On Emissions Trading and Market Structure: Cap-and-Trade versus Intensity Standards

This paper examines the interdependence between imperfect competition and emissions trading. We particularly analyze the long run equilibrium in a two-sector (‘clean’ and ‘dirty’) model with Cournot competition among firms who face a fixed cost of production. The clean sector is defined as the sector with the highest long run cost margin on emissions. We compare the welfare implications of a cap-and-trade scheme with an emissions trading scheme based on relative intensity standards. It is shown that a firm’s long run equilibrium output in the clean or dirty sector does not depend on the emissions trading format, but only depends on the fixed cost of producing in the respective sector. Intensity standards can result in clean firms selling allowances to dirty firms, or dirty firms selling to clean firms. The former outcome yields higher welfare. It is demonstrated that cap-and-trade outperforms the intensity-based trading scheme in terms of long run welfare with free entry and exit. With intensity standards the size of the clean sector is too large.     

Trade liberalization in environmental goods

Trade negotiations have started to pay attention to liberalization in environmental goods (EGs), whose production may require dirty intermediate goods. We construct a two-country trade model to explore the effects of trade liberalization in EGs on the local pollution, the global environment and welfare in the presence of such an environmental conundrum. We find that countries do not necessarily benefit from trade liberalization in EGs in the absence of an environmental policy. With the assistance of an upstream pollution tax, trade liberalization in EGs improves each country's welfare. This result holds independent of whether the upstream market is competitive or not, or whether we have upstream trade across countries. For asymmetric countries, trade liberalization in EGs improves the world welfare and the welfare for the country if it has a smaller demand for EGs; or experiences less damage from the production of dirty inputs; or values environment improvement more.     

Optimal consumption and the environment Choosing between ‘clean’ and ‘dirty’ goods

In this paper, a model with heterogeneous consumption goods is presented. Consumers are assumed to choose between two different consumption goods, characterized by a different impact on the environment. This implies that, in a decentralized economy, government can sustain the social optimum by setting two Pigouvian taxes: one on production as a whole and the other on dirty consumption acting as an incentive in favour of clean consumption. In accordance with the previous literature, a trade-off between a clean environment and economic activity evolves. However, this trade-off is now mitigated by the additional taxation on polluting consumption which allows the control of pollution stock evolution through the substitution between clean and dirty commodities.     

Status and the demand for visible goods: experimental evidence on conspicuous consumption

Some economists argue that consumption of publicly visible goods is driven by social status. Making a causal inference about this claim is difficult with observational data. We conduct an experiment in which we vary both whether a purchase of a physical product is publicly visible or kept private and whether the income used for purchase is linked to social status or randomly assigned. Making consumption choices visible leads to a large increase in demand when income is linked to status, but not otherwise. We investigate the characteristics that mediate this effect and estimate its impact on welfare.     

Aspirations and the transfer paradox in an overlapping generations model

This study examines the transfer problem between two countries when either the donor or the recipient has aspirations, based on parents’ standards of living, in a one-sector overlapping generations model. Focusing on whether and how aspirations impact the welfare effect of a transfer, we demonstrate the following results. First, when the donor forms aspirations, as the degree of his/her aspirations to their parents increases, a transfer is more likely to cause donor enrichment. However, this does not affect the recipient’s welfare at all. In contrast, when the recipient forms aspirations, whether the increase in the degree of these aspirations causes immiserization depends on whether the transfer raises the recipient’s consumption. Second, we show that if the donor’s or recipient’s marginal utility increases with their respective aspirations, the transfer is more likely to cause recipient immiserization. However, whether donor enrichment occurs depends on the situation. These results imply that there are two types of effects that aspirations can have on the welfare of both countries: effects caused by the aspirations, and effects that occur through the capital market. Furthermore, we find that these two effects on welfare do not necessarily work in the same direction.     

交通基础设施的公共产品属性探析

交通基础设施是为满足全社会经济生活中人与物的位移需求而生产出的产品,该产品具有显著的公共需求性与公益性。以公共产品理论为基础,从非排他性和非竞争性的角度可以判定交通基础设施具有公共产品属性,通过分析交通基础设施的消费机理深入探讨交通基础设施使用过程中产生拥挤现象的原因,可以否定交通基础设施为拥挤性公共产品的观点。此外,投资主体的变化不会变更交通基础设施的公共产品性质。     

Locational Stratification by Environment

This paper develops an equilibrium sorting model wherein perfectly mobile agents decide their optimal residential locations, either in a clean city or in a dirty city where production takes place. While residents in a dirty city suffer a higher level of pollution, they incur less commuting cost when going to work. When workers of different abilities choose different locations in which to reside, a segregated spatial configuration emerges, where those residing in a clean city have higher working time, human capital, and income than those in the dirty city. Analytic comparative‐static and numerical welfare analyses are performed.     

