An infinite-horizon model of dynamic membership of international environmental agreements

Much of the literature on international environmental agreements (IEAs) uses static models, although most important transboundary pollution problems involve stock pollutants. The few papers that study IEAs using models of stock pollutants do not allow for the possibility that membership of the IEA may change endogenously over time. In this paper we analyse a simple infinite-horizon version of the static model of self-enforcing IEAs, in which damage costs increase with the stock of pollution, and countries decide each period whether to join an IEA. Using a quadratic approximation of the value function of the representative country we show that there exists a steady-state stock of pollution with corresponding steady-state IEA membership, and that as the stock rises towards steady state the IEA membership falls. Moreover, we find that the greater is the cost of damage, and hence the greater are the potential gains from cooperation, the smaller is the membership of a self-enforcing IEA.     

Hartwick's rule and maximin paths when the exhaustible resource has an amenity value

This paper studies the maximin paths of the canonical Dasgupta–Heal–Solow model when the stock of natural capital is a direct argument of well-being, besides consumption. Hartwick's rule then appears as an efficient tool to characterize solutions in a variety of settings. We start with the case without technical progress. We obtain an explicit solution of the maximin problem in the case where production and utility are Cobb–Douglas. When the utility function is CES with a low elasticity of substitution between consumption and natural capital, we show that it is optimal to preserve forever a critical level of natural capital, determined endogeneously. We then study how technical progress affects the optimal maximin paths, in the Cobb–Douglas utility case. On the long run path of the economy capital, production and consumption grow at a common constant rate, while the resource stock decreases at a constant rate and is therefore completely depleted in the very long run. A higher amenity value of the resource stock leads to faster economic growth, but to a lower long run rate of depletion. We then develop a complete analysis of the dynamics of the maximin problem when the sole source of well-being is consumption, and provide a numerical resolution of the model with resource amenity. The economy consumes, produces and invests less in the short run if the resource has an amenity value than if it does not, whereas it is the contrary in the medium and long runs. However, and without surprise, the resource stock remains for ever higher with resource amenity than without.     

Thin versus Thick CO2 Market

The idea that trading is more costly the thinner the market is is common in most studies of market exchange with frictions. Surprisingly, this element is lacking from previous attempts to allow for frictions in pollution permit markets. This paper considers a CO₂ cap-and-trade model where trading costs develop endogenously as a function of the market size. The pre-trade allocation of permits determines whether the market size can be strongly influenced by expectations that have a role because of adjustment costs. The pre-trade allocation also sets preconditions for endogenously vanishing trading costs and thus has nonstandard effects on long-run trading levels and market allocations.     

Optimal energy use in a polluted environment

Some of the basic issues involved in the optimal intertemporal use of energy resources when there are environmental spillovers are examined at a macroeconomic level and in a world of certainty. Several scenarios are considered with varying assumptions concerning the depletability of the energy resource stock and the nature of pollution production. In particular, with an accumulating form of pollution it is shown that initially the energy resource should be used more slowly to reduce environmental damage and over the plan the rate of use should be increased—a counter-Hotellian result.     

Spatial effects and strategic behavior in a multiregional transboundary pollution dynamic game

We analyze a transboundary pollution differential game where pollution control is spatially distributed among a number of agents with predetermined spatial relationships. The analysis emphasizes, first, the effects of the different geographical relationships among decision makers; and second, the strategic behaviour of the agents. The dynamic game considers a pollution stock (the state variable) distributed among one large region divided in subregions which control their own emissions of pollutants. The emissions are also represented as distributed variables. The dynamics of the pollution stock is defined by a parabolic partial differential equation. We numerically characterize the feedback Nash equilibrium of a discrete-space model that still captures the spatial interactions among agents. We evaluate the impact of the strategic and spatially dynamic behaviour of the agents on the design of equilibrium environmental policies.     

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.     

