The FAERE Working Papers are included in EconPapers and RePEc. The International Standard Serial Number (ISSN) assigned to the online FAERE Working Papers Series is ISSN: 2274-5556.


2020.17 Carbon Curse in Developed Countries

Forthcoming in Energy Economics.

Mireille Chiroleu-Assouline – Mouez Fodha – Yassine Kirat

Among the ten countries with the highest carbon intensity, six are natural resource-rich countries. This suggests the existence of a carbon curse: resource-rich countries would tend to follow more carbon-intensive development paths than resource-poor countries. We investigate this assumption empirically using a panel data method covering 29 countries (OECD and BRIC) and seven sectors over the 1995-2009 period. First, at the macroeconomic level, we find that the relationship between national CO2 emissions per unit of GDP and abundance in natural resources is U-shaped. The carbon curse appears only after the turning point. Second, we measure the impact of resource abundance on sectoral emissions for two groups of countries based on their resource endowments. We show that a country rich in natural resources pollutes relatively more in resource related sectors as well as all other sectors. Our results suggest that the debate on climate change mitigation should rather focus on a comparison of resource-rich countries versus resource-poor countries than the developed-country versus developing-country debate.

2020.16 Emissions Trading with Transaction Cost

Marc Baudry – Anouk Faure – Simon Quemin

We develop an equilibrium model of emissions permit trading in the presence of fixed and proportional trading costs in which the permit price and firms’ participation in and extent of trading are endogenously determined. We analyze the sensitivity of the equilibrium to changes in the trading costs and firms’ allocations, and characterize situations where the trading costs alternatively depress or raise permit prices relative to frictionless market conditions. We calibrate our model to annual transaction and compliance data in Phase II of the EU ETS (2008-2012) which we consolidate at the firm level. We find that trading costs in the order of 10 k€ per annum plus 1€ per permit traded substantially reduce discrepancies between observations and theoretical predictions for firms’ behavior (e.g. autarkic compliance). Our simulations suggest that ignoring trading costs leads to an underestimation of the price impacts of supply-curbing policies, this difference varying with the incidence on firms.

2020.15 Qui émet du CO2? Panorama critique des inégalités écologiques en France

Antonin Pottier – Emmanuel Combet – Jean-Michel Cayla – Simona de Lauretis – Franck Nadaud

This article provides an overview of the inequalities in greenhouse gas (GHG) emissions between French households. It presents in a detailed and critical manner the methodological conventions used to compute “household emissions”, and the related assumptions. The most common principle of attribution, the carbon footprint, which assigns to households the emissions of the products they consume, conveys implicit conceptions of responsibility. It focuses attention on the contributions of individuals, on their choices, and may obscure the role of non-individual actors as well as the collective component of GHG emissions, and neglect the dimensions of responsibility not related to consumption choices.
We estimate the distribution of household carbon footprints based on data from the 2011 French Expenditure Survey. Household emissions tend to increase with income, but they also show a strong variability linked to geographical and technical factors that force to use fossil fuels.
Based on sectoral surveys (ENTD 2008; PHEBUS 2013), we also reconstruct household CO2 emissions linked to housing and transport energy. For transport, emissions are proportional to the distances travelled due to the predominant use of private cars. Urban settlement patterns constraint both the length of daily commuting and access to less carbon-intensive modes of transport. For housing, while house size increases with income and distance from urban centres, the first factor to account for variability of emissions is the heating system. It has little to do with income but more to do with settlement patterns, which constrain access to the various energy carriers.
Finally, we discuss the difficulties, both technical and conceptual, involved in estimating emissions from the super-rich (the top 1 percent).

2020.14 The market for “harmful component-free” products under pressure from the NGOs

Dorothée Brécard – Mireille Chiroleu-Assouline

Non-governmental organizations (NGOs) are exerting growing pressure on firms to eliminate product components (such as palm oil) that are harmful to the environment (such as rainforests) or replace such components with NGO-certified sustainable components. Under which conditions does NGO pressure lead firms to eliminate basic components from their products or, alternatively, substitute damaging components with certified sustainable components? What are the ensuing effects on market structure, environmental quality, and social welfare? The paper addresses these issues using a model of two-dimensional vertical product differentiation. It shows that, for an NGO that collects certification fees to accrue its budget and finance its awareness campaign, it may — paradoxically — be optimal to reduce the certified product’s market share and eventually evict it.

2020.13 Carbon Dioxide Emissions and aging: Disentangling behavior from energy efficiency

Dorothée Charlier – Bérengère Legendre

Demographic aging affects Western societies and calls for the adaptation of a number of economic structures, such as pension systems. But this trend requires us to take into account the behavioral changes inherent in aging if we are develop sustainably, specifically concerning resource consumption and carbon dioxide emissions in the context of global warming. The aim of this research is to assess the impact of aging on emissions by disentangling the pure effect of behavioral patterns and the effect of home energy efficiency. Showing that a selection bias arises through the choice of home, we isolate the pure effect of the behavior of older people. We use a discrete-continuous model to address potential endogeneity in a residential energy consumption model due to the choice of home energy characteristics. As a key contribution, we provide evidence that age does have a significant but indirect impact on carbon dioxide emissions, through the choice of dwelling.

