Karen Pittel

The Implications of Heterogeneous Resource Intensities on Technical Change and Growth

We analyze the long-term dynamics of an economy in which sectors are heterogeneous with respect to the intensity of natural resource use. It is shown that heterogeneity induces technical change to be biased towards resource-intensive sectors. Along the balanced growth path, the sectoral structure of the economy is constant as the higher resource dependency in resource-intensive sectors is compensated by enhanced research activities. Resource taxes have no impact on dynamics except when the tax rate varies over time. Research subsidies and the sectoral provision of productivity-enhancing public goods raise growth and provide an effective tool for structural policy.

International Climate Finance and its Influence on Fairness and Policy

Besides costs and benefits, fairness aspects tend to influence negotiating partiesAƒÂ¢A‚€A‚â„¢ willingness to join an international agreement on climate change mitigation. Fairness is largely considered to improve the prospects of success of international negotiations and hence measures raising fairness perception might AƒÂ¢A‚€A‚“ in turn AƒÂ¢A‚€A‚“ help to bring about effective cooperative international climate change mitigation. We consider the influences present international support of climate policy in developing countries exerts on fairness perception and how this again might affect international negotiations. In doing so, we distinguish between fairness perception which is based on historical experiences and perception which is based on conjectures about opponentsAƒÂ¢A‚€A‚â„¢ intentions. By identifying beneficial components of current support schemes, lessons can be learnt for designing new schemes like the Green Climate Fund.

Local and Global Externalities, Environmental Policies and Growth

The paper analyzes the implications of local and global pollution when two types of abatement activities can be undertaken. One type reduces solely local pollution (e.g., use of particulate matter filters) while the other mitigates global pollution as well (e.g., application of fuel saving technologies). In the framework of a 2-country endogenous growth model, the implications of different assumptions about the degree to which global externalities are internalized are analyzed. Subsequently, we derive policy rules adapted to the different scenarios. Special attention is paid to pollution, growth and optimal policy in the case of asymmetric internalization.

Private Provision of Public Goods: Incentives for Donations

Purpose - The purpose of this paper is to examine the commonly used policy approach to subsidize the private provision of public goods by granting agents deductions with respect to their income or corporate tax burden. Design/methodology/approach - In the framework of a microeconomic representative agent model the commonly used policy approach to subsidize donations by granting agents deductions with respect to their income tax burden is examined. The paper especially considers that most income tax schemes are progressive and deductibility is limited. After pointing to the problems arising from these specific properties of tax-refund schemes the paper turns towards the effects that such a tax-refund scheme has with respect to donations on the one hand and welfare on the other hand. Findings - Findings shows that the effects of the commonly practiced methods of supporting donations depend crucially on the specific properties of the tax scheme and preferences of agents. While Pareto-improvements and even Pareto-efficiency can result from the implementation of such a scheme, it is also conceivable that some agents perceive a utility reduction. Research limitations/implications - The analysis builds on a static approach although taxation also exerts important dynamic effects. These effects have been neglected in the current paper as the interaction of taxation and preferences is already quite complex. However, they should be considered in future research. Practical implications - Owing to the dependency of welfare effects on the tariff structure, income tax reforms as they are planned in many countries might not only induce a reduction in donations, but might as a result also alter the induced welfare effects. Originality/value - The paper shows that the generally applied tax-refund schemes constitute no effective means to induce optimal donation levels. Implications depend crucially on, e.g. deductibility ceilings and progressiveness of tax rates.

What directs a terrorist

Terrorist models often focus on one kind of agent as well as one motive to pursue terrorism. Our model diverges from such standard approaches by taking account of the reasoning of the terrorist‐organization leader as well as the reasoning of the individual terrorist. This allows us to observe the influence of the leader on the individual terrorist. Furthermore, we distinguish different motives that influence the individual agent’s activities. More precisely, we consider terrorist support as an impure public good generating different characteristics. Moreover, we allow the leader to influence the individual terrorist’s activities via different technologies; and finally, we take account of the fact that individual terrorists may develop a strong feeling of belongingness to the organization. In our framework, it is possible to explain why rational terrorists support terrorism and even commit suicide attacks. In line with empirical findings, income levels play no decisive factor in terrorists’ readiness to commit such attacks.

