On modeling incentive systems which utilize pollution charges for pollution abatement

This paper examines a scheme of economic incentives for environmental protection, in which spatially differentiated pollution taxes are in use in compensating the pollution abatement costs. A simple mathematical model is described which determines an incentive system that encourages polluters to reduce the discharges to an acceptable level of ambient quality standards in a cost-effective manner. It is shown that the vector of pollution charges has to be proportional to the marginal abatement cost vector, but is smaller than the latter in magnitude. It is demonstrated that a necessary incentive effect may be achieved even if the total pollution charge is much lower (about three times) than the total abatement costs. It is also estimated how this charge incentive system reconciles conflicting criteria of cost-effectiveness and of equity. These conclusions are verified by numerical experiments with real data.     

Climate policy in Western Europe and avoided costs of air pollution control

Abatement of CO₂ emissions will be accompanied by reduced air pollutant emissions such as particulate matter (PM), SO₂, and NO_x. This, in turn, will reduce the need for end of pipe (EOP) pollution control technologies to meet future air quality targets. This dynamic could put more stringent air quality goals within reach, and increase the political feasibility of climate policy. This paper presents a CGE model that has been modified to include the emissions and EOP abatement of PM, SO₂, and NO_x from stationary sources in the EU-17. Emissions of pollutants are modeled as fixed-factor complementary inputs to their associated source. Abatement in each sector is modeled as a substitution between the pollutants and discrete abatement technologies, each of which is sector-specific and characterized by a marginal abatement cost and technical capacity constraint. Scenarios are run to 2020, to assess the costs and co-benefits of simultaneous air quality and climate policies. We find that under the Kyoto Protocol in 2010, the welfare cost of pollution control is reduced by 16% compared to the baseline, effectively offsetting the cost of CO₂ abatement by 15%. The co-benefit results depend heavily on policy choices, and their magnitude relative to total costs is likely to decline as greenhouse targets become more ambitious. In our scenarios, pollution control cost savings range from 1.3 to 20% in 2020, yielding a climate cost offset range of 0.2 to 3.9%. The CO₂ credit imports allowed by the EU via the Clean Development Mechanism (CDM) offer a total savings of $9.7bn in 2020, but only need to be compensated by an additional $0.3–0.4bn in domestic pollution control from stationary sources.     

Local air pollution and global climate change: A combined cost-benefit analysis

This article presents the findings of a combined cost-benefit analysis of local air pollution and global climate change, two subjects that are usually studied separately. Yet these distinct environmental problems are closely related, since they are both driven by the nature of present energy production and consumption patterns. Our study demonstrates the mutual relevance of, and interaction between, policies designed to address these two environmental challenges individually. Given the many dimensions air pollution control and climate change management have in common, it is surprising that they have only little been analyzed in combination so far. We attempt to cover at least part of the existing gap in the literature by assessing how costs and benefits of technologies and strategies that jointly tackle these two environmental problems can best be balanced. By using specific technological options that cut down local air pollution, e.g. related to particulate emissions, one may concurrently reduce CO₂ emissions and thus contribute to diminishing global climate change. Inversely, some of the long-term climate change strategies simultaneously improve the quality of air in the short run. We have extended the well-established MERGE model by including emissions of particulate matter, and show that integrated environmental policies generate net global welfare benefits. We also demonstrate that the discounted benefits of local air pollution reduction significantly outweigh those of global climate change mitigation, at least by a factor of 2, but in most cases of our sensitivity analysis much more. Still, we do not argue to only restrict energy policy today to what should be our first priority, local air pollution control, and wait with the reduction of greenhouse gas emissions. Instead, we propose to design policies that simultaneously address these issues, as their combination creates an additional climate change bonus. As such, climate change mitigation proves an ancillary benefit of air pollution reduction, rather than the other way around.     

Economic development and evolving state capacities in Central and Eastern Europe: can “smart specialization” make a difference?

We position “smart specialization” (SS) as the third external and conditionality-based reform of economic policy rationales – after Washington Consensus and Europeanization – in Central and Eastern Europe (CEE). We discuss what kind of state, policy, and administrative capacities, or routines, SS presumes. We show that over the years CEE economies have built very different routines, especially for policy coordination and public–private interactions. Design and implementation of functional SS strategies requires critical attention and development of these routines through contextual policy experimentation in all CEE regions. We provide some general guidelines for this.     