2020.12 How Environmental Policies Spread ? A Network Approach to Diffusion in the U.S.

Côme Billard – Anna Creti – Antoine Mandel

In this paper, we reconstruct the network of environmental policies diffusion across American states from 1974 to 2018. Our results highlight an inefficient structure, suggesting lags in policy spreading. We identify Minnesota, California and Florida to be the main “facilitators” of the dynamics. Targeting them ensures the maximum likelihood of policy diffusion across the country. We then evaluate the determinants of the inferred network. Our results emphasize the role of contiguity and wealth in policy transmission. We also find sustainable economic systems as well as state’s expected economic losses due to climate change as critical factors of environmental policy flows.

2020.11 Promoting discount schemes as a nudge strategy to enhance environmental behaviour

Julie Metta

This paper presents the effects of nudging and of direct instruments on the consumer choice for reusable cups instead of disposable cups. The instruments include a financial incentive (discount schemes for consumers bringing their own cup) and communication about the scheme. The required conditions for the shop policy to be effective (i.e. induce a change in consumer behaviour through direct and indirect communication) are also evaluated. An original database was compiled from structured observations over 223 Hong Kong coffee shops, where 522 data points were collected. The research questions are answered using two strategies. First, logistic econometric approaches estimate the effects of the policies on consumer behaviour. Secondly, a qualitative comparative analysis identifies the required conditions for the consumers to use reusable cups. The results show no significant effect of the financial incentive on the targeted consumers but positive and significant effects on the other consumers who switch to in-shop reusable cups instead of disposable cups. Through effective communication about the “environment-friendly” shop policy, coffee shops affect the consumer behaviour towards reusable cups positively. I observe that nudges have higher effects than financial instruments on consumer behavioural change even when the settings account for strong conservative behaviours. The analysis of coffee shop typologies reports that coffee shops targeting a wealthier audience are more likely to achieve policy goals through nudge strategy.

2020.10 Recycling under environmental, climate and resource constraints

Gilles Lafforgue – Etienne Lorang

We study the recycling opportunity of an industrial sector constrained by climate, resource and waste capacities. A final good is produced from virgin and recycled materials, and its consumption releases both waste and GHG emissions. We identify the optimal trajectories of resources use, mainly depending on the emission rates of each resource and on the relative scarcity of their stocks. Recycling is sometimes an opportunity to reduce the impact of consumption on primary resources and waste but can still affect the environment. We characterize the optimal recycling strategy and we show that, in some cases, the time pace of the recycling rate is inverted U-shaped. Last, we discuss the policy implications of our model by identifying and analyzing the set of optimal tax-subsidy schemes.

2020.09 Confronting climate change: Adaptation vs. migration strategies in Small Island Developing States

Lesly Cassin – Paolo Melindi Ghidi – Fabien Prieur

This paper examines the optimal adaptation policy of Small Island Developing States (SIDS) to cope with climate change. We build a dynamic optimization problem to incorporate the following ingredients: (i) local production uses labor and natural capital, which is degraded as a result of climate change; (ii) governments have two main policy options: control migration and/or conventional adaptation measures ; (iii) migration decisions drive changes in the population size; (iv) expatriates send remittances back home. We show that the optimal policy depends on the interplay between the two policy instruments that can be either complements or substitutes depending on the individual characteristics and initial conditions. Using a numerical analysis based on the calibration of the model for different SIDS, we identify that only large islands use the two tools from the beginning, while for the smaller countries, there is a substitution between migration and conventional adaption at the initial period.

2020.08 A simple Ricardo‐Malthusian model of population, deforestation and biodiversity loss

Laté Ayao Lawson

This paper assesses the interactions between human societies and nature, arguing that population growth and forest resources harvest cause natural habitat conversion, which resolves into biodiversity loss. Relying on profit and utility maximization behaviours, we describe the joint evolution of population, forest and species stock by a dynamic system characterized by a locally stable steady state. Compared to existing studies, we dissociate forest cover from species stock and enlighten the possibility of total extinction of biological species (empty forests). Our analysis supports an impossible peaceful cohabitation, as in presence of human population growth, forest resources and species stock diverge from their carrying capacity. Finally, scenarios analyses associated with high fertility and preference for the resource-based good globally indicate rapid population growth followed by a sudden drop: a collapse.

Optimal Environmental Radical Activism

Mireille Chiroleu-Assouline – Ariane Lambert-Mogiliansky

We study the problem faced by activists who want to maximize firms’ compliance with high environmental standards. Our focus is on radical activism which relies on non-violent civil disobedience. Disruptive actions and the threat thereof are used to force firms to concede i.e., to engage in self-regulation. We address the optimal use of scarce activist resources in face of incomplete information by looking at a general mechanism, directly adapted from Myerson’s (1981) optimal auction theory. The characterization informs that the least vulnerable and most polluting firms should be targeted with disruptive actions while the others are granted a guarantee not to be targeted in exchange for a concession. This characterization allows studying the determinants of the activist’s strength and how it is affected by repression, a central feature for civil disobedience. We find that optimal radical activism is relatively resilient to repression. In an extension that accounts for asymmetry between firms’abatement cost, we find that the mechanism optimizes the allocation of abatment efforts and creates incentives for innovation. We discuss some other welfare properties of optimal activism.

