Leadership and self-enforcing international environmental agreements with non-negative emissions

For the widely-used linear-quadratic model of stable IEAs the key results are: (i) if the members of the IEA act in a Cournot fashion with respect to non-signatories, a stable IEA has no more than 2 signatories; (ii) if the signatories act as Stackelberg leaders, a stable IEA can have any number of signatories. These results were derived using numerical simulations and ignored the non-negativity constraint on emissions. Recent papers using analytical approaches and explicitly recognising the non-negativity constraint have suggested that with Stackelberg leadership a stable IEA has at most four signatories. Such papers have introduced non-negativity constraints by restricting parameter values to ensure interior solutions for emissions, which restricts the number of signatories. We use the more appropriate approach of directly imposing the non-negativity constraint on emissions, recognising that for some parameter values this will entail corner solutions, and show, analytically, that the key results from the literature go through

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

Much of the literature on international environmental agreements 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 Barrett (1994) model, in which unit damage costs increase with the stock of pollution, and countries decide each period whether to join an IEA. We show that there exists a steady-state stock of pollution with corresponding steady-state IEA membership, and that if the initial stock of pollution is below (above) steady-state then membership of the IEA declines (rises) as the stock of pollution tends to steady-state. As we increase the parameter linking damage costs to the pollution stock, initial and steady-state membership decline; in the limit, membership is small and constant over time. Keywords; self-enforcing international environmental agreements, internal and external stability, stock pollutant

Leadership and self-enforcing international environmental agreements with non-negative emissions

For the widely-used linear-quadratic model of stable IEAs the key results are: (i) if the members of the IEA act in a Cournot fashion with respect to non-signatories, a stable IEA has no more than 2 signatories; (ii) if the signatories act as Stackelberg leaders, a stable IEA can have any number of signatories. These results were derived using numerical simulations and ignored the non-negativity constraint on emissions. Recent papers using analytical approaches and explicitly recognising the non-negativity constraint have suggested that with Stackelberg leadership a stable IEA has at most four signatories. Such papers have introduced non-negativity constraints by restricting parameter values to ensure interior solutions for emissions, which restricts the number of signatories. We use the more appropriate approach of directly imposing the non-negativity constraint on emissions, recognising that for some parameter values this will entail corner solutions, and show, analytically, that the key results from the literature go through.

Consumer behaviour with environmental and social externalities : implications for analysis and policy

In this paper we summarise some of our recent work on consumer behaviour, drawing on recent developments in behavioural economics, particularly linked to sociology as much as psychology, in which consumers are embedded in a social context, so their behaviour is shaped by their interactions with other consumers. For the purpose of this paper we also allow consumption to cause environmental damage. Analysing the social context of consumption naturally lends itself to the use of game theoretic tools. We shall be concerned with two ways in which social interactions affect consumer preferences and behaviour: socially-embedded preferences, where the behaviour of other consumers affect an individual’s preferences and hence consumption (we consider two examples: conspicuous consumption and consumption norms) and socially-directed preferences where people display altruistic behaviour. Our aim is to show that building links between sociological and behavioural economic approaches to the study of consumer behaviour can lead to significant and surprising implications for conventional economic analysis and policy prescriptions, especially with respect to environmental policy.PostprintPeer reviewe

So Far so Good: Age, Happiness, and Relative Income

In a simple 2-period model of relative income under uncertainty, higher comparison income for the younger cohort can signal higher or lower expected lifetime relative income, and hence either increase or decrease well-being. With data from the German Socio-Economic Panel and the British Household Panel Survey, we first confirm the standard negative effects of comparison income on life satisfaction with all age groups, and many controls. However when we split the West German sample by age we find a positive significant effect of comparison income in the under 45s, and the usual negative effect only in the over 45 group. With the same split in UK and East German data, comparison income loses significance, which is consistent with the model prediction for the younger group. Our results provide first evidence that the standard aggregation with only a quadratic control for age can obscure major differences in the effects of relative income.Subjective life-satisfaction, comparison income, reference groups, age, welfare

Optimal redistributive tax and education policies in general equilibrium

This paper studies optimal linear and non-linear income taxes and education subsidies in two-type models with endogenous human capital formation, endogenous labor supply, and endogenous wage rates. Assuming constant human capital elasticities, human capital investment should be efficient under optimal linear policies, whether general equilibrium effects are present or not. Hence, education subsidies should not be used for distributional reasons. Due to general equilibrium effects, optimal linear income taxes may even become negative. Optimal non-linear policies exploit general equilibrium effects for redistribution. The high-skilled type optimally has a negative marginal income tax rate and a positive marginal education subsidy. The low-skilled type optimally faces a positive marginal income tax rate and a marginal tax on education. Simulations demonstrate that general equilibrium effects have only a modest effect on optimal non-linear policies

Endogenous Risks and Learning in Climate Change Decision Analysis

We analyze the effects of risks and learning on climate change decisions. A two-stage, dynamic, climate change stabilization problem is formulated. The explicit incorporation of ex-post learning induces risk aversion among ex-ante decisions, which is characterized in linear models by VaR- and CVaR-type risk measures. Combined with explicit introduction of "safety" constraints, it creates a "hit-or-miss" type decision-making situation and shows that, even in linear models, learning may lead to either less-or more restrictive ex-ante emission reductions. We analyze stylized elements of the model in order to identify the key factors driving outcomes, in particular, the critical role of quantiles of probability distributions characterizing key uncertainties

Formulating genome-scale kinetic models in the post-genome era

The biological community is now awash in high-throughput data sets and is grappling with the challenge of integrating disparate data sets. Such integration has taken the form of statistical analysis of large data sets, or through the bottom–up reconstruction of reaction networks. While progress has been made with statistical and structural methods, large-scale systems have remained refractory to dynamic model building by traditional approaches. The availability of annotated genomes enabled the reconstruction of genome-scale networks, and now the availability of high-throughput metabolomic and fluxomic data along with thermodynamic information opens the possibility to build genome-scale kinetic models. We describe here a framework for building and analyzing such models. The mathematical analysis challenges are reflected in four foundational properties, (i) the decomposition of the Jacobian matrix into chemical, kinetic and thermodynamic information, (ii) the structural similarity between the stoichiometric matrix and the transpose of the gradient matrix, (iii) the duality transformations enabling either fluxes or concentrations to serve as the independent variables and (iv) the timescale hierarchy in biological networks. Recognition and appreciation of these properties highlight notable and challenging new in silico analysis issues

Technological Change in Economic Models of Environmental Policy: A Survey

This paper provides an overview of the treatment of technological change in economic models of environmental policy. Numerous economic modeling studies have confirmed the sensitivity of mid- and long-run climate change mitigation cost and benefit projections to assumptions about technology costs. In general, technical progress is considered to be a noneconomic, exogenous variable in global climate change modeling. However, there is overwhelming evidence that technological change is not an exogenous variable but to an important degree endogenous, induced by needs and pressures. Hence, some environmenteconomy models treat technological change as endogenous, responding to socio-economic variables. Three main elements in models of technological innovation are: (i) corporate investment in research and development, (ii) spillovers from R&D, and (iii) technology learning, especially learning-by-doing. The incorporation of induced technological change in different types of environmental-economic models tends to reduce the costs of environmental policy, accelerates abatement and may lead to positive spillover and negative leakage