The economics of greenhouse gas accumulation: A simulation approach

This article investigates efficient policies against global warming in the case of multiple greenhouse gases. In a dynamic optimization model conditions for an efficient combination of greenhouse gases are derived. The model is empirically specified and adapted to a simulation approach. By various simulation runs, the economics of greenhouse gas accumulation are illuminated; and in particular, it is shown that a CO2-policy alone would most likely lead to an allocation far from efficiency. These results indicate, that policy measures against global warming should allow for substituting between different greenhouse gases. Such a policy would mainly affect the agricultural sector because livestock and intensive farming techniques contribute significantly to the emission of greenhouse gases.

Stabilising the global greenhouse: A simulation model

This paper investigates the economic implications of a comprehensive approach to greenhouse policies that strives to stabilise the atmospheric concentration of greenhouse gases at an ecologicaliy determined threshold level. In a theoretical optimisation model conditions for an efficient allocation of abatement effort among pollutants and over time are derived. The model is empirically speeified and adapted to a dynamic GAMS-algorithm. By various Simulation runs for the period of 1990 to 2110, the economics of greenhouse gas aecumulation are explored. In particular, the long-run cost associated with the above stabilisation target are evaluated for three different policy scenarios: i) a comprehensive approach that covers all major greenhouse gases simultaneously, ii) a piecemeal approach that is limited to reducing CO2 emissions, and iii) a tenyear moratorium that postpones abatcment effort until new scientific cvidence on the greenhouse effect will become available. Comparing the Simulation results suggests that a piecemeal approach would considerably increase total cost, whercas a ten-year moratorium might be reasonable even if the probability of 'good news' is comparatively small.

Regulate us, please!: On strategic lobbying in cournot-nash oligopoly

Empirical studies on industry lobbying sometimes reveal that certain firms within an industry behave atypically in that they promote cost driving regulations like, e.g., environmental standards. For analysing this phenomenon of 'strategic lobbying1, the present paper combines a heterogeneous Cournot-Nash oligopoly with a model of endogenous policy making where two parties compete for campaign contributions spent by the regulated industry. It is shown that the existence of potential regulation gains (and consequently the incentive for strategic lobbying activities) depends on the relationship between possible cost differentials and the market structure of the industry under consideration. Based on these results, the paper examines the effects of strategic lobbying for two different scenarios. The first scenario assumes that only one firm is engaged in lobbying, whereas the second scenario looks at simultaneous (competing) lobbying activities by several firms.

Incentives for Innovation in Pollution Control: Emission Standards Revisited

Conventional analysis of the economics of environmental policy usually claims that emission taxes induce a stronger incentive for an improvement in pollution abatement technologies compared to emission standards. In contrast, recent empirical studies reveal that there is no systematic relationship between improvements in pollution abatement technologies and the policy instrument chosen. The present paper tries to clarify this contradiction. In the first step the paper shows that the conventional model of innovation in pollution control under different policy regimes is deficient in at least two ways: It neglects policy impacts on the firms’ output level and it assumes a rather unrealistic type of emission standard. In the second step the paper presents a more elaborated model which tries to overcome these shortcomings. Using this model it is shown that the impact on innovation in pollution control caused by taxes and standards strongly depends on the scale of technical progress as well as on the cost structure of the firm under consideration such that there is no unique ranking of the two policies. Finally, the paper discusses the policy implications of these findings.emission standards, emission taxes, incentives to innovate

Managing waste exports when closure risks are endogenous

This paper provides a rationale for taxing waste exports when closure risks are endogenous in that they depend on the importing country's accumulated stock of waste. The paper shows that the optimal time path of waste exports requires a progressively increasing tax rate which even surmounts a Hotelling tax which tackles the problem by evaluating the expected closure stock.

Strategic Environmental Policy and the Accumulation of Knowledge

Recent political discussions about the possible advantages of first-mover behaviour in terms of environmental policy again called attention to the well-established controversy about the effects of environmental regulation on international competitiveness. Conventional theory claims that the trade-off between regulation and competitiveness will be negative while the revisionist view, also known as the Porter Hypothesis, argues for the opposite. Several previous attempts that analysed this quarrel by means of strategic trade game settings indeed support the former claim and conclude that, to increase a firm’s competitiveness, ecological dumping is the most likely outcome in a Cournot duopoly configuration. However, these results were derived from one period games in which so-called innovation offsets are unlikely to occur. The present paper considers a two-period model that includes an intertemporally growing firm-level knowledge capital. In doing so the accumulation of knowledge is modelled in a unilateral and a bilateral variant. It is shown that for both scenarios in period 1 the domestic government will set a higher emission tax rate compared to its foreign counterpart. Furthermore, we identify conditions for which the domestic tax rate will be set above the Pigouvian level in period 1 in both model variants.first-mover behaviour, Porter Hypothesis, strategic environmental policy, environmental regulation, international competitiveness

