Fabien Prieur

Optimal Emission Policy Under the Risk of Irreversible Pollution

We consider an optimal consumption and pollution problem that has two important features. Environmental damages due to economic activities may be irreversible and the level at which the degradation becomes irreversible is unknown. Particular attention is paid to the situation where agents are relatively impatient and/or do not care a lot about the environment and/or Nature regenerates at low rate. We show that the optimal policy of the uncertain problem drives the economy in the long run toward a steady state while, when ignoring irreversibility, the economy follows a balanced growth path accompanied by a perpetual decrease in environmental quality and consumption, both asymptotically converging toward zero. Therefore, accounting for the risk of irreversibility induces more conservative decisions regarding consumption and polluting emissions. In general, however, we cannot rule out situations where the economy will optimally follow an irreversible path and consequently, will also be left, in the long run, with an irreversibly degraded environment.

GROWTH AND IRREVERSIBLE POLLUTION: ARE EMISSION PERMITS A MEANS OF AVOIDING ENVIRONMENTAL AND POVERTY TRAPS?

We consider an OLG model with emissions arising from production and potentially irreversible pollution. Pollution control consists of the assignment of permits to firms; private agents also can abate pollution. In this setting, we prove that multiple equilibria exist. Due to the possible irreversibility of pollution, the economy can be dragged into both environmental and poverty traps. First, we show that choosing an emission quota at the lowest level beyond a critical threshold is a means to avoid these two types of traps. We also prove that when the agents do not engage in maintenance, a reduction of the quota leads to a reduction in pollution but also to slower capital accumulation. In contrast, when agents do engage in maintenance, a reduction of the quota provides a double dividend.

Global Emission Ceiling Versus International Cap and Trade: What is the Most Efficient System to Solve the Climate Change Issue?

We model the climate change issue as a pollution control game with the purpose of comparing two possible departures from the business as usual (BAU) where countries noncooperatively choose their emission levels. In the first scenario, players have to agree on a global emission cap (GEC) that is enforced by a uniform taxation scheme. They still behave strategically when choosing emission levels but are now subject to the coupled constraint imposed by the cap. The second scenario consists of the implementation of an international cap and trade (ICT) system. In this case, players decide on their emission quotas, and emission trading is allowed. A three heterogenous player quadratic game serves as a basis for the analysis. When the cap is binding, among all the coupled constraints Nash equilibria, we select a particular normalized equilibrium by solving a variational inequality. Comparing the normalized equilibrium with the Nash equilibria of the BAU and the ICT, we first show that if the cap is appropriately chosen, then the GEC system improves all players’ payoffs, relative to the BAU. The GEC system may thus be unanimously approved whereas the ICT is not, because moving from the BAU to the ICT is costly for one player. Second, for some values of the cap, all players get a higher payoff under the GEC than under the ICT. Therefore, the GEC outperforms the ICT both in terms of feasibility and efficiency.

Public infrastructure, non-cooperative investments, and endogenous growth

Two countries strategically invest in productive infrastructure within a general equilibrium model with endogenous growth. These public investments generate externalities. Dynamic analysis reveals that: (1) under constant returns, the two countries growth rates differ during the transition but are identical on the balanced growth path, (2) a country with decreasing returns can experience sustained growth provided that the other country grows at a positive constant rate, (3) cooperation does not necessarily lead to higher growth for each country, and it can increase or decrease the gap between countries growth rates depending on the countries consumption preferences regarding domestic and foreign goods.

The Dynamics of Lobbying under Uncertainty: On Political Liberalization in Arab Countries

We consider a framework a la Wirl (1994) where political liberalization is the outcome of a lobbying differential game between a conservative elite and a reformist group, the former player pushing against political liberalization in opposition to the latter. In contrast to the benchmark model, we introduce uncertainty. We consider the typical case of an Arab oil exporter country where oil rents are fiercely controlled by the conservative elite. We assume that the higher the oil rents, the more reluctant to political liberalization the elite is. Two states of nature are considered (high vs low resource rents). We then compute the Market-perfect equilibria of the corresponding piecewise deterministic differential game. It is shown that introducing uncertainty in this manner increases the set of strategies compared to Wirls original setting. In particular, it is shown that the cost of lobbying might be significantly increased under uncertainty with respect to the benchmark. This ultimately highlights some specificities of the political liberalization at stake in Arab countries and the associated risks.

On the Timing of Political Regime Changes: Theory and Application to the Arab Spring

We develop a continuous time dynamic game to provide with a benchmark theory of Arab Spring-type events. We consider a resource-dependent economy with two interacting groups, the elite vs. the citizens, and two political regimes, dictatorship vs. a freer regime. Transition to the freer regime can only be achieved if citizens decide to revolt given the concession/repression policy of the elite. Departing from the related literature, the revolution optimal timing is an explicit control variable in the hands of citizens. The elite is the strategic leader: she ultimately chooses her policy knowing the reaction function of citizens. In this framework, we provide with a full equilibrium analysis of the political regime switching game and notably emphasize the role of the direct switching cost of the citizens and of the elites self-preservation options. In particular, we show how the incorporation of explicit revolution timing may change the conventional wisdom in the related institutional change literature. Finally, we emphasize how the theory may help explaining some key features of the Arab Spring.

Climate politics: how public persuasion affects the trade-off between environmental and economic performance

Abstract This paper aims at studying the impact of public persuasion, through information dissemination, on environmental and economic performance. A differential game in which opposite interest groups compete for bringing the majority’s environmental concern closer to their views is developed. The results show a strong asymmetry in the impact of public persuasion. It may bring the median voter economy closer to the social optimum in the long run, thereby reducing environmental and economic distortions. But this only occurs when the environmental group exhibits a radical ideology and people are initially closer to the industrialists’ views. By contrast, economies where industrial groups are powerful and strongly opposed to environmental protection never benefit from the outcome of the game of persuasion. This may explain why the US have failed to take action on global warming up to now.

Public infrastructure, non-cooperative investments, and endogenous growth: Public infrastructure, non-cooperative investments

Two countries strategically invest in productive infrastructure within a general equilibrium model with endogenous growth. These public investments generate externalities. Dynamic analysis reveals that: (1) under constant returns, the two countries growth rates differ during the transition but are identical on the balanced growth path, (2) a country with decreasing returns can experience sustained growth provided that the other country grows at a positive constant rate, (3) cooperation does not necessarily lead to higher growth for each country, and it can increase or decrease the gap between countries growth rates depending on the countries consumption preferences regarding domestic and foreign goods.