Heinz Welsch

Preferences over Prosperity and Pollution: Environmental Valuation based on Happiness Surveys

This paper uses cross-national data from happiness surveys, jointly with data on per capita income and pollution, to examine how self-reported well-being varies with prosperity and environmental conditions. This approach allows us to show that citizens care about prosperity and the environment, and to calculate the trade-off people are willing to make between them. The paper finds that the effect of urban air pollution on subjective well-being shows up as a considerable monetary valuation of improved air quality. For instance, a representative German citizen would need to be given more than 1900

Corruption, growth, and the environment: a cross-country analysis

per year in order to accept the typical urban air pollution level prevailing in Japan. The subjective marginal valuation of air pollution is compared with marginal abatement costs from the literature. Copyright 2002 by WWZ and Helbing & Lichtenhahn Verlag AG

Energy-Capital-Labor Substitution and the Economic Effects of CO2 Abatement: Evidence for Germany

The relationship between per capita income and a number of pollution indicators has been found to display an inverted U-shaped or downward-sloping pattern. Corruption may affect this relationship in two distinct ways: by raising pollution at given income levels (direct effect) and by reducing per capita income (indirect effect). The total effect is ambiguous a priori. Using cross section data for several indicators of pollution, the paper estimates the direct and the indirect effect of corruption on pollution. The indirect effect via income is positive or negative depending on the income level. If negative, the indirect effect is dominated by the positive direct effect. Overall, our measures of pollution are monotonically increasing in corruption. Because this relationship is particularly strong at low income levels, developing countries can considerably improve both their economic and environmental performance by reducing corruption.

The effects of environmental fiscal reform in Germany: a simulation study

Although the economic effects of CO2 abatement depend substantially on the degree to which capital and labor can substitute for energy, the issue of energy-capital-labor substitution is surrounded by considerable uncertainty. In this article we use econometrically estimated, sectorally differentiated elasticities of substitution for Germany to shed some light on this issue. The elasticity estimates are used within a dynamic multisector CGE model to assess the economic effects of CO2 emission limits for Germany. In particular, we consider the implementation of emission limits by means of a carbon tax, assuming two alternative ways of tax revenue recycling, i.e., lump-sum transfer to private households versus labor cost reduction. The results are compared with results based on “standard” substitution elasticities from the literature. Because the estimated elasticities are on average higher and closer to unity than the “standard” elasticities, we get lower tax rates and tax revenues, and a more stable revenue/GDP ratio. In the case of using the tax revenue to reduce labor costs, the smaller revenue translates into a less favorable (but still positive) effect on employment and GDP. If the revenue is transferred to private households, the sensitivity of GDP with respect to the elasticities is rather negligible, whereas its various components are affected somewhat stronger.

The welfare costs of corruption

This paper presents the first comprehensive, model-based impact analysis of the German environmental fiscal reform, addressing the effects on CO2 emissions, economic growth, employment, and personal income distribution. Both an econometric input–output model and a dynamic computable general equilibrium model are applied in order to enhance the credibility of our results. The macroeconomic results are linked with a micro-simulation model of the household sector, so that detailed household data can be used to determine the effect of the environmental fiscal reform on personal income distribution. We find a small ‘double dividend’ in that energy consumption and CO2 emissions decrease while employment rises. The impact on economic growth is found to be minimal. The fear that the environmental fiscal reform might interfere with the goals of social and income-distribution policy is found to be largely unjustified.

The Social Costs of Civil Conflict: Evidence from Surveys of Happiness

Corruption has been shown to affect a variety of economic indicators, especially GDP per capita. However, as GDP is not a genuine indicator of welfare, it may reflect the welfare costs of corruption only in an incomplete way. This article uses self-rated subjective well-being as an empirical approximation to general welfare and shows that cross-national welfare – operationalized in this way – is affected by corruption not only indirectly through GDP, but also directly through nonmaterial factors. This article estimates the size of these effects as well as their monetary equivalent. The direct effect – not previously investigated in the corruption literature – is found to be substantially larger than the indirect effect.

Environmental Emissions and Production Economics: Implications of the Materials Balance

This paper uses data on stated subjective well-being to capture the intangible costs of civil conflict. By running cross-national regressions with happiness as the dependent variable, and the number of conflict victims and income as explanatory variables, it investigates if and in which way civil conflict affects happiness, and derives the implied monetary equivalent of the unhappiness caused. The paper finds that the number of conflict victims and their change over time significantly affect subjective well-being directly through health and psychic effects as well as indirectly through reduced income. The non-pecuniary effects are found to be larger than the income-related effect. A change over time in the number of victims has a stronger impact on well-being than the current number. There are sizeable monetary equivalents to these effects. Copyright 2008 The Authors.

Recycling of carbon/energy taxes and the labor market

In modeling emissions, the literature has usually specified an explicit emission function, or treated emissions as a production input. We examine the validity of these approaches, taking into account the materials balance principle. We show that a technology can equivalently be described by (i) a production function with material and nonmaterial inputs and bounded marginal product of the material input, (ii) a well-behaved production function with emissions as an input, and (iii) a well-behaved emission function, if the materials balance is accounted for as an additional condition. We offer a forma derivation of common, but not rigorously established modeling approaches. Copyright 2007, Oxford University Press.

Burden sharing in a greenhouse: egalitarianism and sovereignty reconciled

This paper provides a quantitative assessmet of a cost shift from labor to energy by means of a carbon/energy tax. The analysis utilizes a general equilibrium model for the European Community, placing the emphasis on the modeling of labor supply. The paper highlights the importance of the feedback from an induced increase in labor demand to wage formation. It shows that the goals of CO2 reduction and improved employment are complementary, provided the reduction in labor costs financed by the carbon/energy tax is not offset by increased wage claims. Under this condition, reduced CO2 is consistent with an increase in GDP.

Environment, Well-Being, and Experienced Preference

The allocation of emission entitlements across countries is the single most controversial issue in international climate policy. Extreme positions within the policy debate range from entitlements based on current emission patterns (sovereignty) to entitlements based on equal-per-capita allocations (egalitarianism). This paper shows that gradual convergence from sovereignty towards egalitarianism could provide a pragmatic solution to the equity debate: When combined with international emissions trading, the convergence approach stands out for offering the developing countries substantial incentives for participation in the international greenhouse gas abatement effort without imposing excessive burdens on the industrialized countries.