Interactive pollutants and joint abatement costs: Achieving water quality standards with effluent charges

This paper extends earlier work on the standards and prices approach to pollution control by considering simultaneously spatial considerations, interactive pollutants, and joint abatement costs. The form of environmental constraints appropriate to water pollution problems is discussed in detail and the implications for the standards and prices approach to water pollution control are assessed. The presence of interactive pollutants and joint abatement costs is shown to have important implications for both the theoretical properties and the implementation of the standards and prices approach.     

Optimal investment in pollution control capital in a neoclassical growth context

A neoclassical growth model is employed to study the optimal division of investment between pollution control capital and directly productive capital while simultaneously treating the saving rate as a policy variable to be varied to the optimal. The model treats pollution as a flow positively related to aggregate output, negatively related to the stock of pollution control capital, and having a negative effect on utility. Under the assumptions chosen, the optimal policy is an unbalanced one of specializing investment first in directly productive capital and subsequently in pollution control capital.     

Adjustment costs from environmental change

The paper is concerned with the case whereby the distribution of a firm's productivity shocks changes without the knowledge of the firm. Over time the firm learns about the nature and extent of the change in the distribution of the shock and adjusts, incurring adjustment costs in the process. The long-run loss in profits (±) due to the shift in the distribution we term the equilibrium response. The transitory loss in profits, incurred while the firm is learning about the distribution shift, is termed the adjustment cost. The theory is then applied to the problem of measuring adjustment costs in the face of imperfectly observed climate change in agriculture. The empirical part of the paper involves estimating a restricted profit function for agricultural land in a five-state region of the Midwest US as a function of prices, land characteristics, actual weather realizations and expected weather. We then simulate the effect of an unobserved climate shock, where learning about the climate shock is by observing the weather and updating prior knowledge using Bayes Rule. We find adjustment costs to climate change are 1.4% of annual land rents.     

An anatomy of a groundwater contamination episode

Using the contamination episode at Price Landfill, New Jersey, as a case study, major analytical and informational issues characterizing groundwater pollution, with special emphasis on uncertainty associated with the environmental medium, especially solute-transport processes, and the valuation of health risks, principally dose-response relationships, are addressed. Alternative approaches to modeling the physical-chemical processes are described and subsequently coupled with mortality risk predictions to derive estimates of expected pollution costs: reduced longevity (pollution damage costs) and cost of control and remedial measures (damage reduction costs).     

水污染对扬州市水资源存量的影响评价

将水资源分成水资源的流量和存量两部分，估算了扬州市的水资源存量，提出了评价水污染对水资源存量影响的评价方法，并利用这种方法对扬州市水污染对水资源存量的影响进行了评价，得出了扬州市的水资源存量不足，而水污染又对水资源存量产生了较大的影响的结论。     

Averting expenditure and the cost of pollution

The paper considers the relationship between the willingness to pay for environmental quality and averting expenditures—that is, the costs of measures undertaken in efforts to counteract the consequences of pollution. The models used assume perfect mobility among locations with different levels of environmental quality. The major results are: (1) Averting expenditures are not in general a good measure of willingness to pay; (2) averting expenditures are not always even a lower bound on willingness to pay; (3) even when averting expenditures are a lower bound, the difference between the level of such expenditures and willingness to pay cannot be attributed to the unavertible “aesthetic” consequences of pollution.     

Pollution Taxes and Pollution Abatement in an Oligopoly Supergame

This paper investigates the effects of an emissions tax on the incentives for oligopolists to acquire alternative pollution abatement technologies. The analysis is conducted in terms of a repeated game and it is demonstrated that there are circumstances in which the firms may reject the option of acquiring the pollution abatement equipment, even when this lowers their production costs.     

Fissioning minimizes ranging costs in spider monkeys: a multiple-level approach

The adjustment to deal with intragroup food competition is probably the most plausible explanation of high levels of fission–fusion dynamics. However, studies did not always support expected relations between food availability, ranging costs, and subgroup size. We used several levels of analysis differing in the time and spatial scale in order to investigate this explanation in spider monkeys. In our study, subgroups were larger when food availability was higher across most levels of analyses used. We also found a fine-scale adjustment: compared to the food patch previously visited, spider monkeys traveled to larger patches just after fusions. This was not without an immediate travel cost: the interpatch distance and travel time after a fusion were longer than that before the fusion. This rapid adjustment shows the flexibility that fission–fusion dynamics can offer. Spider monkeys are in large subgroups only when food conditions are favorable, as evidenced by the fact that at all the other time-scale levels larger subgroups did not experience greater ranging costs than smaller subgroups. Our results indicate that on the whole spider monkeys successfully minimize ranging costs by fission and fusion of subgroups.     

