Market design in cap and trade programs: Permit validity and compliance timing

Cap and trade programs have considerable heterogeneity in permit validity and compliance timing. For example, permits have different validities across time (e.g., banking, borrowing, and seasons) and space (e.g., zonal restrictions), and compliance timing can be annual, in overlapping cycles, or in multi-year periods. We discuss nine prominent cap and trade programs along these dimensions and construct a general model of permit validity and compliance timing. We derive sufficient conditions under which abatement is invariant to compliance timing, i.e., compliance timing cannot smooth abatement cost shocks. Under these conditions, (i) expected compliance costs are invariant, (ii) the variance of compliance costs increases with the delayed compliance, (iii) equilibrium prices may not be unique, and (iv) the delayed compliance equilibrium may rely on “degenerate” prices not determined by marginal abatement costs. We demonstrate the model's broad applicability by illustrating different types of temporal permit validity.     

Incentives and prices in an emissions trading scheme with updating

Emissions trading schemes where allocations are based on updated baseline emissions give firms less incentive to reduce emissions for a given quota (or allowance) price. Nevertheless, according to Böhringer and Lange [On the design of optimal grandfathering schemes for emission allowances, Europ. Econ. Rev. 49 (2005) 2041–2055], such allocation schemes are cost-effective if the system is closed and allocation rules are identical across firms. In this paper, we show that the cost-effective solution may be infeasible if marginal abatement costs grow too fast. Moreover, if a price cap or banking/borrowing is introduced, the abatement profile is no longer the same as in the case with an auction (or lump-sum allocation). In addition, we show that with allocation based on updated emissions, the quota price will always exceed marginal abatement costs, possibly misguiding policy makers and investors about abatement costs. Numerical simulations indicate that the quota price most likely will be several times higher than marginal abatement costs, unless a significant share of allowances is auctioned.     

Extraction capacity and the optimal order of extraction

The least-cost-first extraction rule for deposits with different extraction costs previously has been shown to be invalid in general equilibrium. This paper demonstrates that this rule also does not hold in partial equilibrium when extraction capacity is limited. Necessary and sufficient conditions for several surprising extraction orders are presented. If extraction from a high-cost resource is constrained, it may be optimal to begin extraction from a high-cost deposit (or backstop) strictly before extracting from a lower-cost deposit. If extraction from a low-cost resource is limited, it may be optimal to exhaust a high-cost deposit strictly before the low-cost deposit is exhausted or to abandon extraction temporarily from a high-cost deposit and then to exhaust it later. The analysis demonstrates how extraction constraints affect the order of extraction and shows that certain cost reversals are caused by limited extraction capacity rather than by the general equilibrium definition of extraction costs.     

Effect of decision rules in choice experiments on hunting and bushmeat trade

Providing insight on decisions to hunt and trade bushmeat can facilitate improved management interventions that typically include enforcement, alternative employment, and donation of livestock. Conservation interventions to regulate bushmeat hunting and trade have hitherto been based on assumptions of utility- (i.e., personal benefits) maximizing behavior, which influences the types of incentives designed. However, if individuals instead strive to minimize regret, interventions may be misguided. We tested support for 3 hypotheses regarding decision rules through a choice experiment in Tanzania. We estimated models based on the assumptions of random utility maximization (RUM) and pure random regret maximization (P-RRM) and combinations thereof. One of these models had an attribute-specific decision rule and another had a class-specific decision rule. The RUM model outperformed the P-RRM model, but the attribute-specific model performed better. Allowing respondents with different decision rules and preference heterogeneity within each decision rule in a class-specific model performed best, revealing that 55% of the sample used a P-RRM decision rule. Individuals using a P-RRM decision rule responded less to enforcement, salary, and livestock donation than did individuals using the RUM decision rule. Hence, 3 common strategies, enforcement, alternative income-generating activities, and providing livestock as a substitute protein, are likely less effective in changing the behavior of more than half of respondents. Only salary elicited a large (i.e. elastic) response, and only for one RUM class. Policies to regulate the bushmeat trade based solely on the assumption of individuals maximizing utility, may fail for a significant proportion of the sample. Despite the superior performance of models that allow both RUM and P-RRM decision rules there are drawbacks that must be considered before use in the Global South, where very little is known about the social–psychology of decision making.     