Optimism on Pollution-Driven Disasters and Asset Prices

Shiba Suzuki – Hiroaki Yamagami

This study explores how investors’ optimism about the likelihood of pollution-driven disaster occurrence affects asset prices. Environmental pollution resulting from economic activities raises the probability of disaster occurrence. However, the relationship between economic activities, pollution, and disaster occurrence is difficult to ascertain. Thus, investors make decisions based on subjective expectation; specifically, they subjectively evaluate the probability of disaster occurrence to be lower than its objective probability. As demonstrated in this study, the equity premiums under conditions of objective expectation are significantly higher than those under subjective expectation conditions only if a representative agent has high Intertemporal Elasticity of Substitution (IES). This discrepancy in asset returns is related to the propensity of individuals to discount events occurring in the “distant future” as described in existing literature.

Does Becoming Richer Lead to a Reduction in Natural Resource Consumption? An Empirical Refutation of the Kuznets Material Curve

Dorothée Charlier – Florian Fizaine

During the last three decades, many industrializing countries have experienced economic growth, which concurred with a substantial increase in the use of materials. This fact questions the relationship between the use of biomass, fossil fuels and minerals and economic growth. Using a Material Kuznets Curve framework, this study investigates whether material use spontaneously reaches a maximum for a given level of development and declines thereafter. Using a new indicator, the material footprint (that quantifies all materials extracted to produce a country’s final demand, including materials embodied in imports), we investigate this nexus confronting for the first-time different methodologies in a same empirical study. More especially, we measure the evolution of material footprint (per capita) elasticity to gdp (per capita) in four different ways. As main results, all models lead to a same nature and seem to indicate a strong and permanent link between economic growth/ economic development and raw material consumption. There is no sign of strong decoupling. Improving development and adoption of technologies becomes an emergency.

Fuel Poverty and Health: a Panel Data Analysis

Romanic Baudu – Dorothée Charlier – Bérangère Legendre

Protecting and improving health and mitigation of climate change have a shared agenda. In this paper, we contribute to the literature by assessing the link between fuel poverty and health over a lengthy recent period. Using dynamic probit models, we examine the influence of fuel poverty on health. We control for state dependency of health as we regard health status to be closely related to previous health trajectories. Considering that unobserved heterogeneity might influence health status and fuel poverty simultaneously, we have corrected for the endogeneity bias that could affect our results. We conclude that being fuel-poor increases the risk of bad health by slightly more than a factor of 7 for those whose health is already poor and by 1.82 for those in good health. For policy makers, combatting fuel poverty reduces sources of discomfort which might also severely affect the health of a dwelling’s inhabitants.

The effects of migration and pollution on cognitive skills in Caribbean economies: a theoretical analysis

Lesly Cassin

This work analyses the interaction between demographic features and environmental constraints in the Caribbean Small Island Developing States. More specifically, it aims to clarify the impact of migration in the presence of pollution. To do so, an Intergenerational model is developed to reproduce the characteristics of these countries, which are highly dependent on migration gains such as brain gain or remittances. Moreover, production emits pollution that hinders the accumulation of human capital. Two cases emerge from the analysis, in the first an environmental policy is sufficient to correct the externality and in this case migration implies the same mechanisms as in the case without pollution. In the second case, if pollution emissions are high relative to the effectiveness of environmental policy, migration leads to an increase in per capita output and human capital. This only happens if the emigration rate is already high, because it leads to a reduction in demographic pressure on the environment.

Individual preferences regarding pesticide-free management of green-spaces: a discret choice experiment with French citizens

Pauline Laille – Marianne Lefebvre – Masha Maslianskaia-Pautrel

To comply with the pesticide ban in effect in French urban green spaces (UGSs), managers have to modify their practices. Understanding citizens’ preferences for UGSs whose characteristics are modified by the pesticide ban is a useful complement to technical research on alternatives to pesticides. We use a discrete choice experiment run online on a representative sample of the French population to analyze preferences towards characteristics of direct interest to the users (visual aspect, recreational opportunities, and information campaigns on pesticide-free UGSs) and less visible characteristics such as fauna abundance, working conditions, or the budget dedicated to the maintenance of such areas. We find that all chosen attributes have a significant impact on respondents’ choice of UGS option. All citizens largely devalue options generating a major budget increase, but preferences towards other attributes are shaped by visit frequency to UGSs. Most users prefer a natural visual aspect to a controlled aspect, but this preference is even greater for frequent visitors. Visit frequency affects in particular preferences towards fauna abundance (valued only by those who frequently visit UGSs) and information campaigns (valued only by those who do not frequently visit UGSs).

