Consumption of private goods as substitutes for environmental goods in an economic growth model

We analyze growth dynamics in an economy where a private good can be consumed as a substitute for a free access environmental good. In this context we show that environmental deterioration may be an engine of economic growth. To protect themselves against environmental deterioration, economic agents are forced to increase their labour supply to increase the production and consumption of the private good. This, in turn, further depletes the environmental good, leading economic agents to further increase their labour supply and private consumption and so on. This substitution process may give rise to self-enforcing growth dynamics characterized by a lack of correlation between capital accumulation and private consumption levels, on one side, and economic agents’ welfare, on the other. Furthermore, we show that agents’ self-protection consumption choices can generate indeterminacy; that is, they can give rise to the existence of a continuum of (Nash) equilibrium orbits leading to the same attracting fixed point or periodic orbit.Self-protection choices; indeterminacy; undesirable economic growth; negative externalities

Accuracy of premium calculation models for CAT bonds: An empirical analysis

CAT bonds are of significant importance in the field of alternative risk transfer. Since the market of CAT bonds is not complete, the application of an appropriate pricing model is of high relevance. We apply different premium calculation models in order to compare them with regard to their predictive power. Without taking the financial crisis into account, a version of the Wang transformation model and the linear model are the most accurate ones. In contrast, under consideration of the financial crisis, all analyzed models are approximately equivalent. Furthermore, we find that CAT bond specific information does not improve out-of-sample results. --CAT Bonds,Alternative Risk Transfer,Premium Calculation Models,Empirical Analysis

Visitor and firm taxes versus environmental options in a dynamical context

The main objective of the paper is to analyze the effects on economic agents’ behavior deriving from the introduction of financial activities aimed to environmental protection. The environmental protection mechanism we study should permit exchange of financial activities among citizens, firms, and Public Administration. Such a particular “financial market” is regulated by the Public Administration, but mainly fuelled by the interest of two classes of involved agents: firms and dwelling citizens. We assume that the adoption process of financial decisions is described by a two-population evolutionary game and we study the basic features of the resulting dynamics.Environmental options; environment preserving technologies; evolutionary games; tourism

Generalized Trust and Sustainable Coexistence between Socially Responsible Firms and Non Profit Organizations

In this paper, we focus on a specific component of economically rel- evant trust, i.e. on what we call `institutionally produced generalized trust', defined as the amount of widespread trust (which is a public good for the economic system as a whole) endogenously and continuously gen- erated by the interaction of two types of private organizations operating in the economy: for-profit firms and nonprofit organizations. Through an evolutionary model with a trust accumulation equation and two replicator equations (capturing the evolution of economic organizations over time) we show that (1) The fixed point where all the four sub-types of private organizations considered in the model are simultaneously present can be attractive only if `virtuous' for-profits (i.e. socially responsible firms) and `virtuous' nonprofits (i.e. actually trustworthy mission-oriented organiza- tions) generate a negative externality on the other organizations of the same type. (2) The fixed point where the level of trust is very low and no socially responsible firms neither trustworthy organizations are present can be attractive; this social configuration interestingly recalls, to some extent, what some prominent social scientists depict as a trend currently occurring in the United States. (3) A socio-economic scenario where four pure population fixed points are simultaneously attractive exists.Generalized trust; socially responsible firms; nonprofit organizations; evolutionary games

Visitor and firm taxes versus environmental options in a dynamical context

The main objective of the paper is to analyze the effects on economic agents' behavior deriving from the introduction of financial activities aimed to environmental protection. The environmental protection mechanism we study should permit exchange of financial activities among citizens, firms, and Public Administration. Such a particular “financial market” is regulated by the Public Administration, but mainly fuelled by the interest of two classes of involved agents: firms and dwelling citizens. We assume that the adoption process of financial decisions is described by a two-population evolutionary game and we study the basic features of the resulting dynamics

Environmental pollution as engine of industrialization

This paper analyzes the dynamics of a small open economy characterized by two sectors (a farming sector and an industrial sector), heterogeneous agents (workers and entrepreneurs) and free inter-sectoral labor mobility. Labor productivity in the farming sector is negatively affected by environmental pollution generated by both sectors. Labor productivity in the industrial sector is positively affected by physical capital accumulated by entrepreneurs. We show that, as in the seminal contribution by Matsuyama (1992), low productivity of labor in the farming sector can be an engine of the industrialization process. However, in contrast with Matsuyama’s results, our analysis shows that the accumulation of pollution may fuel a self-enforcing process such that the expansion of the industrial sector generates a decrease in workers’ revenues

Consumption of private goods as substitutes for environmental goods in an economic growth model

We analyze growth dynamics in an economy where a private good can be consumed as a substitute for a free access environmental good. In this context we show that environmental deterioration may be an engine of economic growth. To protect themselves against environmental deterioration, economic agents are forced to increase their labour supply to increase the production and consumption of the private good. This, in turn, further depletes the environmental good, leading economic agents to further increase their labour supply and private consumption and so on. This substitution process may give rise to self-enforcing growth dynamics characterized by a lack of correlation between capital accumulation and private consumption levels, on one side, and economic agents’ welfare, on the other. Furthermore, we show that agents’ self-protection consumption choices can generate indeterminacy; that is, they can give rise to the existence of a continuum of (Nash) equilibrium orbits leading to the same attracting fixed point or periodic orbit

Environmental Options and Technological Innovation: An Evolutionary Game Model

This paper analyses the effects on economic agents' behaviour of an innovative environmental protection mechanism that the Public Administration of a tourist region may adopt to attract visitors while protecting the environment. On the one hand, the Public Administration sells to the tourists an environmental call option that gives them the possibility of being (partially or totally) reimbursed if the environmental quality in the region turns out to be below a given threshold level. On the other hand, it offers the firms that adopt an innovative, non-polluting technology an environmental put option that allows them to get a reimbursement for the additional costs imposed by the new technology if the environmental quality is above the threshold level. The aim of the paper is to study the dynamics that arise with this financial mechanism from the interaction between the economic agents and the Public Administration in an evolutionary game context.Environmental Bonds, Call and Put Options, Technological Innovation, Evolutionary Dynamics