible threat and when households are skeptical about the (political) will or capability of the government to implement the policy as announced.     

The Complex Links between Governance and Biodiversity

Abstract:  We argue that two problems weaken the claims of those who link corruption and the exploitation of natural resources. The first is conceptual and the second is methodological. Studies that use national-level indicators of corruption fail to note that corruption comes in many forms, at multiple levels, that may affect resource use quite differently: negatively, positively, or not at all. Without a clear causal model of the mechanism by which corruption affects resources, one should treat with caution any estimated relationship between corruption and the state of natural resources. Simple, atheoretical models linking corruption measures and natural resource use typically do not account for other important control variables pivotal to the relationship between humans and natural resources. By way of illustration of these two general concerns, we used statistical methods to demonstrate that the findings of a recent, well-known study that posits a link between corruption and decreases in forests and elephants are not robust to simple conceptual and methodological refinements. In particular, once we controlled for a few plausible anthropogenic and biophysical conditioning factors, estimated the effects in changes rather than levels so as not to confound cross-sectional and longitudinal variation, and incorporated additional observations from the same data sources, corruption levels no longer had any explanatory power.     

Enforcing the Clean Water Act: The effect of state-level corruption on compliance

This paper uses an event study to examine the transition from federal to state management of the Clean Water Act (CWA). I find that, overall, the transition from federal to state control has little effect on facility compliance, measured by the violation rate. However, states with a long run prevalence of corruption see a large decrease in the violation rate after authorization relative to states without corruption. Alternative specifications support these findings. I explore whether the response to transition to state control differs across political ideology, GDP and income per capita, government size, environmental preferences and government management performance. None of these alternative state level characteristics seem to account for the observed difference.     

Political influence on non-cooperative international climate policy

We analyze non-cooperative international climate policy in a setting of political competition by national interest groups. In the first stage, countries decide whether to link their domestic emission permit markets to an international market, which only forms if it is supported by all countries. In the second stage, countries non-cooperatively decide on the number of tradable emission allowances. In both stages, special interest groups try to sway the government in their favor. We find that (i) both the choice of regime and the levels of domestic and global emissions only depend on the aggregate levels of organized stakes in all countries and not on their distribution among individual interest groups and (ii) an increase in lobbying influence by a particular lobby group may backfire by inducing a change towards the lobby group's less preferred regime.     

Five challenges to reconcile agricultural land use and forest ecosystem services in Southeast Asia

Southeast Asia possesses the highest rates of tropical deforestation globally and exceptional levels of species richness and endemism. Many countries in the region are also recognized for their food insecurity and poverty, making the reconciliation of agricultural production and forest conservation a particular priority. This reconciliation requires recognition of the trade‐offs between competing land‐use values and the subsequent incorporation of this information into policy making. To date, such reconciliation has been relatively unsuccessful across much of Southeast Asia. We propose an ecosystem services (ES) value‐internalization framework that identifies the key challenges to such reconciliation. These challenges include lack of accessible ES valuation techniques; limited knowledge of the links between forests, food security, and human well‐being; weak demand and political will for the integration of ES in economic activities and environmental regulation; a disconnect between decision makers and ES valuation; and lack of transparent discussion platforms where stakeholders can work toward consensus on negotiated land‐use management decisions. Key research priorities to overcome these challenges are developing easy‐to‐use ES valuation techniques; quantifying links between forests and well‐being that go beyond economic values; understanding factors that prevent the incorporation of ES into markets, regulations, and environmental certification schemes; understanding how to integrate ES valuation into policy making processes, and determining how to reduce corruption and power plays in land‐use planning processes.     

An Economic Assessment of Wildlife Farming and Conservation

Abstract:  The supply-side approach to conservation, as recommended by economists, prescribes the provision of cheap substitutes for wildlife commodities in an effort to lower the price of such commodities and reduce harvesting pressure. We developed a theoretical economic model to examine whether wildlife farming or ranching indeed contributes to conservation. We first present the naïve economic model that lends support to the supply-side approach. This model is incomplete because it fails to capture the fact that most wildlife markets are not perfectly competitive (instead, models are characterized by a small number of suppliers who have a certain degree of market power), which also implies that it fails to incorporate strategic interaction between suppliers. We then present an alternative model of the (illegal) wildlife trade that reflects imperfect competition and strategic interaction, and demonstrate that wildlife farming may stimulate harvesting (or poaching) rather than discourage it. By applying the model to the case of rhinoceros poaching and ranching, we demonstrate the potentially ambiguous outcomes of rhinoceros-ranching initiatives—wild rhinoceros stocks may recover or suffer from additional depletion, depending on key parameters and the type of competition on output markets. We also show that this type of ambiguity may be eliminated when policy makers restrict quantities of farmed output through a quota system; in that case, introducing wildlife farming will unambiguously promote conservation. In the absence of such accompanying regulation, however, policy makers should be careful when stimulating wildlife farming and be aware of potentially adverse consequences.     