Technology Contagion in Networks

Côme Billard

We represent a social system as a network of agents and model the process of technology diffusion as a contagion propagating in such a network. By setting the necessary conditions for an agent to switch (ie. to adopt the technology), we address the question of how to maximize the contagion of a technology subject to a Moore’s law (eg. solar modules) in a network of agents. We focus the analysis on the effects of the network structure and technological learning on diffusion. To this end, we study three classes of networks, namely lattice, small-world and random networks. Our numerical results show that both the lattice and the small-world networks facilitate the contagion. These networks exhibit high levels of clustering, and additional contacts increase the probability of contagion through social reinforcement. Conversely, networks exhibiting short path length and a low level of clustering (ie. random networks) guarantee an equivalent speed of diffusion with smaller ranges (ie. variance) in terms of aggregate adoption. Whatever the structure, learning effects are critical for contagion to spread in agents networks.


Ecological compensation: how much and where?

Pascal Gastineau – Pascal Mossay – Emmanuelle Taugourdeau

We propose a spatial framework to study ecological compensation. The policy-maker implements a No Net Loss policy that meets the No Worse-Off principle as well as a location constraint on the offset. This determines both the location and the level of compensation that minimize the total cost of restoration. We describe the additional ecological cost induced by the No Worse-Off principle and how the spatial distribution of individuals, the environment and land costs affect the compensation location. The location constraint is shown to introduce a trade-off between the compensation cost and inequality.

On Climate Agreements with Asymmetric Countries: Theory and Experimental Results

Charles F. Mason

I model International climate agreements among asymmetric countries, each of whom must select a profile of CO2 emissions over time. Predictions from this model imply larger reductions by « large” countries, but larger proportional reductions by « small” countries. I then analyze experimental data that sheds light on this issue. In contrast to the theoretical predictions, I find that smaller countries do not reduce emissions proportionately to their Nash level, and so the burden falls mostly on larger countries. Moreover, combined emissions are indistinguishable from the one-shot Nash emissions. This pessimistic outcome extends the commonly-found result in the literature that negotiations in similar repeated games (but with symmetric players) generally do not offer much hope for meaningful agreements, unless the effects are modest. One possible explanation for this pattern of results is inequality aversion.

Altruistic Foreign Aid and Climate Change Mitigation

Antoine Bommier – Amélie Goerger – Arnaud Goussebaïle – Jean-Philippe Nicolaï

This paper emphasizes the value of jointly addressing environmental and development objectives. We consider one altruistic developed country and several heterogeneous developing countries. We demonstrate that the lack of coordination between countries in tackling climate change finds a simple solution if developing countries can expect to receive development aid transfers from the developed country. The timing of the decision is central to the mechanism: development aid transfers should be determined after pollution abatement levels. The main restriction of our result is that it only holds if the developed country is altruistic enough to make positive development aid transfers to developing countries. Nevertheless, even from a purely selfish point of view, it may be profitable for the developed country to be more altruistic, leading to higher welfare for all countries.

Hedonic estimation of the green value of residential housing

Catherine Baumont – Masha Maslianskaia-Pautrel – Pierre Voyé

Managing the energy demand in the residential sector could be achieved by the promotion of energy efficiency buildings. We assume that households adopting a green behavior are willing to pay a greater price to access to « green” housing. This added value is called the « green value”. This paper studies the impact of the energy efficiency rating of a house, as certified by the Diagnostic de Performance Energétique (DPE), on housing prices. In order to do this, the hedonic price method has been applied to the real estate market – apartments and houses – in the urban area of Dijon from January 2013 to December 2014. The results indicate that the impact of DPE is mostly observed for the least performing classes. This negative impact depends on the type of the market: it is smaller for the apartment market. We also show that proximity to green amenities – outside the cities – has a positive effect only for house market.

Improving Farm Environmental Performance through Technical Assistance: Empirical Evidence on Pesticide Use

Margaux Lapierre – Alexandre Sauquet – Julie Subervie

In 2008, the French government announced an important shift in agricultural policy, calling for halving the use of pesticides in the next ten years. Since then, it has spent 40 million euros a year on implementing the so-called Ecophyto plan. In this paper, we evaluate the success of this program, focusing on its flagship scheme, which has provided technical assistance to 3,000 volunteer pilot farms since 2011. To do so, we use panel data collected from a representative sample of vineyards: the agricultural systems known as the largest users of pesticides. We use a slate of quasi-experimental approaches to estimate the impact of participation in the program on pesticide use and crop yields on enrolled vineyards. We find that participants have achieved reductions in pesticide use that ranges from 8 to 22 percent, thanks to the program. We moreover find that the reduction in the use of chemicals was accompanied by an increase in the use of biocontrol products. Finally, we find that this change of practices resulted in a reduction in yields for a fraction of enrolled farms while others seems to have maintained yields. Although below the expectations of the French government, these results seem rather encouraging, as they suggest that technical assistance alone can be effective in reducing significantly pesticide use in the agricultural sector.

Limit pricing, climate policies, and imperfect substitution

Forthcoming in Resource and Energy Economics.