Trade,environment, and income inequality: An optimal taxation approach

In a small open economy, how should a government pursuing both environmental and redistributive objectives design domestic taxes when redistribution is costly? And how does trade liberalization affect the economy's levels of pollution and inequalities, when taxes are optimally and endogenously adjusted? Using a general equilibrium model under asymmetric information with two goods, two factors (skilled and unskilled labor), and pollution, this paper characterizes the optimal mixed tax system (nonlinear income tax and linear commodity and production taxes/subsidies) with both production and consumption externalities. While optimal income taxes are not directly affected by environmental externalities, conditions are derived under which under‐ or over‐internalization of social marginal damage is optimal for redistributive considerations. Assuming that redistribution operates in favor of the unskilled workers and that the dirty sector is intensive in unskilled labor, simulations suggest that trade liberalization involves a clear trade‐off between the reduction of inequalities and the control of pollution when the source of externality is only production; this is not necessarily true with a consumption externality. Finally, an increase in the willingness to redistribute income toward the unskilled results paradoxically in less pollution and more income inequalities.     

Path dependence,self-fulfilling expectations,and carbon lock-in

Growing under the incumbent dirty regime might generate inertia against switching to a clean alternative and lead to the carbon lock-in. I analyze the economics of carbon lock-in through the lens of path dependence and self-fulfilling expectation. The incumbent dirty regime, as the first mover, accumulates an installed base of household users during early lead periods. The installed base generates an effect of path dependence that incentives upcoming households to keep on joining the incumbent dirty regime rather than switch to the clean alternative. Switching could be an expectation-driven selection outcome if expectations are formed about an expanding clean regime which outweighs the path dependence effect. Switching is a welfare-improving outcome if welfare gains by upcoming households switching to the clean regime offset welfare losses by installed-base households locked in the dirty one.     

Second-Best Pollution Taxes: an Analytical Framework and Some New Results

This paper compares the second-best optimal tax on polluting consumption goods with the Pigovian tax, which would internalize marginal environmental damage at a second-best optimum. It is shown that the relationship between the optimal tax on polluting consumption and the Pigovian tax is determined by the substitutability between labour and polluting consumption or clean and polluting consumption, depending on whether a wage tax system or a commodity tax system is being considered. The key factor determining the relationship between the two taxes is gross substitutability between the two taxed goods. As long as there is gross substitutability, the optimal dirt tax exceeds the Pigovian tax. The opposite can occur if and only if the two goods are gross complements.     

Indeterminacy and multiple steady states with sector-specific externalities

This paper studies a two-sector model with aggregate and sector-specific external effects in production and inelastic labor supply. We first characterize the existence, uniqueness and multiplicity of the steady states as well as their welfare properties. We particularly focus on the CES production functions and show that the steady state is generically either unique or there are exactly two. A simple geometrical methodology enables us to characterize the local dynamics of the steady state. We show that in order to get indeterminacy, the presence of both aggregate and sector-specific external effects is needed, along with low capital–labor elasticities of substitution and high, but bounded from above, elasticities in intertemporal consumption. We perform a sensitivity analysis and show that indeterminacy emerges for parameter values in line with those used in calibrations of standard RBC models, that is for unitary elasticities of input substitution and of intertemporal substitution in consumption.     

Trade and the governance of ecosystem services

We work with a basic general equilibrium model of an economy with an industrial good and a rural good. Industrial good production results in pollution that affects the provision of ecosystem services and thereby the production of the rural good. The assignment of ecosystem rights to the industrial polluters or to the rural pollutees results in differential transaction costs that affect production possibilities between the two goods. Ecosystem rights are assigned to maximize social welfare. Over time, technological change and differences in income superiority affect the choice of the assignment of rights. Opening to trade affects the choice of the assignment of ecosystem rights depending on the nature of technological change, but the relative income superiority of goods no longer affects the assignment of ecosystem rights in a small economy. Thus, among other findings, we demonstrate that the phenomena known as the environmental Kuznets curve does not hold for the protection of ecosystem services in production, or production externalities generally, because trade separates consumption from production.     

Multiproduct Firms and Environmental Policy Coordination

The literature that analyzes the coordination of environmental taxes by governments considers that firms produce a single good at a single plant. However, in practice firms tend to produce several goods at various production plants (multiproduct firms). These firms may organize themselves in a centralized or decentralized fashion for purposes of decision-making: This affects their output and pollution levels. This paper sets out to analyze the coordination of environmental taxes considering multiproduct firms. We find that the organizational structure chosen by the owners of the firms depends on whether or not governments coordinate with one another in setting taxes, and on whether the goods produced are substitutes or complements. Social welfare is greater if a supranational authority sets taxes in all countries. In this case, joint welfare is never lower if the authority is constrained to set the same tax in all countries.     