Strategic pollution control and capital tax competition

In an analytical model of symmetric countries with mobile capital and local or transboundary pollution we investigate whether competition in emissions taxes (or emissions caps) and capital taxes leads to efficient outcomes when governments act strategically. When they have capital taxes and emissions caps at their disposal, they refrain from taxing capital and set their caps inefficiently lax [efficient] for transboundary [local] pollution. When they have the option to tax capital and emissions, capital is subsidized [untaxed] and emissions taxes are inefficiently low [efficient] for transboundary [local] pollution. In case of transboundary pollution emissions caps are Pareto-superior to emissions taxes. That holds regardless of whether the environmental policy is applied as stand-alone policy or combined with capital tax competition.     

Corruption and forest concessions

We examine how corruption impacts a central government's application of concession policy instruments consisting of royalty rates, concession size, environmentally sensitive logging levels, and enforcement. Harvesters have incentives to illegally log by taking more volume than is allowed, high grading through removal of only the highest valued and best formed trees, and shirking environmentally sensitive logging requirements, all of which reduce public goods produced from native tropical forests. Corruption is introduced through logging inspectors who can be bribed by harvesters to avoid fines associated with illegal logging. Both the theory and a simulation are used to compare policy design under corruption and no corruption.     

Prospects for Reconciling the Conflict between Economic Growth and Biodiversity Conservation with Technological Progress

Abstract: The conflict between economic growth and biodiversity conservation is understood in portions of academia and sometimes acknowledged in political circles. Nevertheless, there is not a unified response. In political and policy circles, the environmental Kuznets curve (EKC) is posited to solve the conflict between economic growth and environmental protection. In academia, however, the EKC has been deemed fallacious in macroeconomic scenarios and largely irrelevant to biodiversity. A more compelling response to the conflict is that it may be resolved with technological progress. Herein I review the conflict between economic growth and biodiversity conservation in the absence of technological progress, explore the prospects for technological progress to reconcile that conflict, and provide linguistic suggestions for describing the relationships among economic growth, technological progress, and biodiversity conservation. The conflict between economic growth and biodiversity conservation is based on the first two laws of thermodynamics and principles of ecology such as trophic levels and competitive exclusion. In this biophysical context, the human economy grows at the competitive exclusion of nonhuman species in the aggregate. Reconciling the conflict via technological progress has not occurred and is infeasible because of the tight linkage between technological progress and economic growth at current levels of technology. Surplus production in existing economic sectors is required for conducting the research and development necessary for bringing new technologies to market. Technological regimes also reflect macroeconomic goals, and if the goal is economic growth, reconciliatory technologies are less likely to be developed. As the economy grows, the loss of biodiversity may be partly mitigated with end‐use innovation that increases technical efficiency, but this type of technological progress requires policies that are unlikely if the conflict between economic growth and biodiversity conservation (and other aspects of environmental protection) is not acknowledged.     

A Note on Environmental Federalism: Interpreting Some Contradictory Results

This paper reconciles some conflicting interpretations of recent literature on interjurisdictional environmental regulatory competition.[6], [7]present a model in which competition to attract investment by lowering environmental standards leads to a Pareto-optimal equilibrium. [3]; and [4]describe a model in which such competition can result in a suboptimal Nash equilibrium. While it would be possible to draw opposite policy implications from the two models regarding the appropriate degree of environmental federalism, such a conclusion would be incorrect. This paper reconciles the different results by showing that they depend in large part on monopoly profits and tax exporting, not the nature of the pollution externality or environmental federalism.     

Accepting market failure: Cultural worldviews and the opposition to corrective environmental policies

To explore whether and why people sometimes reject environmental policies that improve individual and collective outcomes, we create an experimental market in which transactions generate a negative externality. Market participants endogenously determine whether to implement corrective policies. We consider three policy instruments (Pigouvian taxes and subsidies, and quantity regulation) and two levels of policy efficiency (full and half). We then explore how individual cultural worldviews might contribute to the rejection of policies that correct the market failure. Our results indicate that people often oppose policies that improve their material outcomes, and we find that such opposition is significantly explained by cultural worldviews. Interesting connections emerge between individual worldviews and specific policy instruments.     