Gerard van der Meijden – Cees Withagen

The effects of climate policies are often studied under perfect competition and constant marginal extraction costs. In this paper, we allow for monopolistic fossil fuel supply and more general cost functions, which, in the presence of perfectly substitutable renewables, gives rise to limit-pricing behavior. Four phases of supply may exist in equilibrium: sole supply of fossil fuels below the limit price, sole supply of fossil fuels at the limit price, simultaneous supply of fossil fuels and renewables at the limit price, and sole supply of renewables at the limit price. The consequences of climate policies for initial extraction depend on the initial phase: in case of sole supply of fossil fuels at the limit price, a renewables subsidy increases initial extraction, whereas a carbon tax leaves initial extraction unaffected. With simultaneous supply at the limit price or with sole supply of fossil fuels below the limit price, a renewables subsidy and a carbon tax lower initial extraction. Both policy instruments decrease cumulative extraction. If fossil fuels and renewables are imperfect but good substitutes, the monopolist will exhibit ‘limit-pricing resembling’behavior, by keeping the effective price of fossil close to that of renewables for considerable time.

Linking Permit Markets Multilaterally

Forthcoming in Journal of Environmental Economics and Management.

Baran Doda – Simon Quemin – Luca Taschini

We formally study the determinants, magnitude and distribution of efficiency gains generated in multilateral linkages between permit markets. We provide two novel decomposition results for these gains, characterize individual preferences over linking groups and show that our results are largely unaltered with strategic domestic emissions cap selection or when banking and borrowing are allowed. Using the Paris Agreement pledges and power sector emissions data of five countries which all use or considered using both emissions trading and linking, we quantify the efficiency gains. We find that the computed gains can be sizable and are split roughly equally between effort and risk sharing.

The Social Cost of Carbon and the Ramsey Rule

Cees Withagen

The objective of this paper is to critically assess the use of simple rules for the social cost of carbon (SCC) that employ a rudimentary form of the Ramsey Rule. Two interrelated caveats apply. First, if climate change poses a serious problem, it is hard to justify an exogenous constant growth rate of consumption and GDP, as is done in several contributions by prominent scholars. Second, to derive the optimal SCC one needs full knowledge of the entire future, in spite of the use of popular ways to try to get around this. Moreover, it is shown that some simple rules suffer from inconsistencies in their derivation.

French Attitudes over Climate Change and Climate Policies

Thomas Douenne – Adrien Fabre

This paper aims to assess the prospects for French climate policies after the Yellow Vest scrisis halted the planned increase in the carbon tax. From a large representative survey, we elicit knowledge, perceptions and values over climate change, we examine opinions relative to carbon taxation, and we assess support for other climate policies. Specific attention is given to the link between perceptions of climate change and attitudes towards policies. The paper also studies in detail the determinants of attitudes in terms of political and socio-demographic variables. Among many results, we find limited knowledge but high concern for climate change. We also document a large rejection of the carbon tax but majority support for stricter norms and green investments, and reveal the rationales behind these preferences. Our study entails policy recommendations, such as an information campaign on climate change. Indeed, we find that climate awareness increases support for climate policies but no evidence for the formation of opinions through partisan cues as in the US, suggesting that better access to science could foster support for climate policies.

Energy Conversion Rate Improvements, Pollution Abatement Efforts and Energy Mix: The Transition toward the Green Economy under a Pollution Stock Constraint

Jean-Pierre Amigues – Michel Moreaux

To prevent climate change, three options are currently considered: improve the energy conversion efficiency of primary energy sources, develop carbon free alternatives to polluting fossil fuels and abate potential emissions before they are released inside the atmosphere. We study the optimal mix and timing of these three mitigation options in a stylized dynamic model. Useful energy can come from two sources: a non-renewable fossil fuel resource and a carbon free renewable resource. The conversion efficiency rate of fossil energy into useful energy is open to choice but higher conversion rates are also more costly. The economy can abate some fraction of its potential emissions and a higher abatement rate incurs higher costs. The society objective is to maintain below some mandated level, or carbon cap, the atmospheric carbon concentration. In the empirically relevant case where the economy is actually constrained by the cap, at least temporarily, we show that the optimal path is a sequence of four regimes: a ‘pre-ceiling’ regime before the economy is actually constrained by the cap, a ‘ceiling’ regime at the cap, a ‘post-ceiling’ regime below the cap and a final regime of exclusive exploitation of renewable resources. If the abatement option has ever to be used, it should be started before the beginning of the ceiling regime, first at an increasing rate and at a decreasing rate once the cap constraint binds. The efficiency performance from any source steadily improves with the exception of a time phase under the ceiling regime when it is constant. Renewables take progressively a larger share of the energy mix but their exploitation may be delayed significantly. Absolute levels of carbon emissions drop down continuously but follow a non monotonic pattern in per useful energy unit relative terms.

Ambitious Emissions Goal as a Strategic Preemption

Hiroaki Yamagami – Ryo Arawatari – Takeo Hori

We model a political game where a policymaker pledges a domestic emissions goal in the context of instrument choice between carbon pricing (CP) and a quota approach. We show that, although the policymaker faces an emissions goal proposed from an international environmental agreement, she may pledge a more stringent emissions than the proposed level. We define this stringent goal as an “ambitious emissions goal”. We show that the ambitious emissions goal acts as a strategy for the policymaker that preempts the industry’s lobby in a subsequent stage. We also suppose that, if CP is introduced, a rent-seeking contest for the CP revenue refund is held. Then, if the contest is socially costly enough, CP is no longer an optimal instrument. Finally, we extend the model of one country to that of two symmetric countries. A Nash equilibrium where both countries pledge the ambitious emissions goals remains.