A sequential approach to regional integration: The European Union and Central and Eastern Europe

This paper develops a theory of optimal sequencing of regional integration and applies it to the specific question of Central and Eastern European countries (CEECs) and the EU. We show that the timing of transition and integration has implications for the long-term trade structure of Europe. In this model the interest to integrate the CEECs comes from harmonization of policies to attract industries. Without integration, European countries will try to inefficiently protect their industries. Because of the transfers implied by the CAP and the Structural Policies, the EU delays enlargement until the CEECs have sufficiently converged. CEECs might at this point prefer to stay outside the EU and attract industries by offering them more generous protection than the EU. Such timing may be inefficient ex ante for all countries because it may prevent full European integration in the long run, inducing firms to relocate outside of the EU and governments in the EU and the CEECs to inefficiently protect industry. During the transition, all countries benefit from regional integration among the CEECs.     

Geographic patterns of Poland’s FDI: the investment development path perspective

The purpose of the present study is to incorporate geographic analysis of FDI into the classic IDP model. By supplementing the traditional analysis of the net outward investment (NOI) position with an analysis of geographic patterns in inward and outward FDI, the authors strive to offer a better explanation of Poland’s current NOI position and provide more in-depth support to some necessary policy recommendations. Hence the main contribution of this study to the international business scholarship is two-fold. It (1) further develops the IDP research methodology; and (2) provides a better understanding of the idiosyncratic nature of the IDP of Poland.     

Unemployment and the dynamics of political support for economic reforms

I analyze the dynamics of political support for economic reforms using a version of Rodrik's (1995) two-sector model of the transition economy. The key role is played by the pattern of flows between the state and private sectors and unemployment. It is shown that while the workers in the private sector always support rapid reforms, the workers in the state sector and the unemployed will support rapid reforms only at the outset of the transition. Later, state-sector workers and unemployed vote for a reduction in the speed of reforms.     

中东欧经济转型的成就与挑战

文章对中东欧经济转型进行了回顾,指出了中东欧经济转型的特点。在此基础上,文章分析了中东欧经济转型的成就,强调中东欧国家在建立市场经济体制和经济发展上取得了重大进展。与此同时,目前遭受全球金融危机冲击的中东欧国家也面临着许多挑战,需要推动许多领域,特别是社会领域的改革。     

Rethinking the allocation of macroprudential mandates within the Banking Union – a perspective from east of the BU

This paper argues that reforms of the Banking Union should be aimed at increasing efficiency of the single market as well enhance financial stability in the European Union. We argue that this can only be achieved if the Banking Union becomes more accommodative to non-Eurozone Central and Eastern European countries. It can be achieved if within BU institutions, the allocation of competencies reflects the subsidiary demands of CEE governments. Using the example of macroprudential regulation, we develop a number of reform options that could result in the better functioning of the Single Supervisory Mechanism and thus benefit all EU member states.     

Technology adoption decisions under a mixed regulatory system of tradable permits and air pollution fees for the control of Total Suspended Particulates in Taiwan

By using a newly proposed tradable permit system built under the current air pollution fee regulation for the control of Total Suspended Particulates in Taiwan as an example, a mixed-integer non-linear programming model that minimizes the total regulatory costs of firms is applied to investigate how different permit trading ratios and the design of banking might affect firms’ technology adoption decisions and permit trading behavior. By incorporating binary variables in the model to represent firms’ decisions as to whether or not to install new control equipment, the results show that when the unit air pollution fee rate is higher than the firms’ abatement costs, the design of banking causes many firms to install new control equipment that results in an over-reduction of emissions. If no air pollution fee is imposed, the trading ratio plays a more important role than the reservation rate for banking in determining the firms’ emission reduction strategies under a pure permit trading scheme. While the conclusion from this study that uses a non-uniformly mixed pollutant as an example may hold only when certain conditions are met, the framework can be applied to other uniformly mixed pollutants through parameter changes without any limitation. In addition, the modeling technique presented here offers policy-makers a very convenient approach to empirical analysis.      

An empirical analysis of air pollution emissions policy for the U.K. residential sector

In this paper an analysis of the U.K. government's air pollution emissions policy for the residential sector is undertaken. The analysis covers emissions arising from water and space heating, electric appliances and cooking appliances. Using an integrated economic-engineering model, the effects of the Energy Savings Trust and the imposition of Value Added Tax on residential fuel will be evaluated in terms of energy consumption and pollution emissions. It is found that the initial proposed policy was not sufficiently stringent to meet the government's environmental objectives, and that subsequent events have undermined the government's programme even further. Unless alternative policies are introduced, emissions from the residential sector will play an important role in jeopardizing the ability of the U.K. government to meet its international obligations.     