Vertical fiscal externalities and the environment

We show that imposition of a state-level environmental tax in a federation crowds out pre-existing federal taxes. We explain how this vertical fiscal externality can lead unilateral state-level environmental policy to generate a welfare gain in the implementing state, at the expense of other states, even absent any environmental benefits. Using a computable general equilibrium model of the Canadian federation, we show that vertical fiscal externalities can be the major determinant of the welfare change following environmental policy implementation by a state government. Our numerical simulations indicate that – as a consequence of vertical fiscal externalities – state governments can reduce greenhouse gas emissions by over 20 percent without any net cost to themselves.     

Untangling the proximate causes and underlying drivers of deforestation and forest degradation in Myanmar

Political transitions often trigger substantial environmental changes. In particular, deforestation can result from the complex interplay among the components of a system—actors, institutions, and existing policies—adapting to new opportunities. A dynamic conceptual map of system components is particularly useful for systems in which multiple actors, each with different worldviews and motivations, may be simultaneously trying to alter different facets of the system, unaware of the impacts on other components. In Myanmar, a global biodiversity hotspot with the largest forest area in mainland Southeast Asia, ongoing political and economic reforms are likely to change the dynamics of deforestation drivers. A fundamental conceptual map of these dynamics is therefore a prerequisite for interventions to reduce deforestation. We used a system‐dynamics approach and causal‐network analysis to determine the proximate causes and underlying drivers of forest loss and degradation in Myanmar from 1995 to 2016 and to articulate the linkages among them. Proximate causes included infrastructure development, timber extraction, and agricultural expansion. These were stimulated primarily by formal agricultural, logging, mining, and hydropower concessions and economic investment and social issues relating to civil war and land tenure. Reform of land laws, the link between natural resource extraction and civil war, and the allocation of agricultural concessions will influence the extent of future forest loss and degradation in Myanmar. The causal‐network analysis identified priority areas for policy interventions, for example, creating a public registry of land‐concession holders to deter corruption in concession allocation. We recommend application of this analytical approach to other countries, particularly those undergoing political transition, to inform policy interventions to reduce forest loss and degradation.     

Pollution and Capital Markets in Developing Countries

It is said that firms in developing countries do not have incentives to invest in pollution control because of weak implementation of environmental regulations. This argument assumes that the regulator is the only agent that can create incentives for pollution control, and ignores that capital markets, if properly informed, may provide the appropriate financial and reputational incentives. We show that capital markets in Argentina, Chile, Mexico, and the Philippines do react to announcements of environmental events, such as those of superior environmental performance or citizens' complaints. A policy implication is that environmental regulators in developing countries may explicitly harness those market forces by introducing structured programs of information release pertaining to firms' environmental performance: public disclosure mechanisms in developing countries may be a useful model to consider given limited government enforcement resources.     

The Impact of Economics on Environmental Policy

Environmental economists have seen their ideas translated into the rough-and-tumble policy world for over two decades. They have witnessed the application of economic instruments to several environmental issues, including preserving wetlands, lowering lead levels, and curbing acid rain. This essay examines the impact of the rise of economics in the policy world on the making of environmental policy. I focus on two related, but distinct phenomena—the increasing interest in the use of incentive-based mechanisms, such as tradable permits, to achieve environmental goals; and the increasing interest in the use of analytical tools such as benefit–cost analysis in regulatory decision making.I argue that economists and economic instruments have had a modest impact on shaping environmental, health, and safety regulation, but that economists will play an increasingly important role in the future. Although the role of economics is becoming more prominent, it does not follow that environmental policy will become more efficient. This apparent inconsistency can be explained by the political economy of environmental policy.     

Strategic environmental policy; eco-dumping or a green strategy?

The Porter hypothesis claims that a strong environmental policy best serves the interests of a nation's export industry. While this hypothesis seems to be based on some form of bounded rationality, this paper argues that governments may have good reasons for setting an especially strong environmental policy even though firms are fully rational. If the available abatement technology turns the environment into an “inferior input”, competitiveness is spurred by a strong environmental policy. The government should take advantage of this, and set an especially strict emission quota or an especially high emission tax. The findings in the paper also has consequences for the desirability of international cooperation with respect to national environmental policy. If a strict environmental policy spurs competitiveness, the environment is better protected without cooperation.