A framework for estimating willingness-to-pay to avoid endogenous environmental risks

This paper proposes a general empirical strategy to estimate willingness-to-pay (WTP) for exogenous risk mitigation when environmental risks are endogenous in protective actions and consumers are imperfectly informed about the ambient risk levels. The strategy consists of a set of survey techniques and the dummy endogenous variable model (Heckman, 1978) to control for correlation in unobserved errors that enter the WTP equation and the protection-decision equation. The method is applied to the non-market valuation survey data on arsenic contamination in drinking water. Our results indicate that the estimated WTPs are significantly higher for households without self-protective action. Our approach thus offers not only the correct welfare estimate for exogenous reduction of environmental risks, but also yields policy implications qualitatively much different from the conventional approach. We also estimate the welfare value of the policy to inform and educate the public about the arsenic risk simultaneously with public risk mitigation. The estimated welfare value is similar to, though slightly higher than, that of risk mitigation without information component. This occurs due to the competing effects of information dissemination and risk mitigation efforts.     

Toward enhancement of the contribution of theory to environmental policy

Theory can be helpful to policy makers by pointing out surprising relationships unlikely to be recognized by unaided common sense; by noting significant exeptions to principles widely accepted; and by offering generalizations of its own. The paper argues that theorists may not have done enough of the first two and may have overstressed the last, giving insufficient warnings of pitfalls. Examples of each of the three are provided. The first is illustrated by a theorem which shows that any new energy source, such as gasohol, which is supplied only because of a subsidy, prospectively uses up more energy than it creates. The important exception application is illustrated by showing that subsidies which reward reduced emissions by the firm tend to increase pollution by the industry. Finally, the paper discusses inadvertent bias in the empirical evidence reasserting the superior performance of fiscal incentives for reduced environmental damage as compared to direct controls, thus casting doubt on the allegedly universal superiority of incentives.Princeton and New York Universities. The author is extremely grateful to the C. V. Starr Center for Applied Economics at New York University for its support of the preparation of this paper and to Karl-Göran Mäler and an unidentified reviewer for very helpful suggestions. This paper was originally delivered as the keynote address of the 1991 meetings of the European Association of Environmental and Resource Economics held at the Stockholm School of Economics.     

Social criteria for evaluating population change: an alternative to the Blackorby-Donaldson criterion

"An ethical objection is raised against the Blackorby-Donaldson criterion of optimum population maximizing the sum total of utilities in excess of some critical level, since it may disprefer a social state with more people and with more worthwhile lives. However, the criterion may serve as a practicably reasonable compromise between maximizing total and average utility. Nevertheless, an alternative compromise (the maximization of number-dampened total utility) is proposed that is free from the above objection."     

Methods for estimating optimal Dickson and Waters modification dividend barrier

In applications of collective risk theory, complete information for the distribution of individual claims amount is often unknown, but reliable estimates of its first few moments may be available. Dickson and Waters [Dickson, D.C.M. and Waters, H.R., (2004) Some optimal dividends problems, Astin Bulletin, 34, 49–74.] pointed out that shareholders should be liable to cover the deficit at ruin. Thus, they considered b the level of the barrier that maximizes the expectation of the difference between the discounted dividends until ruin and the discounted deficit at ruin. For such a situation, this paper develops methods for estimating the Dickson–Waters modification for the optimal dividend barrier b with the expectation of discounted penalty at ruin. In particular, two De Vylder approximations are explained, and the diffusion approximation for the expectation of discounted penalty at ruin is examined. For several claim amount distributions, the approximate values are compared numerically with exact values.     

Understanding the demand-side of economic change: a contribution to formal evolutionary theorizing

An outstanding fact of capitalist change in the last few centuries is the ongoing emergence of new consumption alternatives which accompany income and productivity growth in expanding economies. Far from satiating consumers, exponential economic growth seems to stimulate human desires by providing novelty and variety embodied in a persuasive flow of unsettling goods. Although this is a well-known fact characteristic of capitalist change, little attention has been paid by modern growth theorists to the understanding of demand-side phenomena related to the increasing significance of consumption activities in our societies. Against this background, in this article, we show that as soon as we start drawing the demand-side contour of economic change, new phenomena appear which enrich our understanding of economic growth and structural change. By using ‘replicator dynamics’ systems, consumption dynamics are formally linked to the ongoing generation of innovations in capitalist economies. Certain emergent properties concerning economic growth and structural change and several policy implications follow.     

