Showing papers in "Environmental and Resource Economics in 2010"

Renewable Energy Policies and Technological Innovation: Evidence Based on Patent Counts

Abstract: This paper examines the effect of environmental policies on technological innovation in the specific case of renewable energy. The analysis is conducted using patent data on a panel of 25 countries over the period 1978–2003. We find that public policy plays a significant role in determining patent applications. Different types of policy instruments are effective for different renewable energy sources. Broad-based policies, such as tradable energy certificates, are more likely to induce innovation on technologies that are close to competitive with fossil fuels. More targeted subsidies, such as feed-in tariffs, are needed to induce innovation on more costly energy technologies, such as solar power.

Who Pays a Price on Carbon

Abstract: We use the 2003 Consumer Expenditure Survey and emissions estimates from an input-output model based on the 1997 US economy to estimate the incidence of a price on carbon induced by a cap-and-trade program or carbon tax in the context of the US. We present results on how much different income deciles pay for a carbon tax as well as which industries see the largest increase in costs due to a carbon tax. We illustrate the main determinant of the regressivity: consumption patterns for energy-intensive goods. Furthermore, on a per-capita basis a carbon price is much more regressive than calculations at the household level. We discuss policy options to offset the adverse distributional effects of a carbon emissions policy.

On the Use of Subjective Well-Being Data for Environmental Valuation

Abstract: This paper explores the potential of using subjective well-being (SWB) data to value environmental attributes. A theoretical framework compares this method, also known as the life-satisfaction approach, with the standard hedonic pricing approach, identifying their similarities and differences. As a corollary, we show how SWB data can be used to test for the equilibrium condition implicit in the hedonic approach (i.e., equality of utility across locations). Results for Ireland show that the equilibrium condition required by the hedonic pricing approach in Irish markets does not hold. They also show that air quality, in the baseline specification, and warmer climate, across all the specifications, have a significant positive impact on SWB. Their associated monetary estimates, however, seem too large.

Household Adoption of Water-Efficient Equipment: The Role of Socio-economic Factors, Environmental Attitudes and Policy

Abstract: Using survey data of around 10,000 households from 10 OECD countries, we identify the driving factors of household adoption of water-efficient equipment by estimating Probit models of a household’s probability to invest in such equipment. The results indicate that environmental attitudes and ownership status are strong predictors of adoption of water-efficient equipment. In terms of policy, we find that households that were both metered and charged for their water individually had a much higher probability to invest in water-efficient equipment compared to households that paid a flat fee.

Dealing with Ignored Attributes in Choice Experiments on Valuation of Sweden's Environmental Quality Objectives

Abstract: Using a choice experiment, this paper investigates how Swedish citizens value three environmental quality objectives. In addition, a follow-up question is used to investigate whether respondents ignored any attributes when responding. The resulting information is used in model estimation by restricting the individual parameters for the ignored attributes to zero. When taking the shares of respondents who took both the environmental and the cost attributes (52-69% of the respondents) into account, then the WTP for each attribute changes if the respondents who ignored the attributes have a zero WTP. At the same time, we find evidence that not all respondents who claimed to have ignored an attribute really did. However, the most commonly ignored non-monetary attributes always have the lowest rankings in terms of WTP across all three environmental objectives. Thus, our results show that instead of ignoring attributes completely, respondents seem to put less weight on the attributes they claimed to have ignored.

Environmental regulation and industry location in Europe

Abstract: This paper estimates the effect of environmental regulation on industry location and compares it with other determinants of location such as agricultural, education and R&D country characteristics. The analysis is based on a general empirical trade model that captures the interaction between country and industry characteristics in determining industry location. The Johnson–Neyman technique is used to fully explicate the nature of the conditional interactions. The model is applied to data on 16 manufacturing industries from 13 European countries. The empirical results indicate that the pollution haven effect is present and that the relative strength of such an effect is of about the same magnitude as other determinants of industry location. A significant negative effect on industry location is observed only at relatively high levels of industry pollution intensity.

Property Prices and Exposure to Multiple Noise Sources: Hedonic Regression with Road and Railway Noise

Abstract: This study examines the effect of road and railway noise on property prices. It uses the hedonic regression technique on a Swedish data set that contains information about both road and railway noise for each property, and finds that road noise has a larger negative impact on the property prices than railway noise. This is in line with the evidence from the acoustical literature which has shown that individuals are more disturbed by road than railway noise, but contradicts recent results from a hedonic study on data of the United Kingdom.

