Liability for Past Environmental Contamination and Privatization

This paper examines the role ofliability for past environmental contaminationin the privatization processes of Central andEastern Europe. In particular, it establishes alink between a risk-averse investor's amount ofinformation regarding the extent of pastenvironmental contamination (and its cleanupcosts) and the investor's willingness to payfor a particular enterprise, i.e., bid. As theinvestor obtains a more precise estimate of theuncertain cleanup costs, the investor facesless risk; therefore, the investor's riskpremium falls and the investor's bid rises.This link generates four hypotheses regarding aprivatization agency's responses to theinvestor's knowledge of clean-up costs.     

Carbon Taxes and Joint Implementation. An Applied General Equilibrium Analysis for Germany and India

Germany has committed itself toreducing its carbon emissions by 25 percent in2005 as compared to 1990 emission levels. Toachieve this goal, the government has recentlylaunched an environmental tax reform whichentails a continuous increase in energy taxesin conjunction with a revenue-neutral cut innon-wage labor costs. This policy is supposedto yield a double dividend, reducing both, theproblem of global warming and high unemploymentrates. In addition to domestic actions,international treaties on climate protectionallow for the supplementary use of flexibleinstruments to exploit cheaper emissionreduction possibilities elsewhere. One concreteoption for Germany would be to enter jointimplementation (JI) with developing countriessuch as India where Germany pays emissionreduction abroad rather than meeting itsreduction target solely by domestic action. Inthis paper, we investigate whether anenvironmental tax reform cum JI providesemployment and overall efficiency gains ascompared to an environmental tax reformstand-alone. We address this question in theframework of a large-scale general equilibriummodel for Germany and India where Germany mayundertake JI with the Indian electricitysector. Our main finding is that JI offsetslargely the adverse effects of carbon emissionconstraints on the German economy. JIsignificantly lowers the level of carbon taxesand thus reduces the total costs of abatementas well as negative effects on labor demand. Inaddition, JI triggers direct investment demandfor energy efficient power plants produced inGermany. This provides positive employmenteffects and additional income for Germany. ForIndia, joint implementation equips itselectricity industry with scarce capital goodsleading to a more efficient power productionwith lower electricity prices for the economyand substantial welfare gains.     

Evaluating Projects and Assessing Sustainable Development in Imperfect Economies

We are interested in three related questions:(1) How should accounting prices be estimated?(2) How should we evaluate policy change in animperfect economy? (3) How can we check whetherintergenerational well-being will be sustainedalong a projected economic programme? We do notpresume that the economy is convex, nor do weassume that the government optimizes on behalfof its citizens. We show that the same set ofaccounting prices should be used both forpolicy evaluation and for assessing whether ornot intergenerational welfare along a giveneconomic path will be sustained. We also showthat a comprehensive measure of wealth,computed in terms of the accounting prices, canbe used as an index for problems (2) and (3)above. The remainder of the paper is concernedwith rules for estimating the accounting pricesof several specific environmental naturalresources, transacted in a few well knowneconomic institutions.     

Regulating an Externality-Generating Utility Environmental Taxes Under Limited Information

Global warming is currently an important item on most nationalenvironmental agendas. In many countries, coal-fired electricity generatingstations represent an important source of greenhouse gases. We examinehow regulations to curb emissions affect public utility pricing regulationwhen regulators act non-cooperatively. We show that, when there is limitedinformation on fixed abatement costs, an environmental regulator prefersan emission tax over an output tax or a lump sum environmental tax. Thepublic utility regulator prefers the lump sum tax regime.     

Energy taxation in Southern Europe: The case of Portugal

We investigate whether or not the imposition of a common EC energy-tax will penalize more the poorer Southern European economies and if this will harm convergence at the EC level. We start by surveying briefly the existing studies and empirical evidence. Then we exploit the results obtained when using the macroeconometric HERMES models to simulate the introduction of an energy-tax. Unfortunately, as we only have HERMES results for one Southern European economy, Portugal, our conclusions are limited. Finally, we investigate convergence in Europe and the effects of energy taxation on convergence. We conclude that energy taxation will harm growth all over the EC, penalizing more one of the less developed countries, Portugal, and having most probably adverse effects on convergence.This paper was prepared for presentation at the Conference Energy Tax in Europe organized jointly by the SEO-University of Amsterdam and the DG XII of the CEC and held in Amsterdam on 13th December 1991. I would like to thank the participants in the Conference and two anonymous referees for helpful comments. Of course, the usual disclaimer applies.     