Decision processes of a suicide bomber—the economics and psychology of attacking and defecting

This paper provides a theoretical analysis of suicide attacks and defection. First, decision processes of potential attackers are examined from an economist’s perspective. The results are then applied to insights from behavioural economics and psychology. We derive conditions under which agents decide to become suicide bombers—or to announce an attack and defect later. Taking account of hyperbolic discounting we show why the decision to commit a suicide attack can be time-inconsistent and what internal manipulation mechanisms (arising from cognitive dissonance and terror management) and external manipulation mechanisms (employed by terrorist organizations and governments) might prevent or foster time-inconsistency.

From time zero to infinity: transitional and long-run dynamics in capital–resource economies

It is now generally agreed that the prediction of long-run development has to include natural resource use. To focus on the long run is, however, not equivalent to the use of balanced growth assumptions. It should be kept in mind that reaching a long-run equilibrium might take considerable time. Transition phases often exhibit characteristics which differ from the long-run state of the economy, but are important for its nature. We discuss a number of different drivers that govern the transition to the steady state, including the development of stocks, substitution possibilities, savings decisions, and institutions. Based on this theoretical evaluation, we discuss five contributions of the conference on sustainable resource use and economic dynamics (SURED 2006) included in this special issue.

LABOR SUPPLY AND GROWTH EFFECTS OF ENVIRONMENTAL POLICY UNDER TECHNOLOGICAL RISK

This paper analyzes the effects of technological risk on long-run growth when labor supply is elastic and production gives rise to a pollution externality. We show that the randomness of production, as well as the endogeneity of labor supply, affects the equilibrium solutions for the social planner and for the market economy. We analyze the effects of environmental policy, discuss conditions for an optimal policy, and find that the response of labor supply to changes in the model parameters and to variations in the policy instruments crucially depends on the volatility of output.

Energy Supply and the Sustainability of Endogenous Growth

The paper provides an introduction to energy and, respective resource use within the framework of endogenous growth models. We provide an overview of different modeling approaches as well as intuition with respect to the results obtained. We consider the source problem, i.e. the supply of energy, as well as the sink problem, i.e. pollution generated by the consumption of energy resources. The introduction to the theoretical framework shortly discusses the use of neoclassical versus endogenous growth models and also points to the implications of the different types of endogenous growth approaches. We additionally give an introduction to CGE-models that include energy use and present an example of a numerical solvable model in detail. The paper closes with a look at possible future research.

Decision Processes of a Suicide Bomber - Integrating Economics and Psychology

This paper provides a theoretical analysis regarding the rationality of suicide attacks from an economist’s point of view. It is argued that although a terrorist gives up future utility from consumption by committing a suicide attack, this loss can be overcompensated by the utility he derives from the attack. Some individual cases of suicide bombers are presented in order to elucidate the diversity of motivations behind the attacks. We derive conditions under which a rational agent might decide to become a suicide bomber – or to announce the attack and defect later. The paper shows why the decision to commit a suicide attack can be time-inconsistent and what mechanisms might prevent time-inconsistency. Integrating the psychological concepts of cognitive dissonance and terror management theory into our economic analysis, we demonstrate why – although predicted by standard economic theory – defection is a phenomenon rarely observed. We finally present some policy implications. In the light of our analysis, policies that focus on material well-being seem less promising than policies that address non-monetary benefits of suicide attacks. The paper concentrates on two policy strategies: offering alternatives – with respect to the aims of terrorism as well as the means to attain them – and reducing the information bias – with respect to the availability as well as the access to information.