Incorporating Resilience in the Assessment of Inclusive Wealth: An Example from South East Australia

Abstract: This paper explores the consequences of changes in a system’s resilience on the sustainability of resource allocation decisions, as measured by Inclusive Wealth (IW) (Arrow et al. in Environ Resour Econ 26:647–685, 2003). We incorporate an estimate of resilience in IW by taking account of known or suspected thresholds that can lead to irreversible (or practically irreversible) changes in the productivity and value of assets and hence social welfare. These thresholds allow us to identify policies or projects that may be leading to an increased risk of decline in capital stocks (the wealth of the region). Such risks are not reflected through usual measures of current system performance, e.g. agricultural production. We use the Goulburn-Broken Catchment in south-eastern Australia as a case study to explore the significance and practicality of including resilience in inclusive wealth estimates.

Choice certainty and consistency in repeated choice experiments

Abstract: The main objective of this study is to examine how repeated choice affects preference learning in stated preference experiments. We test different hypotheses related to preference learning by analyzing response patterns and asking respondents in a choice experiment to report their experienced certainty when going through the choice tasks. In a split-sample test, we show that follow-up choice certainty questions are procedural invariant. The self-reported certainty results indicate that learning occurs, but econometric testing procedures do not identify any significant impact of learning effects on parameter estimates or variance across choice tasks. Additional tests of choice consistency suggest that preferences in the choice experiment are stable and coherent.

Combining Discrete and Continuous Representations of Preference Heterogeneity: A Latent Class Approach

Abstract: Unobserved preference heterogeneity has been widely recognized as a critical issue not only for modelling choice behaviour, but also for policy analysis. This paper examines alternative approaches for incorporating heterogeneity in recreational demand. We apply a hybrid model combining discrete and continuous heterogeneity representations of tastes to capture the defining features of both the latent class and the random parameter logit specifications. This model allows for the joint estimation of discrete segments and within segment heterogeneity providing a richer interpretation of preference heterogeneity. A database of recreational trips to forest sites in Mallorca has been used to compare the empirical performance of this hybrid approach with common specifications such as the conditional logit, the random parameter logit, and the latent class model.

Conformity and the Demand for Environmental Goods

Abstract: The existing literature on eco-labeling and green consumerism has been framed within a classical market context where price and quality are the drivers of consumer choice. However, it seems possible that consumers are also concerned about the choices made by other consumers. In fact, it is unclear that people’s consumption decisions are made independently of social context. For instance, under the desire to conform to certain social norms—or in the presence of status concerns—some individuals may be willing to pay a higher price premium for green products the more widespread green consumerism is in society. We test this hypothesis using a choice experiment where the respondents were asked to choose among coffee products varying with respect to their share of ecological beans, share of fair trade beans, and price. Three treatments were used, differing only in the information given about the choices made by other consumers. We find different responses to the treatments across individuals and we can only confirm our hypothesis of conformity for women, although men appear to have stronger preferences for ecological coffee than women have.

Alternative approaches to cost containment in a cap-and-trade system.

Abstract: We compare several emissions reduction instruments, including quantity policies with banking and borrowing, price policies, and hybrid policies (safety valve and price collar), using a dynamic model with stochastic baseline emissions. The instruments are compared under the design goal of obtaining the same expected cumulative emissions across all options. Based on simulation analysis with the model parameterized to values relevant to proposed US climate mitigation policies, we find that restrictions on banking and borrowing, including the provision of interest rates on the borrowings, can severely limit the value of the policy, depending on the regulator-chosen allowance issuance path. Although emissions taxes generally provide the lowest expected abatement costs, a cap-and-trade system combined with either a safety valve or a price collar can be designed to provide expected abatement costs near those of a tax, but with lower emissions variance than a tax. Consistently, a price collar is more cost-effective than a safety valve for a given expected cumulative emissions outcome because it encourages inexpensive abatement when abatement costs decline.

A Dynamic Model for International Environmental Agreements

Abstract: In this paper we develop a model that uses a dynamic framework to analyze the process through which countries join international environmental agreements (IEAs). In the model, while all countries suffer from the same environmental damage as a result of total global emissions, non-signatory countries decide on their emission levels by maximizing their own welfare, whereas signatory countries decide on their emission levels by maximizing the aggregate welfare of all signatory countries. It is assumed that signatory countries will be able to punish non-signatories, at some cost to themselves. When countries decide on their pollution emissions, they account for the evolution of the stock of pollution over time. Moreover, we propose a mechanism to describe how countries reach a stable IEA. The model is able to capture situations characterized by partial cooperation within an IEA that is stable over time. It also captures situations where all countries participate in a stable agreement, and situations where no stable agreement is feasible. Where more than one possibility coexist, the long-term outcome of the game depends on the initial conditions (i.e., the initial number of signatory countries and pollution level).

