John Livernois

Truth or consequences: Enforcing pollution standards with self-reporting

Abstract Evidence suggests that a surprisingly large fraction of firms comply with pollution emission standards even though expected penalties for noncompliance are low. We offer an explanation of this puzzle by extending the standard model of enforcement to include a self-reporting requirement and enforcement power. These extensions are enough to challenge the conventional result that higher fines lead to higher compliance rates. We find that under plausible conditions, higher compliance rates are achieved with lower fines for noncompliance and the cost of enforcing a given level of aggregate pollution is minimized by setting the fine for noncompliance equal to zero.

Economic Instruments and Environmental Policy in Agriculture

Economic instruments can achieve environmental goals at least cost and provide incentives for further improvements. There are limited opportunities for the use of such instruments in agriculture where the pollution problems can be traced as in the case of intensive livestock operations. However, most environmental problems in agriculture involve a large number of diffuse pollution sources whose abatement practices are unobservable rendering it difficult to achieve cost-effetive pollution control with any single instrument. Rather than relying on firstbest solutions through economic instruments, the most effective way of dealing with diffusesource pollution problems in agriculture may be technological developments and business-led initiatives.

On the Empirical Significance of the Hotelling Rule

The Hotelling Rule—that price net of marginal cost must rise at the rate of interest in nonrenewable resource markets—forms the theoretical core of the economics of nonrenewable resources. It is present in one form or another in every modern paper on nonrenewable resource economics, and is the conceptual and theoretical framework used by economists to understand and model the long-run evolution of prices and supplies for nonrenewable resources. But what do we know about the empirical significance of the Hotelling Rule? What practical insights has it provided for understanding what we have actually observed in nonrenewable resource markets and how has it stood up to empirical scrutiny? These are the questions addressed in this paper. I review the evidence on the behavior of market prices over time, the evidence on the effects of technological change, direct tests of the Hotelling Rule, and the performance of the Hotelling Valuation Principle.

The Redistributive Effects of Lotteries: Evidence from Canada

The purpose of this article is to determine the income-redistributive effect of lottery programs in western Canada. This requires estimation of both the tax and the expenditure incidence of lottery profits. Previous research has been limited to measuring the tax incidence. The lotteries examined are found to be regressive in collecting public revenue, but considerably less regressive than the U.S. lotteries examined in the literature. In addition, the distribution of benefits resulting from the expenditure of lottery profits mildly favors upper-income groups. Thus lottery programs in western Canada are a regressive form of income redistribution.

On efficiency-inducing taxation for a non-renewable resource monopolist☆

The problem of using taxes to induce a monopolist supplier of a non-renewable resource to extract efficiently has been solved under the assumption that the government has perfect information about the monopolists cost function and reserves and is able to precommit to an entire sequence of taxes over time. We extend this literature by constructing an efficiency- inducing tax mechanism that does not require the government to have any information about the cost function or reserves and which does not require it to precommit to a sequence of taxes over time.

Price, scarcity rent, and a modified r per cent rule for non-renewable resources

Since Hotellings seminal paper on the optimal depletion of exhaustible resources, much has been published; yet confusion remains about whether scarcity rent and price increase or decrease as a resource is depleted when costs tend to rise with depletion. We show that Hotellings fundamental results of rising scarcity rent and price paths are sustained and that the path of scarcity rent converges on the per cent rule, provided the objective function is concave. Predictions of non-monotonic or declining scarcity rent paths are due to implicit assumptions that lead to a non-concave objective function. We identify the sources of these non-concavities.

Empirical evidence on the characteristics of extractive technologies: The case of oil

Abstract Despite the variety of assumptions about the structure of extraction cost functions in the theoretical literature, very little empirical work has been done on the characteristics of extractive technologies. This paper makes a step in this direction for conventional oil extraction. The results indicate that (i) marginal extraction costs (inclusive of the user cost of reservoir pressure) are independent of the extraction rate, (ii) the estimated shadow price of reservoir pressure is significantly higher for pools undergoing pressure maintenance, and (iii) the estimated technology fails to satisfy conditions for the existence of an aggregate optimal extraction problem.

Estimates of Marginal Discovery Costs for Oil and Gas

Previous estimates of the finding costs for oil and natural gas reserves have been impeded by the joint-cost problem in exp loration. The solutions have been to either estimate the finding cost for an oil-gas aggregate or to allocate total finding costs between oil discoveries and gas discoveries according to rules chosen by the researcher. In this paper, the joint-cost problem is circumvented by estimating a multiple-output, exploration cost function which is used to calculate the predicted values of marginal finding costs for oil and gas. These values are then compared to independent estimates of t he shadow prices of reserves for oil and gas to help settle the debat e over whether marginal finding costs provide a good measure of rent.

Marginal Effective Tax Rates for Capital in the Canadian Mining Industry: An Extension

The model of a mineral industry developed by R. Boadway, N. Bruce, K. McKenzie, and J. Mintz (1987) is extended in two directions. First, it is modified to incorporate explicitly nonrenewability of the resource and is shown to collapse to the case examined by Boadway, Bruce, McKenzie, and Mintz when mineral-bearing land is common property explored by an infinitely large number of firms. Second, the model is extended to capture the effect on the marginal effective tax rate for exploration of the differential tax treatment that exists between exploration costs and mineral property costs. The marginal effective tax rate is increased slightly, but not enough to alter the conclusion that the tax system subsidizes exploration.

A note on the effect of tax brackets on non-renewable resource extraction

Abstract Tax brackets are a common feature of non-renewable resource taxes. Although the introduction of brackets would seem to be an innocuous way of approximating a non-linear tax system, the dynamic effects are surprising. This paper shows that the presence of tax brackets in both a severance tax system and a profits tax system can induce the extractive firm to depart from the well-known monotonically declining extraction profile and to choose instead a profile which has constant extraction rates over some interval of time.