Restoring Natural Resources with Destination-Driven Costs

Economics typically assumes that injured natural resources are restored along a fixed path of increasing marginal costs. By contrast, many restoration efforts—such as cleaning a contaminated aquifer or replacing the sand on an oil-tarnished beach—are characterized bydestination-driven costs, which depend mainly on final quality, not the prerestoration quality. Given the resulting nonconvexities in cost, the optimal level of restoration may be a discontinuous and nonmonotonic function of post-injury quality. Regulatory rules should reflect these patterns, as should liability rules, since restoration plans and costs determine the expected cost of putting a resource at risk.     

Sex bias or equal opportunity? Patterns of maternal investment in bison

Summary In polygynous mammals, it may be adaptive for mothers to invest more in sons and/or to adjust the sex ratio of offspring in relation to body condition. Calving patterns were examined over an 8-year period (1982–1989) for a population of Bison bison in which barren females are not selectively culled. From these data, we tested predictions of the sex ratio adjustment hypothesis as well as two assumptions: (1) that offspring weight at the end of the period of parental investment (PI) is correlated with later condition, and (2) that maternal and offspring condition during the period of PI are correlated. In contrast to predictions, there was little evidence that mothers in better condition bear more sons. Short- and long-term measures of maternal condition (previous reproductive status, age, dominance status, pre-pubertal body weight, age at first reproduction, birth date, and the duration of the mother's own suckling period) were little related to offspring sex ratio, although the last calves of old females were nearly always female. Similarly, there was little evidence for sex-biased PI. Weights at about 7 months of age were greater for males than females; males also had somewhat later birth dates, suggesting either longer gestation or later conception. However, maternal reproductive costs, as measured by subsequent fecundity, weight loss, and interbirth intervals, did not vary with calf sex. Both assumptions of the model received some support. However, while maternal condition was correlated with offspring condition, there may be sex differences in investment patterns. Mothers appear better able to influence the condition of daughters than of sons. This sex difference may negate any benefit from male-biased investment.     

The value of time in recreation benefit studies

This paper examines the role of time costs—both on-site and travel—in models describing recreation behavior, and draws implications for the travel-cost approach to recreation site benefit estimation. The analysis shows that both recreation and travel time are costly. The latter can be valued in terms of its scarcity value, but the former may be most appropriately valued in terms of the “alue of travel time saved.” Although there are cases in which on-site time costs need not be explicitly considered in recreation benefit models, it is not clear such cases are the rule rather than the exception. Suggestions are made for measuring on-site and travel time costs.     

Male mating history: effects on female sexual responsiveness and reproductive success in the parasitoid wasp Spalangia endius

Males frequently mate multiply, but are there negative fitness consequences for their later mates? Potential costs include less sperm and less nutrition. In most hymenopterans, daughters, but not sons, are produced sexually. This mean that effects of being a later mate on sperm received versus on nutrients received should be distinguishable. If later mates receive less sperm, it should manifest as a reduction in daughter production, whereas a reduction in nutrients should affect production of both sexes. Any cost to being a later mate may in turn select for polyandry or for female choice of virgin males. Males of the parasitoid wasp Spalangia endius were presented with up to five females in succession. Offspring production was compared among first, third, and fifth females; and it did not differ. However, about half of fifth females had begun producing only sons by their tenth day, whereas first and third females rarely had. Despite the reduction in daughter production, even fifth females rarely remated. However, females tended to mate with virgin males rather than mated males when given a choice. This tendency was dependent on male, not female, behavior, but should benefit the female nevertheless. Sex ratios in this species are one male for every one and a half to three females. Thus, the number of times that males could mate before daughter production was reduced coincided roughly with the mean number of times that males likely mate in this species. Nevertheless, some females are likely to experience the cost of being a fifth female because of skewed mating success among males.     

Public Technological Aid to Support Compliance to Environmental Standards

Public aid to encourage the adoption of superior emissions-control technologies is combined with monitoring to achieve a predetermined level of compliance to firm-specific abatement standards. Technological aid serves as an indirect enforcement tool in the sense that its provision reduces the direct enforcement effort necessary to reach the compliance goal. Furthermore, when direct enforcement effort and technological aid are combined to minimize the costs of reaching the compliance goal, more aid should be provided when direct enforcement effort is expensive. As a consequence, regulated firms adopt better control technologies, which, in turn, may serve to promote further innovative activity.     

