Cost Uncertainty and Unilateral Abatement

Unilateral abatement is sometimes advocated in order to set a good example that will make other countries follow. The aim of this paper is to investigate whether existence of correlated cost uncertainty provides an incentive for a country to undertake unilateral abatement. The theoretical model is driven by two main mechanisms; first, a learning effect, as the follower country might reduce its risk premium as it can observe the cost level in the leader country. Second, there is the public good effect, i.e., the marginal benefit of abatement declines when abatement is a public good and other countries contribute to pollution reductions. Results shows that unilateral abatement would be efficient in reducing uncertainty about the unit costs of abatement if a country with low cost uncertainty would undertake abatement first, while a country with initially high cost uncertainty would follow. However, countries may prefer to act simultaneously because of the larger uncertainties that are inherent in a sequential game.      

Uncertainty and the Voluntary Provision of a Pure Public Good in a Two‐Moment Decision Model

In this paper, we explore the potential benefits of uncertainty that may arise in a two‐moment model of the voluntary provision of a pure public good. We find that an increase in a given contributor i’s risk associated with the aggregate contribution level of the other contributors (i.e., an increase in social uncertainty) induces that contributor to increase his own contribution level if and only if the uncertainty's incremental effect on the expected value of his net marginal utility is negative. Contributor i’s welfare likewise increases when a closely related condition is met, namely that the uncertainty's marginal effect on his expected marginal utility value of the public good exceeds its countervailing effect on the numeraire. Further, the corresponding aggregate contribution to the public good increases in the presence of free‐riding if and only if the incremental effect of contributor i’s contribution on the aggregate expected value of all other contributors’ net marginal utilities is small‐enough positive. We derive similar conditions for the case of private uncertainty, where the increase in contributor i’s risk is associated with his own marginal valuation of the public good. A simple example illustrates these conceptual results. Numerical analysis demonstrates that an increase in private uncertainty can have a nonmonotonic impact on contributor i’s welfare.     

Leadership and motivation for public goods contributions

Results from a leader–follower public goods game are presented. An individual, when randomly selected to make a contribution knowing others will observe the selection, gives more than in the simultaneous‐move public goods game. Followers adopt a quasi‐matching strategy where they systematically donate less than the leader, but contribute more when the leader does and contribute less when the leader free rides. The net result is increased provision of a public good when contributions are sequential. The results highlight that psychological preferences, rather than solely social preferences, can explain behavior.     

Woodsy the optimal owl: Environmental campaigns, norms, and implications for public goods policy

Norms regarding private provision of a public good (e.g. cutting down on energy use, not littering) can affect the marginal gains from contributing to a public good and therefore people's decisions about contributing to the public good. A model is proposed in which norms of private contributions to a public good can be influenced by public policy, and these norms affect people's self-image, which derives from a comparison of one's own contribution with the norm contribution. In this context, we examine the conditions under which private contributions to a public good are efficient, and the conditions under which policy affecting these norms improves social welfare. We find that (1) a benevolent social planner who fails to account for private provision norms will underprovide the public good, and (2) public policy that attempts to raise the norm contribution of private provision can increase social welfare if the effect of raising the norm does not have an extreme negative effect - either extremely small or extremely large - on peoples' self-image.     

After you—endogenous sequencing in voluntary contribution games

We examine contributions to a public good when some donors do not know the true value of the good. If donors in such an environment determine the sequence of moves, two contribution orders may arise as equilibria. Either the uninformed and informed donors contribute simultaneously or the informed contribute prior to the uninformed. Sequential moves result in a larger provision of the public good, because the follower mimics the action of the leader, and in accounting for this response the leader chooses to contribute when it is efficient to do so. An experimental investigation of the game shows that the donors predominantly choose to contribute sequentially, and that the resulting contributions are larger than those of the simultaneous-move game. Although the gain from sequential moves is smaller when the sequence is set exogenously, our results suggest that the involved parties would benefit from having sequential moves imposed upon them.     

Social network and private provision of public goods

Using a simple model with interdependent utilities, we study how social networks influence individual voluntary contributions to the provision of a public good. Departing from the standard model of public good provision, we assume that an agent’s utility has two terms: (a) ‘ego’-utility derived from the agent’s consumption of public and private goods, and (b) a social utility which is the sum of utility spillovers from other agents with whom the agent has social relationships. We establish conditions for the existence of a unique interior Nash equilibrium and describe the equilibrium in terms of network characteristics. We show that social network always has a positive effect on the provision of the public good. We also find that, in networks with “small world”-like modular structures, ‘bridging’ ties connecting distant parts of social network play an important role inducing an agent’s contribution to public good. Assumptions and results of the model are discussed in relation to the role of social capital in community-level development projects and to the effect of innovation networks on firms’ R&D investments.     