A two-sector Kaleckian model of growth and distribution with endogenous productivity dynamics

This study extends a two-sector Kaleckian model of output growth and income distribution by incorporating endogenous labour productivity growth. The model is composed of investment goods and consumption goods production sectors. The impact of a change in wage and profit shares on capacity utilisation and output growth rates at the sectoral and aggregate levels are identified. The study reveals short-run cyclical capacity utilisation rates and productivity growth dynamics. Even if the short-run steady state is stable, the capital accumulation rate in the consumption goods sector must decrease more than that in the investment sector for long-run stability. When simultaneous rises in profit shares in both the sectors affect long-run aggregate economic growth differently at a steady state, the distributional interests between the same class in different sectors may hamper the long-run economic growth. A policy message is that the effect of income distribution on industrial output growth is not always beneficial. These phenomena are specific to two-sector models and cannot be observed when using conventional aggregate growth models.     

Can R&D-inducing green tariffs replace international environmental regulations?

This paper investigates the link between trade and environment by exploring the effects of green tariffs on innovation, location of production and the environment. It shows that tariffs levied on polluting goods could result in less world pollution than global harmonization of environmental standards by inducing more pollution-abatement R&D effort and generating lower unit emissions from production. Specifically, green tariffs reduce pollution by (1) shifting production to the region where environmental standards are respected, (2) inducing the firm in the clean country to engage in more abatement R&D by granting it a higher market power/share in its home market, (3) instigating green R&D investment by deterring delocation. When these outweigh the R&D-creating effect of environmental harmonization in the dirty country, green tariffs bring about a cleaner environment.     

Tariffs and Welfare in an Imperfectly Competitive Overlapping-Generations Model

The effect of a tariff is analyzed in a two-sector model in an uncertain-lifetimes framework. One of the sectors is monopolistically competitive. It is shown that while a tariff leads to a consumption boom and possibly a current-account surplus, its welfare effects depend on whether the homogeneous good or the differentiated good is exported by the small open economy. Welfare improves if the differentiated good is nontraded but deteriorates if the homogeneous good is nontraded.     

Capital-accumulation games under environmental regulation and duopolistic competition

In a differential game between two symmetric firms, provided with a clean and a dirty production activity, it is analyzed how investment and emissions are affected by environmental regulation. If both firms face the same environmental policy, a stricter policy reduces long-run investment in the dirty activity, while the impact on the clean activity is ambiguous. Both long-run emissions of each firm and total emissions decrease. This result does not necessarily hold if both firms face different policy instruments: Each firm's investment levels increase with a stricter environmental policy towards its rival, which causes more emissions by this firm.     

Recycling and International Trade Theory

Recently recycling and the production of secondary materials have increased in many countries. However, there is little analysis examining the effects of recycling on comparative advantage, trade, and welfare. In a model with recycling sectors, the author examines whether the Rybczynski theorem is valid, how the price effects are modified, how a recycling subsidy changes the production structure and comparative advantage. It is found that demand has an effect on final goods production and comparative advantage since consumption goods are transformed into recycling inputs.     

Fashionable food: a latent class analysis of social status in food purchases

A framed field experiment combined with a latent class econometric approach was used to investigate how prestige-seeking behaviour influences food choices. We propose a theoretical framework to test conspicuous consumption of specialty food products. We test the hypothesis empirically by categorizing individuals into unobserved latent classes according to their general prestige-seeking behaviour. We find evidence of food consumption driven by prestige to the point of becoming a symbol of social status. The prestige-seeking behaviour seems to be motivated by invidious comparison or higher-class individuals seeking to differentiate themselves from lower-class individuals; and pecuniary emulation, or lower-class individuals buying prestigious goods in order to be perceived as members of a higher class. Findings from this study revealed that the effects of differentiating labelling attributes had a higher impact for individuals classified into classes with prestige-seeking behaviour to attain an elevated social status.     

Green certification,heterogeneous producers,and green consumers: a welfare analysis of environmental regulations

We develop a vertical differentiation model to analyze welfare implications of environmental policies in a competitive market with production and consumption heterogeneity. Consumers with heterogeneous preferences choose between non-green and certified green products, while producers with heterogeneous production costs decide whether to engage in green production. In order for green products to be recognized by consumers, producers must join a green club. Key findings are summarized as follows. (i) The number of green producers, environmental standard, and overall welfare under the market solution are all socially sub-optimal. (ii) The introduction of a subsidy policy for greener production and standards is shown to increase social welfare, but is not Pareto optimal. (iii) A dual policy, which combines abatement subsidizes for a greener production standard and a tax charge for green certification, is shown to be the Pareto-optimal outcome.