Market equilibrium and welfare effects of a fuel tax in China: The impact of consumers' response through driving patterns

We investigate the market equilibrium and welfare effects of a fuel tax in China relative to an alternative policy instrument that rations the number of new automobile sales through auctioned quotas. Unlike those of previous studies, our modeling approach incorporates both household car purchase and utilization decisions, the latter of which have been ignored in previous studies on China's fuel tax. Ignoring this margin of choice will underestimate the fuel tax's ability to mitigate externalities. Using detailed household-level panel data and a fixed effects econometric specification, we estimate the fuel price elasticity of vehicle miles traveled is −0.59 on average. The results of the counterfactual analysis suggest that a 51% increase in tax-inclusive gasoline prices will reduce car sales by 24.9% but increase social welfare to a degree that depends on vehicles' lifetime. We find that compared to auctioned quotas, the fuel tax results in greater car sales but higher social welfare.     

Estimating the direct and indirect impact of typhoons on plant performance: Evidence from Chinese manufacturers

We quantify the impact of typhoons on manufacturing plants in China. To this end we construct a panel data set of precisely geo-located plants and a plant-level measure of typhoon damage derived from storm track data and a wind field model. Our econometric results reveal that the impact on plant sales can be considerable, although the effects are relatively short-lived. Annual total costs to Chinese plants from typhoons are estimated to be in the range of US$ 3.2 billion (2017 prices), or about 1 per cent of average turnover. When we examine the channels by which plants react to a storm event we find that there is some buffering through an increase in debt and a reduction in liquidity. In terms of propagating the shock through foreign or domestic channels, our estimates suggest that plants prefer to reduce sales to domestic buyers more than foreign buyers and purchases from foreign rather than domestic suppliers. We also find some evidence of a negative indirect effect on turnover through spillovers from customers and a positive effect through damage to very nearby competitors.     

Testing Decision Rules for Categorizing Species’ Extinction Risk to Help Develop Quantitative Listing Criteria for the U.S. Endangered Species Act

Lack of guidance for interpreting the definitions of endangered and threatened in the U.S. Endangered Species Act (ESA) has resulted in case‐by‐case decision making leaving the process vulnerable to being considered arbitrary or capricious. Adopting quantitative decision rules would remedy this but requires the agency to specify the relative urgency concerning extinction events over time, cutoff risk values corresponding to different levels of protection, and the importance given to different types of listing errors. We tested the performance of 3 sets of decision rules that use alternative functions for weighting the relative urgency of future extinction events: a threshold rule set, which uses a decision rule of x% probability of extinction over y years; a concave rule set, where the relative importance of future extinction events declines exponentially over time; and a shoulder rule set that uses a sigmoid shape function, where relative importance declines slowly at first and then more rapidly. We obtained decision cutoffs by interviewing several biologists and then emulated the listing process with simulations that covered a range of extinction risks typical of ESA listing decisions. We evaluated performance of the decision rules under different data quantities and qualities on the basis of the relative importance of misclassification errors. Although there was little difference between the performance of alternative decision rules for correct listings, the distribution of misclassifications differed depending on the function used. Misclassifications for the threshold and concave listing criteria resulted in more overprotection errors, particularly as uncertainty increased, whereas errors for the shoulder listing criteria were more symmetrical. We developed and tested the framework for quantitative decision rules for listing species under the U.S. ESA. If policy values can be agreed on, use of this framework would improve the implementation of the ESA by increasing transparency and consistency. Evaluando Reglas de Decisión para Categorizar el Riesgo de Extinción de Especies con el Fin de Desarrollar de Criterios Cuantitativos de Alistamiento en el Acta de Especies en Peligro de los EE. UU.     

Higher calcification costs at lower temperatures do not break the temperature-size rule in an intertidal gastropod with determinate growth

The vast majority of ectothermic organisms grow larger when developing at cooler environmental temperatures, a pattern frequently referred to as the temperature-size rule (TSR). Assuming that this reaction norm has adaptive significance, life history theory predicts that converse patterns may evolve if favored by natural selection, namely if the costs associated with complying to the TSR outweigh the benefits. Calcifying ectotherms may comprise such an exception not following the TSR, because calcification is expected to be more costly at lower temperatures thus increasing associated costs. To test this hypothesis, we reared wild-caught juveniles of the intertidal gastropod Monetaria annulus and compared their shell sizes at the end of the juvenile stage between two rearing temperatures. Contrary to our prediction, M. annulus does follow the TSR, suggesting that increased calcification costs at lower temperatures are not high enough to break the TSR. Such plastic responses should be considered when interpreting geographical patterns such as latitudinal size clines, which may be caused at least partly by phenotypic plasticity.     