Corporate Lobbying, Regulatory Conduct and the Porter Hypothesis

Michael Porter, the influential Harvard management guru, has promoted the idea that compliance with stricter environmental regulations can afford secondary benefits to firms through improved product design, innovation, corporate morale and in other ways. Once these secondary benefits are factored, the net cost of compliance is argued to be lower than conventionally thought and may even be negative. Whilst environmental economists have rejected the Porter Hypothesis as being based on excessively optimistic expectations of the likely size of such secondary benefits the underlying ideas do enjoy significant credence in the business community. In the context of a lobbying model of regulatory policy-making we argue that the EPA should change the way it conducts regulatory policy to take account of Porter's views – even if it knows those views to be misguided. The model serves to illustrate the more general point that fashions in management thinking can be expected to impact the optimal conduct of regulatory policy.     

Environmental Product Differentiation and Environmental Awareness

In this paper, we have considered a duopolistic model of environmental product differentiation with two types of consumers (green and brown) to analyze how environmental awareness affects the environment. “Green” consumers value the physical and environmental attributes of the good they purchase while “brown” consumers only value the physical attributes. We find that more environmental awareness may not be good news for the environment as the firm that produces the good without environmental attributes may increase its sales. The result depends on the degree of product differentiation and the cost to achieve it. Social welfare can also be inversely related to environmental awareness if the negative environmental effect dominates the positive market effect.      

Endogenous human capital accumulation, comparative advantage and direct vs. indirect redistribution

Recently, several papers have reexamined the so-called production efficiency theorem and the Atkinson and Stiglitz theorem on commodity taxes in the optimal taxation literature. Naito [J. Public Econ. 71 (1999) 65] showed that indirect redistribution through production distortion or consumption distortion can Pareto-improve welfare and that the two theorems do not necessarily hold when different factors are imperfect substitutes and factor prices are endogenous. On the other hand, Saez J. Public Econ. (2002) forthcoming argued that in the long run, where human capital accumulation is endogenous, the two theorems are still valid. This paper develops reasonable alternative models where individuals accumulate human capital based on their comparative advantage. The present paper shows that the production efficiency theorem is not necessarily valid and that indirect redistribution from the able to the less able such as tariffs and production subsidies can increase efficiency even when skill accumulation is endogenous.     

The optimal treatment of tax expenditures

This paper analyzes the optimal treatment of tax expenditures. It develops an optimal tax model where individuals derive utility from spending on a “contribution” good such as charitable giving. The contribution good has also a public good effect on all individuals in the economy. The government imposes linear taxes on earnings and on the contribution good so as to maximize welfare. The government may also finance directly the contribution good out of tax revenue. Optimal tax and subsidy rates on earnings and the contribution good are expressed in terms of empirically estimable parameters and the redistributive tastes of the government. The optimal subsidy on the contribution good is increasing in the size of the price elasticity of contributions, the size of the crowding out effect of public contributions on private contributions, and the size of the public good effect of the contribution good. Numerical simulations show that the optimal subsidy on contributions is fairly sensitive to the size of these parameters but that, in most cases, it should be lower than the earnings tax rate.     

Assessing Voluntary Programs to Improve Environmental Quality

The last decade has seen a dramatic increase in the use of voluntaryapproaches (VAs) to environmental protection, which has spurned agrowing literature on the relative merits of voluntary vs. mandatoryapproaches. This paper draws on that literature to discuss both thetheoretical and empirical issues that arise in the evaluation orassessment of a particular VA. We consider both the environmentaleffectiveness and the efficiency of this policy approach. Our aim is toaid policymakers in evaluating a specific program or in thinking aboutthe use and design of a VA. We identify some key features that arelikely to increase both the effectiveness and the efficiency of VAs.