Policy Diffusion, Lobbying and the Taxation of Emissions

Policy diffusion refers to the process by which a political innovation – like the introduction of a novel emission tax – disseminates over time among countries. In order to analyze this issue from an economic point of view we develop a simple two-country-model of the taxation of emissions in presence of (possible) policy diffusion. Contrary to the usual Nash setting of simultaneous decision making we consider a Stackelberg game: In the first step the domestic government introduces an emission tax td thus acting as Stackelberg-leader, in the second step the foreign government decides whether or not to introduce an emission tax tf and in the third step the firms decide on their output quantities to be sold on a third country’s market. For the case of an exogenous given probability of policy diffusion we show that the optimal domestic tax rate is c.p. the higher, the higher the probability of policy diffusion is. Moreover, we explore under which conditions first-mover behaviour by the domestic government leads to a higher tax rate compared to the Nash solution In the next step we introduce an endogenous probability of policy diffusion by combining our model with a strategic lobbying approach. As a result, the probability of policy diffusion is c.p. the smaller, the higher domestic tax rate td is. Consequently, in fixing the optimal tax rate the domestic government has to account for the foreign firm’s lobbying activities otherwise it will choose a tax rate too high.emission taxes, first-mover behaviour, strategic environmental policy, policy diffusion

Stock-dependent uncertainty and optimal resource exploitation

The probability that an agent takes a certain action or a certain event occurs depends often on the actions taken by some agents. If this probability depends not only on current actions but on the sum of all past actions, these stock-dependent risks imply an intertemporal effect. In the present paper, we analyse this problem using an example concerning the exploitation of a non-renewable, exhaustible common-pool resource. The paper discusses resource extraction policies under endogenous closure risks which depend on the accumulated stock of extracted resources. It turns out that the optimal time path of resource extractions requires a tax rate which surmounts both the no-risk and second-best tax which tackles the problem by a mere evaluation of the expected exhaustibility stock:

Education, Research and the Impact of Tuition Fees: A Simple Model of the University

The present paper analyses the behaviour of a university within a neoclassical equilibrium framework. Demand for enrolments is traced back to the decision of potential students which aim at maximizing expected lifetime income. Here, the key factors are the students? preferences and abilities, the quality of education offered by the university and several external determinants like, e.g., tuition fees and differences in income between graduates and non-graduates. In turn, the behaviour of the university in terms of educational efforts and the strength of academic standards depends on the demand for enrolments, on financial resources available and on the specific objectives pursued by the university. The main emphasis is on the implications of different funding mechanism (governmental grants vs. tuition fees) in combination with different objectives pursued (maximizing enrolments vs. maximizing prestige via research output). It is shown that for given financial resources a university that aims at maximizing prestige always provides only a lower quality of education for a smaller number of students compared to a university that aims at maximizing enrolments. Moreover, the effects caused by changes in governmental grants or tuition fees are quite different depending on the university?s objectives. Yet, there is also one common feature: Irrespective of which utility function is maximized, partially substituting governmental grants by tuition fees would change neither educational efforts nor academic standards, but it would inevitably lead to decreasing enrolments. As a positive side-effect, however, the average ability of the remaining population of students would increase

Effiziente Klimapolitik im Mehrschadstoffall

Zur Vermeidung der als 'Treibhauseffekt' bekannten Klimaveränderung werden zur Zeit fast ausschließlich Maßnahmen der Kohlendioxid-Reduzierung diskutiert, obwohl neben CO2 noch eine Reihe weiterer Luftschadstoffe für den Treibhauseffekt verantwortlich sind . Im folgenden wird in Abschnitt 1 anhand eines statischen Modells gezeigt, daß eine solche Beschränkung auf die alleinige Reduktion von CO2 nur unter sehr restriktiven Bedingungen ökonomisch effizient sein kann. Ausgehend von dieser Feststellung werden dann in den Abschnitten 2 und 3 die Eigenschaften effizienter intertemporaler Reduktionspfade für den Mehrschadstoffall untersucht. Neben den unterschiedlichen Treibhauspotentialen der betreffenden Schadstoffe werden hierbei auch deren natürliche Abbauraten berücksichtigt. Danach wird in Abschnitt 4 gezeigt, wie die effiziente Lösung durch ein System von Emissionsabgaben dezentralisiert werden kann. Schließlich wird in Abschnitt 5 anhand einer Quantifizierung dieses Abgabensystems diskutiert, welche empirischen Schlußfolgerungen sich aus den vorliegenden Ergebnissen ziehen lassen