The costs of male parental care and its evolution in a neotropical frog

Summary Parental care is practiced exclusively by males of the Puerto Rican frog, Eleutherodactylus coqui. Males brood clutches of direct-developing eggs in non-aquatic nest sites and defend eggs against cannibalistic nest intruders. Here, I report on energetic and mating costs incurred by males that provide parental care, and suggest how these proximate costs affect male fitness and the evolution of male parental care in this species. Energetic costs are small for brooding males in comparison to non-brooding, calling males. Brooding males had a higher frequency of empty stomachs and lost small, but significant, fractions of their initial body mass during parental care. Abdominal fat bodies of brooding males during the middle third of parental care were significantly smaller than those of calling males; those of males brooding eggs in earlier or later stages were not different. The mating cost of parental care is greater. Most brooding males cease calling during parental care. However, gravid females are available (i.e., known to mate) on most nights during the principal breeding season; hence non-calling males miss potential opportunities to mate. A mating cost was estimated by calculating nightly mating probabilities for calling males in a plot where nightly calling male densities and daily oviposition schedules were known. On average, a male exhibiting normal calling behavior would be expected to obtain a new mate once every 35.7 days. Hence a brooding male that ceased calling for a 20-day parental care period would miss, on average, 0.56 additional mates. Males that were more successful than average in attracting mates could miss up to 1.63 matings. A marginal value model (Fig. 1) is used to analyze the net effect on male fitness of parental care benefits and costs in E. coqui (Fig. 3). The model indicates that males garner the highest reproductive success by providing care from oviposition through hatching. There is no stage during the pre-hatching period at which a desertion strategy would yield higher reproductive success. In fact, the model suggests that males should provide full parental care even in the face of much higher mating costs than currently obtain in the system.     

Self-Reporting and the Design of Policies for Regulating Stochastic Pollution

Existing environmental regulations frequently require firms to self-report their compliance status to regulatory agencies. Using a principal-agent framework, I derive and compare incentive-compatible regulatory policies with and without self-reporting. I find the firm needs to be audited less often when self-reporting is required, but punished more often. The sign and magnitude of the gains from self-reporting depend on the relative size of audit and sanction costs, the accuracy of the regulator′s monitoring technology, and the desired level of abatement effort.     

Difference in the net value of ecological services between natural and artificial forests in China

Land degradation is a global problem that seriously threatens human society. However, in China and elsewhere, ecological restoration still largely relies on a traditional approach that focuses only on ecological factors and ignores socioeconomic factors. To improve the effectiveness of ecological restoration and maximize its economic and ecological benefits, a more efficient approach is needed that provides support for policy development and land management and thereby promotes environmental conservation. We devised a framework for assessing the value of ecosystem services that remain after subtracting costs, such as the opportunity costs, costs of forest protection, and costs for the people who are affected by the program; that is, the net value of ecosystem services (NVES). To understand the difference between the value of a resource and the net value of the ecosystem service it provides, we used data on VES, timber sales, and afforestation costs from China's massive national afforestation programs to calculate the net value of forest ecosystem services in China. Accounting for the abovementioned costs revealed an NVES of ¥6.1 × 10¹² for forests in 2014, which was 35.9% less than the value calculated without accounting for costs. As a result, the NVES associated with afforestation was 55.9% less than the NVES of natural forests. In some regions, NVES was negative because of the huge costs of human-made plantations, high evapotranspiration rates (thus, high water opportunity costs), and low forest survival rates. To maximize the ecological benefits of conservation, it is necessary to account for as many costs as possible so that management decisions can be based on NVES, thereby helping managers choose projects that maximize both economic and ecological benefits.     

The optimal pricing of pollution when enforcement is costly

We consider the pricing of a uniformly mixed pollutant with a model of optimal, possibly firm-specific, emissions taxes and their enforcement under incomplete information about firms’ abatement costs, enforcement costs, and pollution damage. We argue that optimality requires an enforcement strategy that induces full compliance by every firm, except possibly when a regulator can base the probabilities of detecting individual violations on observable correlates of violators’ actual emissions. Moreover, optimality requires discriminatory taxes, except when a regulator is unable to use observable firm-level characteristics to gain some information about the variation in firms’ abatement costs or monitoring costs.     