The Impact of the EU ETS on Prices, Profits and Emissions in the Power Sector: Simulation Results with the COMPETES EU20 Model

Abstract: This paper analyses the impact of the EU Emissions Trading Scheme (ETS) on electricity prices, in particular on wholesale power markets across the EU. To study this impact, this paper discusses the major results of a bottom-up modelling analysis of the implications of emissions trading for the performance of the wholesale power market in 20 European countries. The analyses show that a significant part of the costs of (freely allocated) CO2 emission allowances is passed through to power prices, resulting in higher electricity prices for consumers and additional (‘windfall’) profits for power producers, even in cases of full auctioning. In addition, they show that the ETS-induced increases in power prices depend not only on the level of CO2 prices but also on the structure of the power market, i.e., the incidence of market power, and the price responsiveness of power demand. Finally, the analyses show that the internalization and pass-through of carbon costs are crucial elements in a policy regime to reduce CO2 emissions by both changing the mix of power generation technologies and lowering total electricity demand.

Fair Air: Distributive Justice and Environmental Economics

Abstract: Are fairness concerns of relevance to environmental economics and, if so, are they sufficiently structured to improve analysis in this field? On both of these questions, we answer in the affirmative, arguing that people's fairness views are based on both general rules and the context, where context refers to the set of variables and persons employed to interpretandapplytheprinciples.Thefairnessrulesanalyzedareaccountability(i.e.,rewards that are proportional to contributions individuals control), efficiency, need and equality. We conclude that stakeholders typically exhibit a "fairness bias", i.e., they tend, consciously or not, to interpret and apply fairness principles in a self-serving manner, whereas the views of spectators, or impartial third parties, tend to converge significantly more. Further, we argue that fairness considerations are relevant to both descriptive and prescriptive analysis in environmental economics. These fairness concerns are reflected in the behavior of private and public decision-makers and have potentially important policy implications through the overall social objective function.

Design of Stated Preference Surveys: Is There More to Learn from Behavioral Economics?

Abstract: We discuss the design of stated preference (SP) surveys in light of findings in behavioral economics such as context dependence of preferences, learning, and differences between revealed and normative preferences. More specifically, we discuss four different areas: (1) revealed and normative preferences, (2) learning and constructed preferences, (3) context dependence, and (4) hypothetical bias. We argue that SP methods would benefit from adapting to some of the findings in behavioral economics, but also that behavioral economics may gain insights from studying SP methods.

Effects of Unit-Based Garbage Pricing: A Differences-in-Differences Approach

Abstract: Using a unique 10-year dataset of all 458 Dutch municipalities, we apply a differences-in-differences approach to estimate the effect of unit-based pricing on household waste quantities and recycling. Community-level studies of unit-based pricing typically do not include fixed effects at the local level. We find that failure to do so may substantially inflate the estimated price effect. We also find that unit-based pricing may be endogenous, and use instrumental variables to account for this. Our analysis shows that user fees depend on user fees in neighboring jurisdictions (policy interaction). Our estimate of the garbage reduction per $1 user fee is lower than any previous estimate bar one. The price effect depends on the pricing system: weight-based systems reduce garbage quantities more than volume-based systems. User fees increase recycling, especially of paper, but not nearly as much as they reduce garbage quantities. We find no evidence for waste tourism or illegal dumping.

Choke Price Bias in Choice Experiments

Abstract: This paper reports on the results from a split sample choice experiment, where the effect of changing the maximum level of the cost attribute is investigated. The hypothesis was that changing the maximum price level would either give rise to an income effect or have no effect on consumers’ preferences. This was tested in the framework of a valuation study of different quality characteristics of minced pork. The data was analysed using a mixed logit error component model, which accounts for correlation in the unobserved part of the utility. Results suggest that the size of the maximum price level does matter, and that changing the maximum price level has a statistically significant effect on both the general preferences structure and the WTP estimates. Hence, researchers should be very careful when defining not only the range of the price attribute but also the maximum level of the price attribute.