Evaluation of elderly households’ financial standing in Central and Eastern European countries

The purpose of the paper is to analyse and evaluate the financial situation of elderly households in Central and Eastern European (CEE) countries. Current demographic trends simultaneously with reforms of pension systems in the CEE region may lead to an increasing number of elderly households being exposed to poverty risk. In this study, Ward’s method and the method of standardised sums were applied to classify and order the examined countries according to the financial standing of elderly households. The obtained results allow us to identify countries with similar financial situations for elderly households in 2007, 2010 and 2013, and changes in clusters and ranking over the analysed period. The main findings show that the financial situation of the elderly in CEE countries is very differentiated and changeable, however over the analysed period the financial standing of the elderly seems to be most similar in Poland and Slovakia as well as Estonia, Latvia and Lithuania.     

The Determinants of Foreign Direct Investment in the CEECs: New evidence from sectoral patterns

This paper investigates the determinants of European Union FDI in the CEECs at sectoral level. The aim is to understand whether and to what extent FDI undertaken in different sectors reacts to the characteristics of the host countries. The analysis is based on a dataset created specifically for this purpose. It concentrates on the manufacturing sectors, classified according to the Pavitt taxonomy. Firstly, data summarizing the recent trend of FDI in the CEECs is presented and then empirical evidence given to account for differences between sectors. The estimated model is a generalization of a three-way fixed effect model incorporating 'classic' variables, such as labour costs as well as country-specific variables, i.e., the stage reached in the transition process. The results confirm the presence of heterogeneity at sector level.     

The Coevolution of Finance and Property Rights: Evidence from Transition Economies

The transition from communism to capitalism was necessarily accompanied by a sudden and abrupt increase in the financialization of society. This increase occurred in an environment that, even now, still has little experience with or expertise in financialization. Given that financialization occurred simultaneously with the growth and evolution of other political and economic institutions, the question arises: What was the effect on these other nascent institutions like property rights? This article empirically analyzes the relationship between financialization and property rights in transition countries. Using a unique monthly database of twenty transition countries over a period from 1989 to 2012, this article finds that the influence of financialization depends on which definition of “financialization” is used. In particular, increases in basic financial intermediation improved property rights. However, higher-order “financialization,” proxied here by the size of capital markets and the wages in the financial sector, appeared to have a negative impact on the development of broad-based property rights in transition.     

Exchange Rate Movements and Employment Growth: An OCA Assessment of the CEE Economies

According to the traditional optimum currency area approach, not much will be lost from a very hard peg to a currency union if there has been little reason for variations in the exchange rate in the past. This paper takes a different approach and highlights the fact that high exchange rate volatility may also signal high costs for labor markets. The impact of exchange rate volatility on labor markets in the CEECs is analyzed, revealing that volatility vis-à-vis the euro significantly lowers employment growth. Hence, eliminating exchange rate volatility could be considered a substitute for removing employment protection legislation.     

Minimum wages and the wage distribution in Estonia

Abstract: This article studies how changes in the statutory minimum wage have affected the wage distribution in Estonia, a post-transition country with little collective bargaining and relatively large wage inequality. The analyses show that the minimum wage has had substantial spillover effects on wages in the lower tail of the distribution; the effects are most pronounced up to the twentieth percentile and then decline markedly. The minimum wage has contributed to lower wage inequality and this has particularly benefitted low-wage segments of the labour market such as women and the elderly. Interestingly, the importance of the minimum wage for the wage distribution was smaller during the global financial crisis than before or after the crisis.     

Dose response functions and the harvesting effect

Much of the existing literature on air pollution and mortality deals only with the short-term effects of air pollution. Policy on the other hand needs to know when, whether and to what extent pollution-induced increases in mortality counts are reversed. This involves modelling the entire infinite distributed-lag effect of air pollution on mortality counts.Using an ARMAX modelling strategy this paper illustrates how distributed lag effects can be parsimoniously but plausibly estimated in the context of a time-series study into the relationship between ambient levels of air pollution and daily mortality counts for Manchester. The analysis reveals that maximum 1-h ozone levels are strongly associated with daily mortality counts and that a significant harvesting effect is present. The mortality cost of peak 1-h ozone concentrations for Greater Manchester with a population of 2.6 million is estimated to be £572 million annually. This accounts for the fact that some of the deaths associated with maximum 1-h O₃ concentrations have been advanced only by a short period of time.     

International Trade and the Environment: Theoretical and Policy Linkages

I review and extend three approaches to trade and environmental policies: competitive general equilibrium, oligopoly and monopolistic competition. The first two have surprisingly similar implications: deviations from first-best rules are justified only by constraints on policy choice (which motivates what I call a “single dividend” approach to environmental policy), and taxes and emissions standards differ in ways which reflect the Le Chatelier principle. I also show how environmental taxes may lead to a catastrophic relocation of industry in the presence of agglomeration effects, although not necessarily if there is a continuum of industries which differ in pollution intensity. *An earlier version was presented as an invited plenary lecture to the European Association for Environmental and Resource Economics Conference, Oslo, 1999.