Queuing for dominance: gerontocracy and queue-jumping in the hover wasp <Emphasis Type="Italic">Liostenogaster flavolineata</Emphasis>

The mechanisms through which dominance is inherited within social groups vary from direct interactions such as fighting to non-confrontational conventions. Liostenogaster flavolineata is a primitively eusocial hover wasp in which one female, the ‘dominant’, is the only reproductive upon the nest. The remaining females, although capable of reproduction, behave as helpers. In this study, we investigate the rules by which helpers inherit dominance. We removed successive dominants from 56 nests and recorded accession on un-manipulated nests. The results showed that L. flavolineata has a strict age-based inheritance queue: new dominants are the oldest female in their groups 87% of the time. Thirteen cases of queue-jumping were found in which young individuals were able to supplant older nestmates and inherit dominance precociously. Queue jumpers did not differ from other wasps in terms of relatedness to other group members or body size. Individuals that had previously worked less hard than other females of equivalent rank were significantly more likely to later jump the queue. Queue-jumping may represent a cheating strategy or could indicate that the rule for inheriting dominance is not based purely on relative age. We also discuss possible reasons why age-based queuing has evolved and its potential to promote the evolution of helping behaviour.     

Predators choosing between patches with standing crop: the influence of switching rules and input types

Where prey arriving in a patch are not consumed immediately, they will accumulate. Predators are then presented with a prey density or standing crop that increases through further input, and decreases through the consumption by predators. Firstly, I show that the switching rule of predators has a significant influence on the expected predator equilibrium distribution in such a dynamic system. Three rules are compared; for all rules, analytical solutions are calculated (where possible). To test their plausibility for natural situations, predator distributions are simulated given the assumption that each predator obtains individual patch profitability estimates by using a common learning rule. As long as prey arrive in the patches in constant numbers per time unit, the first rule leads to input matching because predators stop switching when consumption in the two patches is equal. The other two rules, where predators continue to sample both patches even in the equilibrium state, lead to predator distributions where the more profitable patch is underused. The final equilibrium depends on the exact assumptions of the switching rule; however, it is independent of interference. But if the input delivered into a patch is a function of the current prey standing crop (for example in a reproducing prey population), predator and prey distributions will not reach an equilibrium in most cases: either standing crops increase indefinitely, or they approach zero, with all predators concentrating on the better patch. Only a small number of parameter sets show intermediate crops that are reasonably stable. With this input type, only up to 54% of the simulations reach the expected distribution. In a system with competition for dynamic standing crop, it is therefore essential to know the type of input and the switching-rule used by predators to be able to predict equilibrium predator distributions. Received: 17 March 1995/Accepted after revision: 5 November 1995     

Seasonal decline in reproductive performance varies with colony size in the fairy martin, <Emphasis Type="Italic">Petrochelidon ariel</Emphasis>

Reproductive success within populations often varies with the timing of breeding, typically declining over the season. This variation is usually attributed to seasonal changes in resource availability and/or differences in the quality or experience of breeders. In colonial species, the timing of breeding may be of particular importance because the costs and benefits of colonial breeding are likely to vary over the season and also with colony size. In this study, we examine the relationship between timing of breeding and reproductive performance (clutch size and nest success) both within and between variable sized colonies (n = 18) of fairy martins, Petrochelidon ariel. In four of these colonies, we also experimentally delayed laying in selected nests to disentangle the effects of laying date and individual quality/experience on reproductive success. Within colonies, later laying birds produced smaller clutches, but only in larger colonies. The general seasonal decline in nest success was also more pronounced in larger colonies. Late laying birds were generally smaller than earlier laying birds, but morphological differences were also related to colony size, suggesting optimal colony size also varies with phenotype. Experimentally delayed clutches were larger than concurrently produced non-delayed clutches, but only in larger colonies. Similarly, delayed clutches were more likely to produce fledglings, particularly later in the season and in larger colonies. We suggest that the reduced performance of late breeding pairs in larger colonies resulted primarily from inexperienced/low quality birds preferring to settle in larger colonies, possibly exacerbated by an increase in the costs of coloniality (e.g., resource depletion and ectoparasite infestations) with date and colony size. These findings highlight the importance of phenotype-related differences in settlement decisions and reproductive performance to an improved understanding of colonial breeding and variation in colony size.