Dynamic adjustment to land taxation policy: Neutrality and welfare implications

In this paper we use a dynamic three sector model to examine the neutrality and welfare effects of land income taxes. We find that (1) taxes that are neutral in long run equilibrium need not be neutral in the short run; (2) short run neutrality depends upon the tax treatment of development costs and losses; and (3) many of the neutrality results hold under both static and rational expectations assumptions. We also find that, even without externality assumptions, nonneutrality in the short run does not necessarily entail a welfare cost and may be welfare-enhancing when agents have less-than-perfect foresight.     

Estimation of the cost of air pollution control regulation

Estimates of hydrocarbon pollution control costs under the alternative regulatory approaches of individual source or process standards, plant standards, and regionally marketable permits are presented. The estimates are obtained from data supplied by the DuPont Company based on a 1976 in-house engineering study. The estimation procedure is unique in that the data are based on uniform percentage control across sources while the estimated cost equations allow variable control at each source. The cost simulations show that considerable cost savings are available from allowing firms more flexibility in meeting a given environmental standard. The effect of plant relocation and monopoly in the pollution permit market are also investigated.     

Environmental policy and human capital inequality: A matter of life and death

This paper analyzes the economic implications of an environmental policy when we account for the life expectancy of heterogeneous agents. In a framework in which everyone suffers from pollution but health status also depends on individual human capital, we find that the economy may be stuck in a trap in which inequality rises steadily, especially when the initial pollution intensity of production is too high. We emphasize that such inequality is in the long run costly for the economy in terms of health and growth. Therefore, we study whether a tax on pollution associated with an investment in pollution abatement can be used to address this situation. We show that a stricter environmental policy may allow the economy to escape from the inequality trap while enhancing the long-term growth rate when the initial inequality in human capital is not too large.     

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.     

System engineering for water pollution control at the watershed level in China

The present water pollution situation at watershed level in China has been systematically analyzed. The causes of water pollution are attributed to the extensive economic developmental pattern, poor wastewater treatment, and a lack of nonpoint pollution control. The problems of water pollution control at watershed level include a lack of thought and approach, developmental delay in the environmental standard system, an inadequate monitoring ability, and an inefficient implementation of laws and regulations. From 2006 to 2020, water pollution control and governance will be a national key specific project of science and technology in China. The strategies of this project include establishing a water pollution control system at watershed level, orienting a healthy aquatic ecosystem, conducting risk management, and using comprehensive methods. The goal is to establish and complete a technological system of pollution control and management in three five-year phases. The main tasks are to develop common technologies, management systems, and mechanisms for lake eutrophication control, river pollution control, urban water environmental pollution control, potable water safety, and water environmental management. The bottlenecks of water pollution control and management in China could be systematically removed, and the demonstration of the system engineering approach will be conducted at selected key watersheds.     

Models-as-usual for unusual risks? On the value of catastrophic climate change

We study the role of intertemporal preference representations in a model of economic growth, stock pollutant and endogenous risk of catastrophic collapse. We contrast two polar instances of risk-sensitive preferences: the traditional “discounted utility” model, which imposes a positive rate of pure time preference and risk neutrality with respect to intertemporal utility, and multiplicatively separable preferences, which display risk aversion in that dimension but no pure time preferences. We show that both representations of preferences can rationalize the same economy when there is no collapse risk associated with pollution. Once we introduce a collapse risk whose hazard rate depends on the pollution stock, multiplicatively separable preferences are associated with a much higher value of catastrophic risk reduction, and a more stringent policy response. A relatively high discount rate may thus be compatible with large emissions abatement in the face of a low probability large impact event, reflecting preferences for catastrophic risk reduction.