Does the Porter Hypothesis Explain Expected Future Financial Performance? The Effect of Clean Water Regulation on Chemical Manufacturing Firms

Abstract: Previous research provides opposing theoretical arguments regarding the effect of environmental regulation on financial performance. As one important argument, the Porter hypothesis claims that tighter regulation improves financial performance. This study provides empirical evidence on this debated effect. In particular, we employ panel data analysis to examine the effect of Clean Water Act regulation, as measured by permitted wastewater discharge limits, on expected future financial performance, as measured by Tobin’s q, for publicly owned firms in the chemical manufacturing industries. We find that tighter permitted discharge limits lower Tobin’s q; i.e., more stringent Clean Water Act regulation undermines expected future financial performance. By decomposing Tobin’s q into its constituent components—market value and replacement costs—and estimating each component separately, we find that tighter permitted discharge limits lower both components with a larger impact on market value, which implies that investors revise their expectations of the discounted present value of future profits in response to changes in Clean Water Act regulation.

Distributional Preferences and the Incidence of Costs and Benefits in Climate Change Policy

Abstract: We explore the relationship between willingness to pay (WTP) for climate change mitigation and distributional preferences, by which we mean individuals’ opinions about who should be responsible for climate change prevention and whether the share of climate change impacts borne by the poor is a cause for concern. We use 1,770 responses to an online stated preference survey. The domestic costs in our survey’s policy choice scenarios are expressed as a set of randomized shares across four different payment vehicles, and the international cost shares are randomized across four groups of countries. We also elicit respondents’ perceptions of the likely regressivity of climate change impacts under a policy of business-as-usual. WTP is higher when larger cost shares are borne by parties deemed to bear a greater responsibility for mitigation, and when respondents believe (and care) that the impacts of climate change may be borne disproportionately by the world’s poor. That WTP for an environmental policy depends on the distributional consequences of the policy is an unsettling result: efficiency assessments are typically assumed to be separate from equity considerations in most benefit-cost analyses.

Convergent Validity of Revealed and Stated Recreation Behavior with Quality Change: A Comparison of Multiple and Single Site Demands

Abstract: We consider the convergent validity of several demand models using beach recreation data. Two models employ multiple site data: a count data demand system model and the Kuhn–Tucker demand system model. We explore the role of existing variation in beach width in explaining trip choices, and analyze a hypothetical 100 foot increase in beach width. We compare these models to a single equation model where we jointly estimate revealed and stated preference trip data, and focus on a hypothetical scenario considering a 100 foot increase in beach width. In each case we develop estimates of the change in beach visits and the welfare impacts from the increase in width. The trip change estimates from two of the three models are similar and convergent valid, though the willingness to pay estimates differ in magnitude.

Exploring Links Between Innovation and Diffusion: Adoption of NOX Control Technologies at US Coal-fired Power Plants

Abstract: While many studies have looked at innovation and adoption of technologies separately, the two processes are linked. Advances (and expected advances) in a single technology should affect both its adoption rate and the adoption of alternative technologies. This paper combines plant-level data on US coal-fired electric power plants with patent data pertaining to NOX pollution control techniques to study this link. As in other studies of environmental technologies, the effect of other explanatory variables is dominated by the effect of environmental regulations, demonstrating that the mere presence of environmental technologies is not enough to encourage its usage. Nonetheless, I do find that technological advances are important for the adoption of existing combustion modification technologies. However, these advances are less important for the adoption of newer post-combustion control techniques, which are adopted only when needed to comply with the strictest emission limits.

Pollution Abatement Subsidies and the Eco-Industry

Abstract: This paper considers the combination of pollution taxes and abatement subsidies when some polluting firms procure their abatement goods and services from an oligopolistic eco-industry. The regulator must here cope with two simultaneous price distortions: one that comes from pollution and the other which is caused by the eco-industry’s market power. In this context, we show that taxing emissions while subsidizing polluters’ abatement efforts cannot lead to first-best, but the opposite occurs provided it is the eco-industry’s output which is subsidized. When public transfers also create distortions, welfare can be higher if the regulator uses only an emission tax, but subsidizing abatement suppliers while taxing emissions remains optimal when the eco-industry is concentrated.

Stability and Success of Regional Fisheries Management Organizations

Abstract: According to international law, straddling fish stocks should be managed cooperatively through regional fisheries management organizations (RFMOs). This paper analyzes the stability and success of these organizations through a game in partition function form based on the classical Gordon-Schaefer bioeconomic model. Results show that the larger the number of fishing states that compete for the fish stock the higher are the relative gains from full cooperation, but the lower is the likelihood of large RFMOs being stable. It is also shown that new entrants increase the incentives of RFMO members to leave and decrease the incentives of non-members to join it. Moreover, the success of coalition formation is positively correlated with the degree of cost asymmetry among fishing states and negatively with the overall level of efficiency.