A change in market responses to the environmental management ranking in Japan

This article investigates stock price reactions to the release of the environmental management ranking issued by Nihon Keizai Shimbun (Nikkei newspaper) from 1998 to 2005, by using a standard event study methodology. An examination of stock price movements of the top 100 manufacturing companies reveals that stock prices during the sample period did not respond significantly to the release of the ranking within a 3-day event window. However, market responses became significantly positive after 2003, while they were significantly negative in 1999 and 2000. The stock prices of upgraded companies in particular reacted negatively before 2000, but positively after 2002. These results indicate that market reactions were changed between 2001 and 2002, when the Japanese government showed its strong commitment to environmental policies by establishing the Ministry of the Environment and signing the Kyoto Protocol, following a number of legislations.     

Harnessing the political economy of environmental policy: David Pearce’s contribution to OECD

During 34 years, David Pearce made major contribution to OECD work on environmental economic issues, with a particular focus on cost–benefit analysis, economic instruments, biodiversity and distributive issues. This article provides a brief review of David Pearce’s contributions. This work was particularly useful in enhancing the political economy of environmental policy which is at the core of OECD work. The opinions expressed in this paper reflect the author’s perception of this long history of the development of environmental economics at OECD; it does not necessarily reflect the views of the OECD and its member countries. Many thanks to Jonathan Fisher, Nick Johnstone and Michel Potier for their comments on an earlier draft.     

Believers vs. deniers: Climate change and environmental policy polarization

This paper theoretically studies the consequences of partisanship with an application to environmental policy. We model an election between a right-wing and a left-wing candidate who strategically propose environmental policies to gain the support of an electorate divided based on their climate change beliefs and productive assets. While environmental regulations imply a trade-off between a more sustainable environment and higher incomes for all voters, climate change believers have a higher belief in human activity-induced climate change, which translates into greater expected environmental benefits from policy, and high-asset voters care relatively more about mitigating economic costs. Voters view the left-wing candidate as more effective in addressing environmental challenges, whereas her right-wing opponent is the better candidate to deliver relief from the economic burden of regulations. In equilibrium, there exists policy divergence and the right-wing candidate always proposes the more pro-industry policy. We find that higher asset inequality moves equilibrium policies in a pro-industry direction as long as high-asset voters are ideologically more homogeneous than low-asset ones. Equilibrium policies become further polarized with greater partisanship as those voters with the same climate change belief hold similar ideologies.     

The potato's contribution to population and urbanization: evidence from a historical experiment

We exploit regional variation in suitability for cultivating potatoes, together with time variation arising from their introduction to the Old World from the Americas, to estimate the impact of potatoes on Old World population and urbanization. Our results show that the introduction of the potato was responsible for a significant portion of the increase in population and urbanization observed during the eighteenth and nineteenth centuries. According to our most conservative estimates, the introduction of the potato accounts for approximately one-quarter of the growth in Old World population and urbanization between 1700 and 1900. Additional evidence from within-country comparisons of city populations and adult heights also confirms the cross-country findings.     

A model for estimating fish population and optimal fishing effort in lakes and rivers

We developed a model for estimating the fish population for various species in lakes and rivers. Our estimation focuses, in its first step, on fish species that breed outside the lake. Using the annual outside supply of fingerlings, natural survival rate and reported amounts of fish caught, we estimated fish stock. Given the estimated stock for fish bred outside the lake, we can evaluate the catch rate. Assuming equal catch rates for other species, and given the amount caught for each species, we are able to evaluate each species stock. Using the proposed technique, we evaluated various species stocks in the Sea of Galilee (Lake Kinneret) in Israel. Using our suggested technique for evaluating fish stock, we calculated the optimal effort of fishing needed for maximizing steady state profit of the fishers.     

