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.     

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.     

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

The process of technological change in pollution control is broken into three basic steps: innovation, diffusion, and optimal agency response. Firm incentives to promote these steps are then examined under five regulatory regimes: direct controls, emission subsidies, emission taxes, free marketable permits, and auctioned marketable permits. On a relative basis, emission taxes and auctioned permits provide the highest firm incentives to promote technological change; at times, free permits generate lower incentives. Direct controls, which are common regulatory tools, usually provide the lowest relative firm incentives to promote technological change.     

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.     

Non-renewable resource prices: Deterministic or stochastic trends?

In this paper, we examine temporal properties of 11 natural resource real price series from 1870 to 1990. Recent studies by Ahrens and Sharma [Trends in natural resource commodity prices: deterministic or stochastic? J. Environ. Econom. Manage. 33(1997)59–74], Berck and Roberts [Natural resource prices: will they ever turn up? J. Environ. Econom. Manage. 31(1996)65–78], and Slade [Grade selection under uncertainty: least cost last and other anomalies, J. Environ. Econom. Manage. 15(1988)189–205], among others, find that many non-renewable resource prices have a stochastic trend. We revisit this issue by employing a Lagrangian multiplier unit root test that allows for two endogenously determined structural breaks with and without a quadratic trend. Contrary to previous research, we find evidence against the unit root hypothesis for all price series. Our findings support characterizing natural resource prices as stationary around deterministic trends with structural breaks. We additionally show that both pre-testing for unit roots with breaks and allowing for breaks in the forecast model can improve forecast accuracy. Overall, the results in this paper are important in both a positive and normative sense; without an appropriate understanding of the dynamics of a time series, empirical verification of theories, forecasting, and proper inference are potentially fruitless.     

Averting behavior and the benefits of reduced soiling

The individual's choice of cleaning frequency is examined theoretically under assumptions more general than those of previous authors. The individual is assumed to maximize utility over “cleanliness” and a general commodity, where cleanliness is determined by frequency of cleaning and ambient pollution. Allowance is made for the possibility that the cost per cleaning episode is positively affected by pollution and negatively affected by the frequency of cleaning. The present framework is used to make comparisons and comments regarding the assumptions and results of Watson and Jaksch [J. Environ. Econ. Manag.9 (1982), 248–262] and Courant and Porter [J. Environ. Econ. Manag.8 (1981), 321–329].     

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.     

Total Factor Productivity Change in the New England Groundfish Fishery: 1964–1993

We develop estimates of total factor productivity (TFP) change in the New England groundfish fishery from 1964 to 1993, using a procedure similar to Squires' (1992, Rand J. Econom.23(2), 221–236) method, which extends standard TFP measurement by including the effect of fluctuations in stock abundance. The results indicate that TFP increased on average by 4.4% per year from 1964 to 1993. A higher average rate of increase occurred between 1964 and 1982, possibly due to new technologies (e.g., fishfinders). TFP declined at 0.33% annually from 1983 to 1993 due to stringent output and effort control measures.     

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.     

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.     

A note on permits, standards, and technological innovation

Montero (J. Environ. Econom. Manage. 44 (2002) 23) contrasts the incentives to invest in new abatement technologies under different regulatory instruments and argues that one needs to consider the induced output effects that derive from lower abatement costs. Montero shows that, once one takes into account these effects on output, command-and-control instruments can generate stronger incentives to innovate than market-based instruments. This result rests on strategic output effects under command-and-control. However, he maintains that, under perfectly competitive conditions, market-based instruments will continue to weakly dominate command-and-control regulation. This note clarifies two issues raised by Montero. First, I use Montero's approach to show that in fact performance (concentration) standards will generate greater incentives to innovate than market-based instruments in perfectly competitive markets. One does not require strategic effects to get this result. Second, Montero abstracts from production costs and concentrates solely on abatement costs. He implicitly assumes that marginal production costs are constant. I show that some of Montero's results change once increasing marginal production costs are considered. When marginal costs are increasing, the benefit of additional output is tempered and market-based instruments again look more favorable.     

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.     

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.     

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.     

Aggregating goods and pollutants

The mathematical assumptions underlying the aggregation of goods and of pollutants in a class of environmental models are given some possible economic interpretations. The procedures for aggregation are illustrated graphically and with numerical examples. This paper was motivated by the definitive article of Forster (J. Environ. Econ. Manage.8, 118–133 (1981)) and is intended to complement that article.     

