Jacob LaRiviere

The Effects of Experience on Preferences: Theory and Empirics for Environmental Public Goods

This article develops a choice model for environmental public goods, which allows for consumers to learn about their preferences through consumption experiences. We develop a theoretical model of Bayesian updating, perform comparative statics over the model, and show how the theoretical model can be consistently incorporated into a reduced form econometric model. Our main findings are that in a random utility model (RUM) discrete choice model, a subjects scale should increase and the variability of scale should decrease with experience if subjects are Bayesians. We then estimate the model using field data regarding preferences for one particular public good, water quality. We find strong evidence that additional experience increases scale, thereby making consumer preferences more predictable from the econometricians perspective. We find supportive but less convincing evidence that experience decreases the variability of scale across subjects.

Optimal management of a stochastically varying population when policy adjustment is costly

Ecological systems are dynamic and policies to manage them need to respond to that variation. However, policy adjustments will sometimes be costly, which means that fine-tuning a policy to track variability in the environment very tightly will only sometimes be worthwhile. We use a classic fisheries management problem, how to manage a stochastically varying population using annually varying quotas in order to maximize profit, to examine how costs of policy adjustment change optimal management recommendations. Costs of policy adjustment (changes in fishing quotas through time) could take different forms. For example, these costs may respond to the size of the change being implemented, or there could be a fixed cost any time a quota change is made. We show how different forms of policy costs have contrasting implications for optimal policies. Though it is frequently assumed that costs to adjusting policies will dampen variation in the policy, we show that certain cost structures can actually increase variation through time. We further show that failing to account for adjustment costs has a consistently worse economic impact than would assuming these costs are present when they are not.

Public Policy and the Private Provision of Public Goods under Heterogeneous Preferences

We compare the relative efficiency of second-best policies designed to promote the private provision of public goods. We use the provision of local public goods as our central example and discuss settings in which the model extends to choices over energy-consuming durables. We introduce preference heterogeneity by allowing a subset of agents to value the public good more than others, reflecting a form of prosocial preference. We further assume that agents face convex costs of provision, an assumption that accords well with individually provided public goods such as neighborhood amenities. We show that minimum standards are often more efficient than uniform price-based incentives in this setting. Extending our model to allow for both benefit and cost heterogeneity, we show how policy choice depends on the strength and correlation between the two forms of heterogeneity.

The Power of the Little Blue Pill: Innovations and Implications of Lifestyle Drugs in an Aging Population

The launch of Viagra in April 1998 led to a historically unprecedented high usage of erectile dysfunction (ED) drugs. We test whether Viagras introduction significantly influenced outcomes for its target population such as STD rates of older men, as well as its non-target populations, such as divorces, natality, the distribution of the age spread within couples, female STDs and sexual assault rates. We find causal evidence that Viagras introduction increased Gonorrhea rates in older men by 15-28%. We find no significant evidence of any effects on other variables. We take this as evidence that this lifestyle drug causes significant changes in choices only which affect short term outcomes, while long term planned decisions are unaffected. Overall, we find that the welfare impacts of Viagra with respect to our outcomes of interest are positive and large.

The Treatment of Uncertainty and Learning in the Economics of Natural Resource and Environmental Management

Environmental and resource economists often use models that include uncertainty and ways to reduce that uncertainty through learning. Using a standard environmental and resource economics framework, this article parses several different forms of uncertainty and learning that are commonly considered in the literature. We then review the applied theory literature using that framework to assess whether there is support for four hypotheses associated with uncertainty and learning in environmental management that have been raised in policy circles. We find that these hypotheses are often true for one type of uncertainty or learning but not another, highlighting how a lack of clarity can lead to confusion among researchers and policymakers.

Shareholder Protection and Agency Costs: An Experimental Analysis

Two competing principal–agent models explain why firms pay dividends. The substitute model proposes that corporate insiders pay dividends to signal and build trust with outside shareholders who lack legal protection. The outcome model, in contrast, surmises that when shareholders have legal protection, they demand dividends from insiders to prevent them from expropriating corporate funds. Either way, dividends represent an agency cost paid to align the interests of shareholders and insiders. Expropriations by insiders and reduced investment by shareholders are also agency costs, but they are difficult to identify with archival data. Using a laboratory experiment, we identify the impact of strengthened shareholder protection on all three types of agency costs. Dividend payout ratios are five times larger with stronger investor protection, insider expropriation ratios are twice as high, and outsider investment falls by 45%. Thus, we find evidence that strengthening shareholder protection introduces previous...

Opportunity Cost Pass-Through from Fossil Fuel Market Prices to Procurement Costs of the U.S. Power Producers: OPPORTUNITY COST PASS-THROUGH FROM FOSSIL FUEL PRICES

This paper investigates the transmission of fossil fuel commodity spot market price changes to procurement costs of U.S. power producers. We measure and compare the speed and magnitude with which spot prices predict procurement costs using restricted access fuel price data. Natural gas spot prices are quickly reflected in procurement costs. Coal spot prices offer very little predictive power to coal procurement costs. Although not causal, the empirical results also show differences across regulatory status. These findings may have implications for the electricity market deregulation literature that creates marginal cost curves as a competitive benchmark.

Clustered into Control: Causal Impacts of Water Infrastructure Failure

The causal economic impacts of water infrastructure disruptions in OECD countries are largely unknown. Using details of water main break events in Washington, DC, and hourly traffic speeds for 2,182 road segments in a quasi-experimental difference-in-difference design, we estimate the causal effect of main failure on congestion. We use k-means clustering to match treated road segments to control segments. Although precisely estimated, the magnitude of our treatment effects is economically small even when accounting for temporal traffic heterogeneity. Our results suggest that traffic concerns alone are not a justification for policy makers to alter repair strategy for distributed water infrastructure.