2019.12 2019 FAERE Prize
Carbon Pricing and Power Sector Decarbonisation: Evidence from the UK

Marion Leroutier

The electricity and heat generation sector represents about 40 % of global greenhouse gas (GHG) emissions in 2016. Policy-makers have implemented a variety of instruments to decarbonise their power sector. This paper examines the UK Carbon Price Floor (CPF), a novel carbon pricing instrument implemented in the United Kingdom in 2013. After describing the potential mechanisms behind the recent UK power sector decarbonisation, I apply the synthetic control method on country-level data to estimate the impact of the CPF on per capita emissions. I discuss the importance of potential confounders and the amount of net electricity imports imputable to the policy. Depending on the specification, the abatement associated with the introduction of the CPF range from 106 to 185 millions tons of equivalent CO2 over the 2013-2017 period. This implies a reduction of between 41% and 49% of total power sector emissions by 2017. Several placebo tests suggest that these estimates capture a causal impact. This paper shows that a carbon levy on high-emitting inputs used for electricity generation can lead to successful decarbonisation.

Social Cost of Carbon under stochastic tipping points: when does risk play a role?

Nicolas Taconet – Céline Guivarch – Antonin Pottier

Carbon dioxide emissions impose a social cost on economies, owing to the damages they will cause in the future. In particular, emissions increase global temperature that may reach tipping points in the climate or economic system, triggering large economic shocks. Tipping points are uncertain by nature, they induce higher expected damages but also dispersion of possible damages, that is risk. Both dimensions increase the Social Cost of Carbon (SCC). However, the respective contributions of higher expected damages and risk have not been disentangled. We develop a simple method to compare how much expected damages explain the SCC, compared to the risk induced by a stochastic tipping point. We find that expected damages account for more than 90% of the SCC with productivity shocks lower than 10%, the high end of the range of damages commonly assumed in Integrated Assessment Models. It takes both high productivity shock and high risk aversion for risk to have a significant effect. Our results also shed light on the observation that risk aversion plays a modest role in determining the SCC (the ”risk aversion puzzle”): they suggest that too low levels of damages considered in previous studies could be responsible for the low influence of risk aversion.

Can We Reconcile French People with the Carbon Tax? Disentangling Beliefs from Preferences

Thomas Douenne – Adrien Fabre

Using a new survey and National households’ survey data, we investigate French perception over carbon taxation. We find that French people largely reject a tax and dividend policy where revenues of the tax would be redistributed uniformly. However, their perception about the properties of the tax are biased: people overestimate the negative impact on their purchasing power, wrongly think the scheme is regressive, and do not perceive it as environmentally effective. Our econometric analysis shows that correcting these three bias would suffice to generate majority acceptance. Yet, we find that people’s beliefs are persistent and their revisions biased towards pessimism, so that only few can be convinced.

The economic value of NBS restoration measures and their benefits in a river basin context: A meta-analysis regression

Nabila Arfaoui – Amandine Gnonlonfin

The study collects original monetary estimates for Nature Based Solutions (NBS) and benefits, with restoration approach in a basin context. A database of 187 monetary estimates is constructed to perform the first meta-analysis, which will assess how individuals value the NBS restoration measures and their primary and co-benefits. Demonstrating the monetary value of these benefits should improve decision-making in promoting the adoption of NBS and lead to greater protection of ecosystems. We find that individuals value, in particular, global climate regulation, local environmental regulation, recreational activities, and habitat and biodiversity benefits. We find also that NBS measures aimed at floodplains and river streams are more highly valued. The results of this study suggest that the Willingness-to-pay (WTP) is weakly influenced by the methodological variables. We found that primary studies using the contingent valuation method report higher WTP compared to those using choice experiment method. Moreover, the payment modes (local-tax, national-tax, donation and water bill) and econometric estimation methods (parametric, semiparametric and non-parametric) have only a marginal effect. Indeed most of these variables are insignificant with the exception of local-tax, water-bill and parametric variables which are significantly negative. Survey modes (internet, face to face and mix) are never significant. Finally, the coefficients of America and Europe are significantly positive, indicating that the monetary value of river restoration is higher in countries in these areas.

Can the environment be an inferior good? A theory with context-dependent substitutability and needs

Marion Dupoux – Vincent Martinet

Theoretical models often assume the environment to be a normal good, irrespective of one’s income. However, a priori, nothing prohibits an environmental good from being normal for some individuals and inferior for others. We develop a conceptual framework in which private consumption and an environmental public good act as substitutes or complements for satisfying different needs. Subsequently,the environment can switch between normal and inferior depending on one’s income and environment. If the environment is inferior for some range of in come, then the willingness to pay for environmental preservation becomes non-monotonic, thereby having implications for benefit transfers.