Energy and Depletable Resources: Economics and Policy, 1973–1998

This paper reviews the impact of the literature in depletable resources and energy economics over the period 1973–1998, particularly the initial period of publication of the Journal of Environmental Economics and Management, 1974–1998. A discussion of prominent policy issues in this arena is provided, along with an indication of what academic economics papers have contributed to that debate. This is followed by a citation analysis of contributions in the fields of energy and exhaustible resource economics. For each of these two fields, a list of the top papers in each five-year period from 1974 to 1998 is presented, along with a list of the top journals in each decade, based on average citations per article. The top ten cited articles in the fields in the Journal of Environmental Economics and Management are also presented.     

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)].     

Respiration rate and cost of swimming for Antarctic krill,<Emphasis Type="Italic"> Euphausia superba</Emphasis>, in large groups in the laboratory

Constructing realistic energy budgets for Antarctic krill, Euphausia superba, is hampered by the lack of data on the metabolic costs associated with swimming. In this study respiration rates and pleopod beating rates were measured at six current speeds. Pleopod beating rates increased linearly with current speed, reaching a maximum of 6 beats s^–1 at 17 cm s^–1. There was a concomitant linear increase in respiration rate, from 1.8 mg O₂ g_D^–1 h^–1 at 3 cm s^–1 to 8.0 mg O₂ g_D^–1 h^–1 at 17 cm s^–1. The size of the group tested (50, 100 and 300 krill) did not have a significant effect on pleopod beating rates or oxygen consumption (ANCOVA, F=0.264; P>0.05). The cost of transport reached a maximum of 75 J g^–1 km^–1 at 5 cm s^–1, and then decreased with increasing current speed to 29 J g^–1 km^–1. When considered in light of energy budgets for E. superba, these data indicate that the cost of swimming could account for up to 73% of total daily metabolic expenditure during early summer.Communicated by G.F. Humphrey, Sydney     

Assessment of groundwater contamination using geographic information systems

In this study two sites were selected in order to investigate groundwater contamination and spatial relationships among groundwater quality, topography, geology, landuse and pollution sources. One site is the Asan area, an agricultural district where pollution sources are scattered and which is mainly underlain by granite of Cretaceous age. The other site is the Gurogu area of Seoul city, an industrial district where an industrial complex and residential areas are located and which is mainly underlain by gneiss of Precambrian age. Groundwater samples collected from these districts were analysed for chemical constituents. An attribute value files of chemical constituents of groundwater and the spatial data layers were constructed and pollution properties were investigated to establish out spatial relationships between the groundwater constituents and pollution sources using geographic information systems (GIS).Relatively high contents of Si and HCO₃ ^– in the groundwater from the Asan area reflect the effect of water–rock interaction whereas high contents of Cl^–, NO₃ ^– and Ca²⁺ in the groundwater from the Gurogu area are due to the pollution of various sources. The significant seasonal variation of SiO₂, HCO₂ ^– and Ca²⁺ contents, and that of Ca²⁺ content were observed in the Asan and the Gurogu areas, respectively. Seasonal variation of pollutants such as Cl^–, NO₃ ^– and SO₄ ^2– was not observed in either area. Pollution over the critical level of the Korean drinking water standard has been investigated from 15 sampling sites out of 40 in the Asan area, and 33 sampling sites out of 51 in the Gurogu area. Pollution by NO₃ ^–, Cl^–, Fe²⁺, Mn²⁺, SO₄ ^2– and Zn²⁺ in the groundwater from the industrial district (Gurogu area) and that of NO₃ , SO₄ ^2– and Zn²⁺ in the groundwater from the agricultural district (Asan area) were observed. The principal pollutant in both areas is NO₃ ^–. Deep groundwater from the Asan area is not yet contaminated with NO₃ ^– except for one site, but most of the shallow groundwater site occurring near the potential point sources is seriously contaminated. From the result of buffering analysis, it seems clear that factories and stock farms are the principal pollution sources in the Asan area. The groundwater from the Gurogu area has already been seriously polluted considering the fact of NO₃ ^– contamination of deep groundwater. Chlorine pollution of shallow groundwater in the Gurogu area was also observed. Spatial relationship between pollution level and its source was clarified in this study by using GIS, which will be applicable to the effective management of groundwater quality.