On the Core of an Economy with Multilateral and Multidimensional Environmental Externalities

For simple economic models of transfrontier pollution, Chander and Tulkens (1995) and (1997) have offered a formula for transfers to sustain international cooperation on a voluntary basis and which deter coalitionnal free-riding under some reasonable behaviours of countries not in the coalition. Their scheme rests on the assumption that pollution is a scalar. Relaxing this assumption, interesting interactions among pollutants arise that call for a new formula. In this paper we extend Chander and Tulkens formula for this more realistic multidimensional context, and thereby enhance the pratical and theoretical relevance of their seminal analysis.core

Public Infrastructure, non Cooperative Investments and Endogenous Growth

This paper develops a two-country general equilibrium model with endogenous growth where governments behave strategically in the provision of productive infrastructure. The public capitals enter both national and foreign production as an external input, and they are …nanced by a at tax on income. In the private sector, fi…rms and households take the public policy as given when making their decisions. For arbitrary constant tax rates, the dynamic analysis reveals two important features. Firstly, under constant returns, the two countries growth rates differ during the transition but are identical on the balanced growth path. Secondly, due to the infrastructure externality, assuming away constant returns to scale a country with decreasing returns can experience sustained growth provided that the other grows at a positive constant rate. Then we endogeneize tax rates. It is shown that both a Markov Perfect Equilibrium (MPE) and a Centralized Solution (CS) exist, even when the parameters allow for endogenous growth, therefore explosive paths for the state variables. Nash growth rates are compared with the centralized rates. We show that cooperation in infrastructure provision does not necessarily lead to higher growth for each country. We also show that, in some con…gurations of households' preferences and initial conditions, cooperation would call for a slowdown in the initial stages of development, whereas strategic investments would not. Lastly, depending also on the con…guration of preferences, we show that cooperation can increase or decrease the gap between countries' growth rates.

Deforestation as an externality problem to be solved efficiently and fairly

The international community recently agreed on a mechanism called REDD+ to reduce deforestation in tropical countries. However the mechanism, by its very nature, has no reason to induce a Pareto optimal reduction of deforestation. The aim of this article is to propose an alternative class of mechanisms for negative externalities that implements Pareto optimal outcomes as Nash Subgame Perfect Equilibria, and that satisfies some fairness properties, in particular two original axioms of environmental responsibility. Outcomes are individually rational and the scheme does take into account environmental responsibility in the sense of our two axioms. However, envy freeness, even in a weak form adapted to the deforestation problem, turns out to be hard to achieve without dropping the other properties.

Public infrastructure, non cooperative investments and endogeneous growth

This paper develops a two-country general equilibrium model with endogenous growth where governements behave strategically in the provision of productive infrastructure. The public capitals enter both national and foreign production as an external input, and they are financed by a flat tax on income. In the private sector, firms and households take the public policy as given when making their decisions. It is shown that both a Markov Perfect Equillibrium (MPE) and a Centralized Solution (CS) exist, even when the parameters allow for endogenous growth, therefore explosive paths for the state variables. And the dynamic analysis reveals three important features. Firstly, under constant returns, the two countries' growth rates differ during the transition but are identical on the balanced growth path. Secondly, due to the infrastructure externality, assuming away constant returns to scale a country with decreasing returns can experience sustained growth provided that the other grows at a positive constant rate. Thirdly, Nash growth rates are compared with the centralized rates. We show that cooperation in infrastructure provision does not necessarily lead to higher growth for each country. We also show that, in some configurations of households' preferences and initial conditions, cooperation would call for a recession in the initial stages of development, whereas strategic investments would not. Lastly, depending also on the configuration of preferences, we show that cooperation can increase or decrease the gap between countries' growth rates.

Voluntary Matching Grants can Forestall Social Dumping

The European economic integration leads to increasing mobility of factors, thereby threatening the stability of social transfer programs. This paper investigates the possibility to achieve by means of voluntary matching grants both the optimal allocation of factors and the optimal level of redistribution in the presence of factor mobility. We use a fiscal competition model a la Wildasin (1991) in which states differ in their technologies and preferences for redistribution. We first investigate a simple process in which the regulatory authority progressively raises the matching grants to the district choosing the lowest transfer and all districts respond optimally to the resulting change in transfers all around. This process is shown to increase total production and the level of reditribution. However it does not guarantee that all districts gain, nor that an efficient level of redistribution is attained. Assuming complete information among districts, we first derive the willingness of each district to match the contribution of other districts and we show that the aggregate willingness to pay for matching rates converges to zero when both the efficient level of redistribution and the efficient allocation of factors are achieved. We then describe the ajustment process for the matching rates that will lead districts to the efficient outcome and guarantee that everyone will gain.

Short-run stick and long-run carrot policy: the role of initial conditions

This paper explores the dynamic properties of price-based policies in a model of competition between two jurisdictions. Jurisdictions invest over time in infrastructure to increase the quality of the environment, a global public good. They are identical in all respects but one: initial stocks of infrastructure. This is a dynamic type of heterogeneity that disappears in the long run. Therefore, at the steady state, usual intuitions from static settings apply: identical jurisdictions inefficiently under-invest, calling for public subsidies. In the short run, however, counterintuitive properties are established: i) the evolution of capital stocks can be non-monotonic, ii) one jurisdiction can be temporarily taxed, even though it should increase its investment, whereas the other is subsidized. It is shown how these phenomena are related to initial conditions and the kind of interactions between infrastructure capitals, complementarity or substitutability.

Relative performance of two simple incentive mechanisms in a public goods experiment.

We compare the performance of two incentive mechanisms in public goods experiments. One mechanism, the Falkinger mechanism, rewards and penalizes agents for deviations from the average contributions to the public good (Falkinger mechanism). The other, the compensation mechanism, allows agents to subsidize the other agents' contributions (compensation mechanism). It is found that both mechanisms lead to an increase in the level of contributions to the public goods. However, the Falkinger mechanism predicts the average level of contributions more reliably than the compensation mechanism.incentive mechanisms; voluntary provision; public goods;

Agriculture production versus biodiversity protection: what role for north-south unconditional transfers?

In developing countries, biodiversity is often threatened by the development of agricultural production because natural habitats are destroyed by the conversion of forests, wetlands or natural pastures into arable land. There is a trade-o¤ between revenues generated by agricultural production and services supplied by unspoilt natural capital (ecological services, possibility to develop biodiversity-related tourism activities). Whereas agricultural pro.ts are private, biodiversity produces various types of ben[...].

The economics of the telethon: leadership, reciprocity and moral motivation

We run a series of experiments in which subjects have to choose their level of contribution to a pure public good. The design differs from the standard public good game with respect to the decision procedure. Instead of deciding simultaneously in each round, subjects are randomly ordered in a sequence which differs from round to round. We compare sessions in which subjects can observe the exact contributions from earlier decisions ("sequential treatment with information") to sessions in which subjects decide sequentially but cannot observe earlier contributions ("sequential treatment without information"). The results indicate that sequentiality increases the level of contribution to the public good when subjects are informed about the contribution levels of lower ranked subjects while sequentiality alone has no effect on contributions. Moreover, we observe that earlier players try to influence positively the contributions of subsequent decision makers in the sequence, by making a large contribution. Such behaviour is motivated by the belief that subsequent players will reciprocate by also making a large contribution. We also discuss the effect of group size on aggregate contributions. Finally, we conceptualize a model where agents’ preferences incorporate a “weak” moral motivation element. The moral motivation is “weak” in the sense that contributors update their morally ideal level of contribution according to observed behaviours. This suggested qualification of rational contributors fits well with the patterns observed in the lab.