The Fossil Energy Interlude: Optimal Building, Maintaining and Scraping a Dedicated Capital, and the Hotelling Rule

Jean-Pierre Amigues – Michel Moreaux – Manh-Hung Nguyen

It is well known that the price and consumption paths of most nonrenewable resources, including the fossil primary energies, do not follow the paths predicted by the standard Hotelling rule (Krautkraemer,1998, Gaudet, 2007). We develop a model in which a dedicated capital together with the fossil fuel are both required to produce useful energy. Starting from a state ofthe economy in which the fossil fuel is not yet exploited, we characterize the optimal path of the double transition: The first transition from the initial renewable energy regime to a mixed or full fossil fuel regime and later the second transition from the fossil fuel regime back to a renewable energy regime when the available stock of the fossil fuel becomes more and more rare. We show that, absent any technical progress, the useful energy price must first decrease, next be constant during the phase of maximum expansion of the fossil fuel energy consumption before entering the phase of decreasing use of the fossil energy. Only this third phase of decreasing fossil fuel consumption looks like a standard Hotelling path.

Mineral Resources for Renewable Energy:Optimal Timing of Energy Production

Adrien Fabre – Mouez Fodha – Francesco Ricci

The production of energy from renewable sources is much more intensive in minerals than that from fossil resources. The scarcity of certain minerals limits the potential for substituting renewable energy for scarce fossil resources. However, minerals can be recycled, while fossils cannot. We develop an intertemporal model to study the dynamics of the optimal energy mix in the presence of mineral intensive renewable energy and fossil energy. We analyze energy production when both mineral and fossil resources are scarce, but minerals are recyclable. We show that the greater the recycling rate of minerals, the more the energy mix should rely on renewable energy, and the sooner should investment in renewable capacity take place. We confirm these results even in the presence of other better known factors that affect the optimal schedule of resource use: growth in the productivity in the renewable sector, imperfect substitution between the two sources of energy, convex extraction costs for mineral resources and pollution from the use of fossil resources.

Disaster risks, disaster strikes and economic growth: the role of preferences

Thomas Douenne

This paper studies the role of preferences on the link between disasters and growth. An endogenous growth model with disasters is presented in which one can derive closed-form solutions with non-expected utility. The model distinguishes disaster risks and disaster strikes and highlights the numerous mechanisms through which they may affect growth. It is shown that separating aversion to risk from the elasticity of inter-temporal substitution bears critical qualitative implications that enable to better understand these mechanisms. In a calibration of the model, it is shown that for standard parameter values, the additional restriction imposed by the time-additive expected utility can also lead to substantial quantitative bias regarding optimal risk-mitigation policies and growth. The paper thus calls for a wider use of non-expected utility in the modeling of disasters, in particular with respect to environmental disasters and climate change.

Incentives, Pro-social Preferences and Discrimination

Raphaël Soubeyran

In this paper, I study how a principal can provide incentives, at minimal cost, to a group of agents who have pro-social preferences in order to induce successful coordination in the presence of network externalities. I show that agents’ pro-social preferences – specifically a preference for the sum of the agents payoffs and for the minimum payoff – lead to a decrease in the implementation cost for the principal, a decrease in the payoff of each agent, and an increase in discrimination. The model can be applied in various contexts and it delivers policy implications for designing policies that support the adoption of new technologies, for motivating a group of workers, or for inducing successful coordination of NGOs.

Prediction is difficult, even when it’s about the past: a hindcast experiment using Res-IRF, an integrated energy-economy model

Forthcoming in Energy Economics.

David Glotin – Cyril Bourgeois – Louis-Gaëtan Giraudet – Philippe Quirion

Model-based projections of energy demand are hardly ever confronted with observations. This shortfall threatens the credibility policy-makers might attach to integrated energy-economy models. One reason for it is the lack of historical data against which to calibrate models, a prerequisite for attempting to replicate past trends. In this paper, we (i) assemble piecemeal historical data to reconstruct the energy performance of the residential building stock of 1984 in France; (ii) calibrate Res-IRF, a bottom-up model of residential energy demand in France, against these data and run it to 2012. In a preliminary simulation that only considers the data that were known at the beginning of the simulated period, we find that the model accurately predicts energy consumption per m² aggregated over all dwelling types, with a Mean Absolute Percentage Error below 1.5% and 85% of the variance explained. These figures reach 0.5% and 96% when we consider the best-fit of 1,920 scenarios covering the uncertainty surrounding the parameters of the initial year. Energy demand is unevenly well replicated across fuels, which reveals some limitations in the ability of the model to capture politically-driven trends such as the expansion of the natural-gas distribution network. The overall results however build confidence in the general accuracy of the Res-IRF model. We discuss the directions for data collection which would ease comparison between simulations and observations in future hindcast experiments.

