Nori Tarui

Intergenerational Games with Dynamic Externalities and Climate Change Experiments

Dynamic externalities are at the core of many long-term environmental problems, from species preservation to climate change mitigation. We use laboratory experiments to compare welfare outcomes and underlying behavior in games with dynamic externalities under two distinct settings: traditionally studied games with infinitely-lived decision makers, and more realistic intergenerational games. We show that if decision makers change across generations, resolving dynamic externalities becomes more challenging for two distinct reasons. First, decision makers’ actions may be short-sighted due to their limited incentives to care about future generations’ welfare. Second, even when the incentives are perfectly aligned across generations, the increased strategic uncertainty of the intergenerational setting may lead to an increased inconsistency of own actions and beliefs about others, making own actions more myopic. Access to history and advice from previous generations may improve dynamic efficiency but may also facilitate coordination on noncooperative action paths.

Emissions Trading, Firm Heterogeneity, and Intra-industry Reallocations in the Long Run

Design of environmental regulation has substantial implications for size distribution and mass of firms within and across industries in the long run. In a general equilibrium model that accounts for endogenous entry and exit of heterogeneous firms, the welfare impacts of emissions trading are analytically decomposed into the effects on economy-wide income, mass of firms, firm size distribution, output price markups, and factor prices. Distortionary impacts on size distribution and permit price depend on the conditionality of permit distribution, interactions between changes in entry-exit conditions and in aggregate accounting conditions, the factor intensity of entry, and coverage of non-pollution-intensive sectors in emissions trading.

Emission Taxes and Border Tax Adjustments for Oligopolistic Industries

We examine the welfare consequence of emissions tax with and without a Border Tax Adjustment for an imperfectly competitive industry, where intra-industry trade arises between countries. BTA allows a government to impose a pollution-content tariff on imports and refund an emission tax for export sales. We analyze the structure of an optimal emission tax with BTA when a government chooses its emission tax rate to maximize its national welfare. We show that the optimal emission tax policy with BTA achieves greater national welfare and higher environmental quality than the optimal policy without BTA.

The Role of Institutions in Natural Resource Use

Many natural resources are managed under a variety of institutional arrangements (such as open access, common property, and private property) with various degrees of efficiency. A large body of literature studies the efficiency of resource use under particular institutional arrangements. Another strand of literature discusses conditions under which a particular institution prevails for a given resource and attempts to explain why different resources (with different ecological and economic characteristics) are managed under different institutions. A recent development discusses how institutions change endogenously (in particular from open access to limited access) as the economic environment surrounding a natural resource changes through demand growth or international trade. This chapter reviews these studies, summarizes key insights from the literature on the relationship between institutions and resource use, and discusses some research opportunities to address unanswered questions.

Technology Diffusion, Abatement Cost and Transboundary Pollution

This paper studies countries’ incentives to develop advanced pollution abatement technology when technology may spillover across countries and pollution abatement is a global public good. We are motivated in part by the problem of global warming: a solution to this involves providing a global public good, and will surely require the development and implementation of new technologies. We show that at the Nash equilibrium of a simultaneous-move game with R&D investment and emission abatement, whether the free rider effect prevails and under-investment and excess emissions occur depends on the degree of technology spillovers and the effect of R&D on the marginal abatement costs. There are cases in which, contrary to conventional wisdom, Nash equilibrium investments in emissions reductions exceed the first-best case.