Alfred Endres

Negotiating a climate convention: The role of prices and quantities

Abstract In this paper, we consider the economics of negotiating an international greenhouse convention. The agreement is either on emission charges (“prices”) or on emission quotas (“quantities”). We show that negotiations between non-identical countries generally lead to Pareto suboptimal conventions. The extent of the deviation of worldwide equilibrium emissions from Pareto optimal emissions depends upon whether the agreement takes the pricing or the quantity approach. Counterintuitively, it turns out that under certain circumstances the quantity convention is Pareto superior to the pricing agreement.

Quotas May Beat Taxes in a Global Emission Game

Economists have persistently argued that market-based instruments are better suited than command and control instruments (CAC) to achieve pollution abatement targets cost-effectively. However, this advice has not yet fallen on fertile soil. CAC is the predominant instrument in practical environmental policy. The paper attempts to give an explanation for this observation by analyzing two countries negotiating emission reductions in a world with “typical” institutional restrictions. Negotiations are assumed to be either on a uniform emission reduction quota or a uniform emission tax. Counterintuitively, it turns out that in such a second-best world an agreement under a cost-inefficient quota regime may be superior to an efficient tax agreement with respect to ecological and welfare criteria. Moreover, in contrast to a quota agreement, a tax agreement may not be feasible and stable if countries exhibit asymmetric cost-benefit structures.

Environmental Liability Law and Induced Technical Change: The Role of Spillovers

We investigate the incentives of environmental liability law to improve pollution control technology. It is shown that equilibrium choice of abatement technology and of the level of pollution reduction is socially optimal under very restrictive conditions. However, technological spillovers distort the incentives to innovate. The negligence rule turns out to be less sensitive to this problem than strict liability if the due-care standard is set sufficiently close to the second-best level of care.

Land use, biodiversity, and sustainability

We focus on the effects of deforestation for agricultural purposes on biodiversity. This topic has been dealt with in the recent literature where “forested land” and “biodiversity” are treated as synonyms. In contrast to that, this paper distinguishes between “forested land” and “forest” itself, the latter being interpreted as a measure of biodiversity. The regenerative capacity of forests is modeled as a function of the own stock and of the habitat size. In particular, the threat of a given minimum viable population to be achieved in the course of the reduction of habitats is taken into account. The corresponding structure of a sustainability indicator is elaborated.

MONOPOLY-POWER AS A MEANS FOR POLLUTION-CONTROL?*

Compared with the Pareto-optimal situation a polluting monopolist will produce too little as a monopolist and too much as a polluter. These two failures may-in principle-cancel each other and lead to a Pareto-optimal situation. This note is to point out that a polluting monopolist assumed to produce optimal output will realize the optimal level of pollution only if outputreduction is the sole means to reduce the-externality. When other efficient measures are possible, monopoly-power can-even theoretically-never correct the allocative failure of an external diseconomy because the monopolist will not use the efficient input mix. To obtain the Pareto-condition let us consider a perfectly competitive polluting firm A and a perfectly competitive damaged firm B. x andy are the respective outputs, QA and QB the respective profits of the two firms. Paretooptimum is achieved when the joint profit Qj is maximal. Given output reduction as the sole means of pollution control this leads to

Standard Oriented Environmental Policy: Cost-Effectiveness and Incentives for 'Green Technology'

Abstract In their seminal 1971 paper, W. J. Baumol and W. E. Oates analyzed effluent charges and ‘command and control’ regarding their ability to attain a given standard of environmental quality at minimum cost. In the subsequent literature, transferable discharge permits (TDPs) have been added to the portfolio of standard oriented environmental policy instruments. We place these instruments in a dynamic context. Here, cost minimization is defined in an intertemporal setting allowing for induced technical change. It turns out that the relative performance of alternative policy instruments regarding their ‘dynamic cost-effectiveness’ crucially depends on the information available to the involved agents. Under adverse informational conditions, only a TDP system with future markets is dynamically cost-effective.

On the Economics of Effluent Charges

Using the theory of the competitive firm in long-run industry equilibrium the authors investigate the effectiveness of an effluent charge in controlling an industrys long-run level of pollution. The success or failure of such a charge turns out to hinge upon the conditions prevailing in the industrys output and input markets. If merely one of these markets is less than perfectly elastic and if in addition the corresponding demand or supply schedule has the normal slope, the success of the charge is guaranteed; otherwise it is not.

Nonseparability and the voluntary approach to externality problems

Abstract Ronald Coase asserted that voluntary two-party bargaining with zero transaction costs results in an optimal resource allocation, which is invariant with respect to the liability rule. It has been argued that nonseparabilities destroy the validity of Coases theorem. In this paper it is shown that this criticism is based on implausible assumptions about the externality-receivers adjustment to the externality level.

Taxes versus quotas to limit global environmental risks: new insights into an old affair

Environmental problems with unknown emission abatement cost and damage are analyzed. The game under consideration is static, and its expected payoff structure displays a prisoners’ dilemma. Even in this most unfavorable setting cooperation might arise if the involved countries are sufficiently risk averse. It is shown that the degree of risk aversion necessary to foster cooperation depends on which environmental policy instruments (here, quotas or charges) are chosen. Moreover, there is a strategic interdependence by which one country may further the other country’s willingness to cooperate. The choice of environmental policy instruments turns out to be crucial also in this latter context.

Assessing the Different Instruments in Climate Change Mitigation from the Perspective of Economics

In this conference international experts from scientific institutions, governments and NGOs have discussed the serious problems posed by greenhouse gas emissions and alternative means for mitigation.