Recent approaches to development,and population growth and technological change

"This paper will attempt to study the question of the relationship between population growth and technological change in recent approaches to development." The focus is on the relative merits of the private sector approach to development over the public sector approach. The geographical focus is on developing countries.     

Tourism's contribution to the demand for London's lively arts

How much of the attendance at London's lively arts comes from tourism? This question steers the inquiry, which involves model that distinguishes resident demand from tourist demand. Data for the empirical work are time series on individual arts companies, and accordingly the estimation method allows for autocorrelation and heteroscedasticity. Estimation indicates that, consonant with time-allocation logic, tourist demand depends importantly upon income whereas resident demand does not. It is shown that tourists, whose arts participation rate averages only 8%, account for 65% of attendance and that the elasticity measuring the attendance response to tourism equals 0.645.

It must be concluded that if it were not for overseas visitors to London, it is doubtful whether West End theatres could remain open throughout the summer.

Society of West End Theatre (1982, pp. 6–7)     

The empirical analysis of the determinants for environmental technological change: A research agenda

Technological change is usually considered a necessary albeit not sufficient condition for a transition to sustainability. However, the empirical analysis of the determinants to environmental technological change has not received too much attention in the environmental/ecological economics literature and many open questions remain in this context. Based on a careful review of the literature, this paper argues that further analysis should address several issues at different levels: i.e., regarding the conceptual framework, the thematic scope of the studies, some methodological issues and other aspects related to the environmental policy variable. First, an integrated conceptual framework which takes into account the interplay between relevant variables influencing environmental technological change (i.e., factors internal and external to the firm and characteristics of the environmental technologies) and all the stages of this process, with a greater emphasis on the invention stage, should be developed. Other aspects should then be tackled, including a focus on several themes (i.e., a greater attention to cross-sectoral technologies, the barriers to different types of environmental technologies, the international dimension of environmental technological change and environmental technological change in small and medium size enterprises), methodological issues (combination of case studies and econometric modelling) and several issues related to the environmental policy variable.     

On the relationship between population change and sustainable development

This paper investigates the relationship between population growth and economic growth, through the study of fertility choices and their effects on natural resources. It aims at analyzing the interactions between endogenous fertility choices and the environment and their link to the sustainable matter. We analyze a growth model driven by natural resources and without production, where agents have jointly to determine consumption and fertility, taking into account the effects of their decisions on the dynamics of natural resources. We adopt the most optimistic view on natural capital (it generates endogenous growth) and the weakest notion of sustainable paths (all variables are positive): in such a framework we expect that sustainable paths exist. We instead show that this is not always true. In fact, even if renewal capacity of natural resources is unbounded, not always can a sustainable path be found: this depends on the difference between the stationary fertility rate and the mortality rate. If the stationary fertility is lower than the mortality rate, a sustainable path will not be found, and in such a case public intervention is necessary in order to address the economy along a sustainable path. This can simply be done through policies affecting public attention to environmental protection or the intensity of the dilution effect.     

A general dynamic model of 19th century U.S. population change

"The pattern of rural population growth in 23 northern states during the period 1790 to 1900 is examined using a general dynamic approach. The relationship between fertility, migration and population growth is analysed within a single settlement model and a control solution is produced which demonstrates that fertility and migration behaviour reacted to changes in land availability, eventually leading to population stability in rural areas."     

Quantitative analysis on the contribution of industrial structure change to sustainable development： a case study of Fujian Province

Development and sustainability are the core connotation of sustainable development. Sustainability of economic development and the provision capability of resources and environment are two aspects of sustainable development. The former ones are the foundation of the latter ones＇. Industrial structure has a close relationship with sustainable development. The optimization of industrial structure is the important base for the sustainable development of modern economy and also the important ways of the sustainable utilization of resources and environment; The intensive growth effect of industrial structure change has the meaning of sustainable development. This paper reviews and explains the theory on the contribution of indus＇trial structure change to sustainable development, builds the calculation model through introducing the coefficient of industrial structure change, makes an empirical study on the contribution of industrial structure change to sustainable development in Fujian, and puts forward ways and policies of optimizing industrial structure both among industries and inside the industry in the process of industrial structure change.