Permit markets,carbon prices and the creation of innovation clusters

Innovation clusters combining public and private effort to develop breakthrough technologies promise greater technological advances to slow down climate change. We use a multi-country model with an emission trading system to examine whether and how international climate policy can incentivize countries to create such innovation clusters. We find that a minimal carbon price is needed to attract applied research firms, but countries may nevertheless fail to invest in complementary research infrastructure. We construct a mechanism that leads to innovation clusters when emissions targets are set before uncertainty surrounding technological developments is resolved. It is a combination of low permit endowments for the country with the lowest costs to build the needed infrastructure, compensation for this country by profits from permit trade, and maximal possible permit endowments for the remaining countries. We outline how the EU-ETS can be further refined according to this mechanism.     

Optimal mechanisms for siting noxious facilities

We study Bayesian mechanism design in the context of the siting of noxious facilities. Under incomplete information, we characterize optimal mechanisms facilitating the siting and cost sharing of the facility. These mechanisms are allocatively and Pareto efficient. However, it appears that transfers occur when the good is not provided. This result is due to the weakening of the incentive notion to Bayesian–Nash equilibrium and to the balanced budget condition. This phenomenon disappears if the setting is perfectly symmetric.      

城市环境外部性的经济分析与对策研究

本文将就环境外部性的特点进行经济分析,提出运用经济学、伦理学及政治学综合性知识,在追求高效率、确立道德约束、建立政治规则和明确衡量标准的基础上,制定治理环境外部性的积极对策。     

Externalities of R&D Expenditures

Innovation is generally recognized as a major source of economic growth. R&D investments explicitly aim at generating innovations and creating knowledge. Since knowledge has certain public good properties, positive externalities are likely to exist. In this paper, we extend well-known concepts from the input-output literature (backward multipliers) to indicate at which commodities stimuli should be targeted to enhance R&D and its positive externalities in the economy as a whole. Next, we argue that there may also be negative externalities of R&D, due to increased prices. This issue can be studied by means of forward multipliers. Both concepts are applied to the United States, 1977-90.     

A trade theoretic analysis of outward capital flows: with special reference to Hong Kong

This paper sets up a trade theoretic model to explain the output, price and welfare consequences of the outward investment from Hong Kong to the Pearl River Delta. A four-good trade theoretic model is set up to incorporate some special features of the Hong Kong Economy. We assume that the economy produces four goods: an exportable good, an importable good and two non-traded goods. A special feature of the model is that one of the non-traded goods (locally produced) is also consumed by foreigners and produced under the assumption of non-competitive market framework. As tourist or business-centre trade is of great significance to Hong Kong, this model allows us to capture this phenomenon. First, precise conditions are derived regarding the decline in manufacturing output in Hong Kong. Second, it is shown that, in spite of the supply side determination of the relative price of non-traded goods, income effects in this market are of great significance in both income (welfare) and output movements. These income effects cannot be captured in industrial organization type applied work. Third, it is shown how outflow of capital affects labour productivity. A surprising result obtained for this part of the analysis is that a fall in productivity (outflow of capital and de-industrialization) creates a favourable terms-of-trade effect in the monopolized sector. The welfare effect consists of four terms: (1) a terms-of trade effect via the price of non-traded goods consumed by tourists/foreigners; (2) the loss (gain) in productivity due to an outflow of capital; (3) repatriation payments; and (4) the gains from exporting from the Special Economic Zones as well as other Pearl River Delta cities. Our decomposition has two very important features in contrast to traditional models: a terms-of-trade effect from the consumption of services and productivity gains or losses. The last point is exceedingly important for policy makers specifically if outward flow of capital affects productivity negatively.     

Economics of externalities and public policy

In this paper we study a particular case of “multiple” externalities associated to the production of a good/activity, whose external effects can change from positive to negative depending on the level of output (intersecting externalities). To analyze their impact on the public policy we propose a very simple two-agent partial equilibrium model in the technological context of externalities. In a static framework, the centralized solution always implies an optimal policy, which may consist of taxation or subsidization depending on the individual optimum and on the technology parameters. In a dynamic model with local knowledge of the efficiency function and instantaneous output adjustments, such an optimal policy can be structurally stable or unstable. In the latter case, under small changes of the parameters the policy may switch from low taxation/subsidization to high taxation/subsidization or vice versa, or even jump discontinuously from taxation to subsidization or vice versa. Furthermore, the decentralized solution based upon “tradable rights” can be economically equivalent to the centralized solution in the form of taxation policy but the two solutions may be not politically equivalent.

Impatience and equilibrium indeterminacy

This paper extends the neoclassical one-sector optimal growth model by postulating that individual agents’ time preference (impatience) depends on the economy-wide average consumption and average income, which are social factors taken as external by individual agents. The paper shows that with the socially determined individual time preference local equilibrium indeterminacy can arise. Moreover, local indeterminacy can also be associated with global indeterminacy in many cases. The results hold in models with bounded and unbounded growth.     

Disclosure and Recognition Requirements: Corporate Investment Decisions with Externalities*

This paper examines the effects of disclosure and recognition requirements on investment decisions when shareholders have limited liability. Firms' investment projects have either high initial pollution prevention costs or high subsequent clean‐up costs, and their liability for clean‐up costs may be either individual or joint and several. Even with individual liability for clean‐up costs, shareholders' limited liability creates an incentive to select the latter project type and to impose costs on the rest of the economy. This tendency is exacerbated when clean‐up liability is joint and several. We show that a disclosure requirement cannot have an unambiguous effect on the selection of the “cleaner” project. However, an accrual requirement, together with an accounting‐based dividend restriction, is shown to promote choice of the project that imposes lower expected costs on the rest of the economy. Moreover, we find that it is possible for a recognition requirement to have a greater impact in a joint‐and‐several liability regime than in an individual liability regime.