Till Requate

Environmental policy incentives to adopt advanced abatement technology:: Will the true ranking please stand up?

Abstract We investigate incentives through environmental policy instruments to adopt advanced abatement technology. First, we study the case where the regulator makes long-term commitments to policy levels and does not anticipate arrival of new technology. We show that taxes provide stronger incentives than permits, auctioned and free permits offer identical incentives, and standards may give stronger incentives than permits. Second, we investigate scenarios where the regulator anticipates new technologies. We show that with taxes and permits the regulator can induce first-best outcomes if he moves after firms have invested, whereas this does not always hold if he moves first.

Do short-term laboratory experiments provide valid descriptions of long-term economic interactions? A study of Cournot markets

One key problem regarding the external validity of laboratory experiments is their duration: while economic interactions out in the field are often lengthy processes, typical lab experiments only last for an hour or two. To address this problem for the case of both symmetric and asymmetric Cournot duopoly, we conduct internet treatments lasting more than a month. Subjects make the same number of decisions as in the short-term counterparts, but they decide once a day. We compare these treatments to corresponding standard laboratory treatments and also to short-term internet treatments lasting one hour. We do not observe differences in behavior between the short- and long-term in the symmetric treatments, and only a small difference in the asymmetric treatments. We overall conclude that behavior is not considerably different between the short- and long-term.

Optimal Abatement in Dynamic Multi-Pollutant Problems When Pollutants Can Be Complements or Substitutes

We analyze a dynamic multi-pollutant problem where abatement costs of several pollutants are not separable. The pollutants can be either technological substitutes or complements. Environmental damage is induced by the stock of accumulated pollution. We find that optimal emission paths are qualitatively different for substitutes and complements. We derive general properties governing optimal emission paths and present numerical examples to illustrate our main results. In particular we find that optimal emission paths need not be monotonic, even for highly symmetric pollutants. Finally, we describe a comparatively simple method to implement the optimal path without explicitly knowing its shape.

Incentives to adopt new technologies under different pollution-control policies

The paper investigates the incentives for polluting firms to adopt new technologies under pollution-control policies such as effluent taxes and auctioned permits. We pay explicit attention to the output market. Firms can choose among two types of technologies, a conventional one with high marginal abatement costs and a new one with low margainl abatement costs but higher fixed costs. We find that taxes almost always induce complete adoption or no adoption at all. Permits, in contrast, allow for partial adoption. Moreover, ex post, permits can always induce first best, whereas taxes cannot if partial adoption is socially optimal.

Pollution control by options trading

Abstract For pollution control with imperfect information about aggregate abatement costs we propose a combination consisting of free permits and a menu of call options for additional permits with different striking prices. By appropriately choosing permits and corresponding striking prices the regulator can approximate the marginal damage function arbitrarily well.

Vertical structure and strategic environmental trade policy

The idea that environmental trade policy may be used to achieve competitive advantage in international markets has important implications for the way we conceive tree-trade. This paper reconsiders the issue of strategic environmental policy in a model that makes explicit the vertical structure that supports production of the traded good. We find these intranational vertical relationships to have a substantial qualitative effect on the optimal strategic environmental trade policy. We show that under both quantity and price competition in the international market, the optimal policy to levy on the polluting input when vertical contracts are allowed is a Pigouvian tax.

Incentives for Investment in Advanced Pollution Abatement Technology in Emission Permit Markets with Banking

We examine the incentives that firms have to invest in cleaner abatementtechnology when the banking of permits is allowed in emission permittrading schemes. We show that under certainty permit banking can distortincentives for investment and lead to a sub-optimal amount of investmentspending. Under imperfect information, aggregate abatement costuncertainty and investment irreversibility provide arguments for allowingbanking. We generalize the model to consider these, showing that somebanking is desirable but that it need not be the case that the privatebanking solution is optimal.

Sushi or Fish Fingers? Seafood Diversity, Collapsing Fish Stocks, and Multispecies Fishery Management*

We present a model of a multispecies fishery, and we show the following. (i) Consumer preferences for seafood diversity can trigger a sequential collapse of fish stocks under open-access fishery. (ii) The stronger the preferences are for diversity, the higher is the need for coordinated multispecies regulation. (iii) Second-best optimal management of only one (or a few) species is less strict than socially optimal management of the same species. (iv) Myopic regulation of one species, ignoring spillovers to other species, can cause depletion of other stocks that would not be depleted under open access.

Pollution-Reducing and Resource-Saving Technological Progress

We survey the theoretical literature on pollution-reducing and resource-saving technological progress, differentiating between microeconomic partial equilibrium models and endogenous growth models. The microeconomic models serve to investigate incentives to develop and adopt environmentally friendlier technologies under different policy tools, commitment strategies and market structures. Here price-based instruments usually outperform command and control policies. In most growth models a trade-off between growth rates and environmental quality occurs. Moreover, typically three market imperfections arise, market power for new products, R&D spillovers and pollution. These imperfections can be mitigated by subsidies on output and R&D effort, and taxes on emissions.

A Cournot Experiment with Managers and Students: Evidence from Germany and Malaysia

Abstract We report results from a Cournot triopoly experiment conducted with different subject pools: German students, Malaysian students, and Malaysian managers. We find that Malaysian students perform significantly more competitively than both Malaysian managers and German students. Moreover, the Nash equilibrium point quite accurately describes the behavior of German students and Malaysian managers but not of Malaysian students, even though the quantities selected by Malaysian students are closer to the Nash equilibrium than to the collusive or competitive quantities.