Growth, welfare and transitional dynamics in an endogenously growing economy with abatement labor

This paper sets up a simple endogenous growth model that highlights the importance of the endogenous labor-leisure choice and the allocation between production labor and abatement labor. We show that, in contrast to the common notion (e.g. [Bovenberg, A.L., Smulders, S., 1996. Transitional impacts of environmental policy in an endogenous growth model. International Economic Review 37, 861–893] and [Bovenberg, A.L., de Mooij, R.A., 1997. Environmental tax reform and endogenous growth. Journal of Public Economics 63, 207–237]), the existence of an environmental production externality is a sufficient (but not necessary) condition for environmental policies to stimulate economic growth if the labor-leisure choice is endogenously determined. In particular, since there are complementarities between public abatement and private abatement, the public abatement expenditure will have a more powerful enhancing effect on economic growth when it is accompanied by more efficient private abatement. This result also leads to a corollary to the effect that it is easier to achieve double dividends in terms of enhancing both growth and welfare if the endogenous labor-leisure choice is taken into account.In our dynamic analysis, we show that if public abatement is substantially large, dynamic indeterminacy may occur despite the absence of a positive labor externality and interestingly, this is more likely to be the case when abatement labor plays a more significant role. Besides, the transitional effects of an increase in public abatement are also investigated.     

Finitely Repeated Voluntary Provision of a Public Good

This paper theoretically explores the voluntary provision of a public good when either one of the following holds: (i) agents’ utility is the sum of their monetary earnings and a nonmaterial component, or (ii) agents’ exhibit satisficing behavior. We show that a small degree of either nonmaterial payoffs or satisficing behavior can generate large contributions in a finitely repeated game, even if the incentive to free‐ride on others’ contributions calls for negligible public good provision in the static game. The equilibrium is characterized by a sharp decline in contributions toward the end of the game. Several comparative results regarding group size and technology are consistent with laboratory data obtained in experimental studies. The model also predicts the restart effect observed in previous experiments.     

Foreign aid and weakest-link international public goods: An experimental study

In this paper, we investigate efficiency differences between income and in-kind transfers as distribution mechanisms of foreign aid to weakest-link international public goods in a laboratory environment. We find that if there is relatively small difference in country size, then income transfers seem to provide a higher provision of the international public good, and thus higher overall welfare level than that of in-kind transfers. However, if there is a large disparity in country size, then in-kind transfers appear to provide a higher level of IPG provision and higher accompanying global welfare.     

Does timing of decisions in a mixed duopoly matter?

We determine the endogenous order of moves in a mixed price-setting duopoly. In contrast to the existing literature on mixed oligopolies we establish the payoff equivalence of the games with an exogenously given order of moves if the most plausible equilibrium is realized in the market. Hence, in this case it does not matter whether one becomes a leader or a follower. We also establish that replacing a private firm by a public firm in the standard Bertrand?CEdgeworth game with capacity constraints increases social welfare and that a pure-strategy equilibrium always exists.     

Effects of Technology Transfers on the Provision of Public Goods

In this paper, we examine the viability ofcooperative policies oriented to the resolution oftransboundary pollution problems using the theory ofprivate provision of public goods in a two-countrymodel. We analyze the effects on economic welfare ofvoluntary technological transfers oriented to reducingthe emission of pollutants.Our analysis shows that when the atmosphere istaken as a pure public goods, ``a strong paradox' emerges:the advanced country, in spite of the transfer, seesits economic welfare improved while the developingcountry sees it worsen. Moreover, if both a technicaland an income transfer occur, this paradox mightnot be solved. Furthermore, ``a paradoxicalimprovement' occurs when the advanced country does nottake any policy towards the environment but thedeveloping country does: an improvement in the levelof technology in the developing country allows for anexpansion of the level of utility in both countries.On the other hand, in the case where the atmosphere istaken as an impure public goods, when both countriespursue an abatement policy, the transfer of technologyleads to an improvement in welfare in bothcountries.     

Pollution in strategic multilateral exchange: Taxing emissions or trading on permit markets?

We introduce polluting emissions in a sequential noncooperative oligopoly model of bilateral exchange. In one sector, a leader and a follower use polluting technologies which create negative externalities on the payoffs of strategic traders who belong to the other sector. By modeling emissions as a negative externality, we show that the leader pollutes more (less) than the follower when strategies are substitutes (complements). Then, we consider the implementation of public policies to control the levels of emissions, namely, two taxation mechanisms and a permit market. We study the effects of these public policies. Moreover, we determine the conditions under which these public policies can implement a Pareto-improving allocation.     

OTHER-REGARDING UZAWA PREFERENCES AND LIVING STANDARD CATCH-UP

This paper provides a new rationale for Uzawa preferences based on social choice; instead of positing that poor people are more patient because they are poor, it posits that poor people should be more patient if they wish their living standards to catch up with richer people. To provide a setting for this new rationale, the present paper studies the socially optimal choice of living standards over time by social planners for countries that, from low levels of total factor productivity (TFP), experience a gradual catch-up of their TFP level with that of the leader country. In the TFP catch-up scenario, the socially optimal choice of consumption and saving based on time additive preferences leads to no catch-up of living standards. To generate living standard catch-up we propose other-regarding Uzawa preferences, in which the rate of time preference is influenced by the gap in living standards between follower country and leader country. This other-regarding specification is consistent with recent findings emphasized in behavioural economics. The other-regarding Uzawa preferences form is illustrated quantitatively by simulating a model of the world economy.     