Exchange Rules and the Incentive Compatibility of Choice Experiments

Abstract: The incentive properties of stated-preference surveys continue to be a central debate in the valuation of public goods The majority of empirical studies have focused on incentive properties of contingent valuation questions in relation to situations where answers have monetary consequences This research explores the incentive properties of repeated, attribute-based choice questions when subjects are provided with an explicit connection between choices and outcomes Two market/provision-rules are investigated: a posted-price market and a plurality-rule vote These two provision rules are contrasted to treatments in which no provision rule is discussed—subjects are simply asked to choose their preferred alternative These three hypothetical choice treatments are compared with a binding choice treatment While none of the public good treatments are theoretically incentive compatible, we include a comparison of hypothetical and binding choices for a private-good that is incentive compatible The private good experiments indicate that marginal willingness to pay (WTP) estimates from the hypothetical treatment are larger, but not statistically different than corresponding estimates in the binding choice treatment Results for the public good experiments indicate that marginal WTP estimates from the hypothetical treatments are much larger, and statistically different than corresponding estimates in the binding choice treatment The bias is largest when no provision rule is discussed The bias is reduced with the inclusion of a provision rule, but surprisingly, there was no difference across provision rule treatments Overall, our results indicate that choice experiments involving a public good should include a provision rule to reduce bias, but the resulting marginal WTP estimates may still be more biased, on average, than those arising from contingent valuation survey formats

Poor Household Participation in Payments for Environmental Services: Lessons from the Silvopastoral Project in Quindío, Colombia

Abstract: As the use of Payments for Environmental Services (PES) approaches in developing countries has grown, concern has arisen over the ability of poorer households to participate. This paper uses data from a PES project implemented in Quindio, Colombia, to examine the extent to which poorer households that are eligible to participate are in fact able to do so. The project provides a strong test of the ability of poorer households to participate in a PES program as it required participants to make substantial and complex land use changes. The results show that poorer households are in fact able to participate at levels that are broadly similar to those of better-off households. Moreover, their participation was not limited to the simpler, least expensive options. Transaction costs may be greater obstacles to the participation of poorer households than household-specific constraints.

Spare the Young Fish: Optimal Harvesting Policies for North-East Arctic Cod

Abstract: The North-East Arctic cod (Gadus morhua) fishery, as most other commercial fisheries, is wasting the larger part of its potential. Examining a detailed multi-cohort, multi-gear bioeconomic model, we show that the cause is rather a too small mesh size than excessive effort. Although internationally and nationally managed by quota allocations and regulations, the current exploitation pattern implies that essentially the wrong fish are targeted. Catching older and heavier fish could double the fishery’s Net-Present-Value. This increases harvested biomass while it reduces the number of fish removed from the ocean, highlighting the importance of age- and gear-specific modeling. Moreover, optimal harvesting policies would also lead to a much more robust and abundant cod stock.

Behavioural Economics, Hyperbolic Discounting and Environmental Policy

Abstract: This paper reviews some recent research in “behavioural economics” with an application to environmental issues. Empirical results from behavioural economics provide a reminder that human behaviour is context-dependent, implying that policy may go awry if based upon models of behaviour which are inappropriate to the contexts in which decisions are made. Recognizing that agents may, in some contexts, systematically make mistakes raises challenging questions about the role of “paternalism” in government policy. The paper considers the research into hyperbolic discounting, and examines the implications for environmental policy. We develop a model of resource management under hyperbolic discounting, which shows that if a planner is unable to commit to a policy, the temptation to re-evaluate the policy in future could lead to an inadvertent collapse in the stocks of a natural resource.

Measuring the Benefits of Neighbourhood Park Amenities: Application and Comparison of Spatial Hedonic Approaches

Abstract: The hedonic price method was used to estimate the influence of parks on the rental prices of single-room dwellings in Setagaya Ward, Tokyo, Japan. A simple least squares method is not optimal when the data set contains spatial autocorrelation. To improve the accuracy of estimates, we employed spatial autoregression and kriging models, resulting in a higher validity of the spatial models compared to the least squares model. Kriging models were superior to others particularly in terms of prediction accuracy, indicating that these models should be employed if the objective is superior prediction rather than estimation. The results showed that the effect of parks on property values varied with the buffer distance and park size.

Can a Focus on Breakthrough Technologies Improve the Performance of International Environmental Agreements

Abstract: In a recent paper, Barrett (Am Econ Rev 96(2):22–25, 2006) reaches the conclusion that in general the answer to the question in the title is no, except for a special case in which technology adoption involves increasing returns (network externalities). We show in this paper that a focus on the R&D phase in the development of breakthrough technologies can also increase the possibilities for cooperation.