Equilibrium locations in a mixed duopoly with sequential entry in real time

We investigate a mixed duopoly model where a public firm and a private firm enter a market sequentially over an infinite time horizon, with and without uncertainty over the follower's entry date. We assume that there is a unit-length linear city and show that, if the public firm moves first, equilibrium location falls inside the second and third quartiles. The later the follower is expected to enter, the closer the two firms are. However, if the private firm acts first, it moves aggressively to locate at the middle point (one-half), forcing the public firm to locate nearer the periphery (one-sixth), to minimize consumers' transportation cost. In addition, social welfare is strictly greater when the public firm moves as the leader.     

Carbon Lorenz curves

The purpose of this paper is twofold. First, it exhibits that standard tools in the measurement of income inequality, such as the Lorenz curve and the Gini-index, can successfully be applied to the issues of inequality measurement of carbon emissions and the equity of abatement policies across countries. These tools allow policy-makers and the general public to grasp at a single glance the impact of conventional distribution rules such as equal caps or grandfathering, or more sophisticated ones, on the distribution of greenhouse gas emissions. Second, using the Samuelson rule for the optimal provision of a public good, the Pareto-optimal distribution of carbon emissions is compared with the distribution that follows if countries follow Nash–Cournot abatement strategies. It is shown that the Pareto-optimal distribution under the Samuelson rule can be approximated by the equal cap division, represented by the diagonal in the Lorenz curve diagram.     

Freedom, enforcement, and the social dilemma of strong altruism

Cooperation in joint enterprises poses a social dilemma. How can altruistic behavior be sustained if selfish alternatives provide a higher payoff? This social dilemma can be overcome by the threat of sanctions. But a sanctioning system is itself a public good and poses a second-order social dilemma. In this paper, we show by means of deterministic and stochastic evolutionary game theory that imitation-driven evolution can lead to the emergence of cooperation based on punishment, provided the participation in the joint enterprise is not compulsory. This surprising result—cooperation can be enforced if participation is voluntary—holds even in the case of ‘strong altruism’, when the benefits of a player’s contribution are reaped by the other participants only.     

Endogenous technology and tradable emission quotas

We study an international climate agreement that assigns emission quotas to each participating country. Unlike the simplest models in the literature, we assume that abatement costs are affected by R&D activities undertaken in all firms in all countries, i.e. abatement technologies are endogenous. In line with the Kyoto agreement we assume that the international climate agreement does not include R&D policies. We show that for a second-best agreement with heterogeneous countries, marginal costs of abatement differ across countries. In other words, the second-best outcome cannot be achieved if emission quotas are tradable.     

Why Free Trade May Hurt Developing Countries

This paper builds a general equilibrium trade model where a country produces two traded goods and one nontraded public consumption good. The government finances the provision of the public good by taxing the incomes of factors of production, and/or by imposing tariffs. Within this framework, the paper (i) shows that a small tariff or an income tax improves the country's welfare if there is an undersupply of public good, and (ii) identifies the circumstances in which an improvement in the country's terms of trade may reduce its welfare, and free trade can be inferior to autarky. A terms of trade improvement, or the movement from autarky to free trade, definitely improves the country's welfare if the government imposes a tariff that leaves the domestic relative price of the imported good unchanged.     

Public inputs and child schooling in Brazil

Household data from a one percent sample of the 1970 Brazilian census are used to analyze the effect of public inputs, i.e., the ‘supply’ of schooling, on children's school attainment in Brazil. The household data are combined with measures of school availability and quality derived directly from the same census data; the measures are based on the income and education of schoolteachers in each of 169 different areas of the country. Elasticities of demand with respect to these public inputs are estimated; these elasticities are high in both rural and urban areas. In urban areas, the positive effect of public inputs is greater for children from households with poorer and less-educated parents. In rural areas, the positive effect of public inputs is greater, if anything, for children from households that are relatively better off, at least compared to other rural households.     

Endogenous timing and income inequality in the voluntary provision of public goods: Theory and experiment

This study theoretically and experimentally investigates the effects of income inequality on donors' decisions regarding timing choices and contributions to public goods when contribution timing is endogenously chosen by contributors. To this end, we use the conventional voluntary provision models of Warr (1983) and Bergstrom, Blume and Varian (1986), with Cobb–Douglas preferences augmented with a two-stage game of Hamilton and Slutsky (1990). The following results were obtained and experimentally confirmed. First, when the distribution of income is extremely unequal, donors are indifferent between the simultaneous and sequential moves in the contribution game. Second, as income inequality is decreased, the simultaneous-move contribution game is likely to emerge because every donor prefers to act as a leader. Nevertheless, a higher-income donor may also prefer to act as a follower without specific social preferences and uncertainty regarding the quality of public goods. Third, most theoretical predictions regarding timing decisions are supported in our laboratory experiment, provided that the participants had enough time to learn the consequences of their timing choices.