Bargaining with Intertemporal Maximin Payoffs

Vincent Martinet – Pedro Gajardo – Michel De Lara

We frame sustainability problems as bargaining problems among stakeholders who have to agree on a common development path. For infinite alternatives, the set of feasible payoffs is unknown, limiting the possibility to apply classical bargaining theory and mechanisms.
We define a framework accounting for the economic environment, which specifies how the set of alternatives and payoff structure underlie the set of feasible payoffs and disagreement point.
A mechanism satisfying the axioms of Independence of Non-Efficient Alternatives and Independence of Redundant Alternatives can be applied to a reduced set of alternatives producing all Pareto-efficient outcomes of the initial problem, and produces the same outcome. We exhibit monotonicity conditions under which such a subset of alternatives is computable.
We apply our framework to dynamic sustainability problems. We characterize a “satisficing” decision rule achieving any Pareto-efficient outcome. This rule is renegotiation-proof and generates a time-consistent path under the axiom of Individual Rationality.

The Rise of NGO Activism

Published in American Economic Journal – Economic Policy (2019), 11, 183-212.

Julien Daubanes – Jean-Charles Rochet

Activist non-governmental organizations (NGOs) increasingly oppose firms’ practices. We suggest this might be related to the vulnerability of public regulation to corporate influence. We examine a potentially-harmful industrial project subject to regulatory approval. Under industry influence, the regulator may approve the project even though it is harmful. However, an NGO may oppose it. We characterize the circumstances under which NGO opposition occurs and under which it is socially beneficial. Our theory explains the role that NGOs have assumed in the last decades, and has implications for the social legitimacy of activism and the appropriate degree of transparency of industrial activities.


2018.21 2018 FAERE Prize (ex aequo)
The impacts of energy prices on industrial foreign investment location: evidence from global firm level data

Aurélien Saussay – Misato Sato

This paper analyzes the role of energy prices in firms’ investment location decisions in the manufacturing sector. Building on the application of discrete choice theory to the firm location problem, we specify a conditional logit model linking bilateral foreign direct investment (FDI activity to relative energy prices. We then empirically test this link using a global dataset of M&A deals in the manufacturing sector covering 41 countries between 1995 and 2014, using econometric techniques adapted from the estimation of gravity models. The results suggest that upon deciding to invest, firms are attracted to regions that have lower energy prices. However, counterfactual simulations reveal that unilateral implementation of a $50/tCO2 carbon tax by various coalitions of countries is expected to have limited negative impact on the attractiveness of economies to foreign industrial investments. Hence, our results support the pollution haven effect, but find the magnitude is limited and could be addressed with targeted measures in the most energy intensive sectors.

Time Rebound Effect in Households’ Energy Use: Theory and Evidence

Kenichi Mizobuchi – Hiroaki Yamagami

Time-saving (time-efficient) goods and services are increasingly developed and diffused. Such goods and services increase the disposable time for households, and the time saved may be allocated to other activities consuming energy/electricity. The present study sets a simple theoretical model and shows a mechanism, called the time rebound effect, with which time-saving goods increase energy consumption through household behaviors. Furthermore, we reveal empirical evidence for this model by conducting a Japanese household survey. In particular, our analysis shows that the time rebound effect occurs on using the dishwasher, clothes dryer, or a net ordering/delivery service. However, its impact is very small: the extra electricity usage is about 1.4% of the daily usage at most.

(new version)
Emissions Trading with Rolling Horizons

Simon Quemin – Raphaël Trotignon

We build a model of competitive emissions trading under uncertainty with supply-side control. Firms can use rolling planning horizons to deal with uncertainty and can also exhibit bounded responsiveness to the control. We tailor the model to the EU ETS, calibrate it to 2008-2017 market developments and find that a rolling horizon is able to reconcile the banking dynamics with discount rates implied from futures’ yield curves. We evaluate the 2018 market reform, decompose the impacts of its main features and quantify how they hinge on the firms’ horizon and responsiveness. We highlight important implications for policy design and evaluation.

Marchés internationaux de droits à polluer et taxes locales sur les biens polluants

Forthcoming in L’Actualité économique – Revue d’analyse économique.

Julien Daubanes – Pierre Lasserre

The interest of international markets for pollution rights lies in their potential to achieve a pollution reduction objective in an efficient manner. Unfortunately, the tendency of participating countries to tax polluting goods locally undermines this potential. We propose a model to examine the interest of countries participating in a market for rights to pollute in taxing the good that generates pollution. In particular, this interest depends on the initial distribution of rights among participating countries. We show how rights should be allocated to the different participating countries in order to ensure market efficiency. These optimal allocations require that a sufficiently large fraction of rights be distributed free of charge rather than auctioned.

Tax Exemptions of Ethical Products Revisited

Dina Kassab

Corporate social responsibility (CSR) activities, being viewed as the corporate’s provision of a public good, enable tax exemptions in many economies. This paper examines whether these tax exemptions are justi ed, given the nature of interdependence between the public good provided by the rm and that provided through the government, and the form in which the exemptions – or taxes – are best imposed. In our theoretical analysis, we model a pro t-maximizing rm, in a monopoly setup, in the presence of a continuum of consumers with heterogeneous preferences towards the CSR content of the private good they purchase. Consumption of the ethical product is further assumed to confer a reputational gain that increases as the pool of consumers purchasing the good narrows. The analysis suggests that tax exemptions ought to be accorded to CSR activities when private and public investments are perfect substitutes, and an ad valorem subsidy is welfare superior to a speci cone. However, when the rm’s CSR investment complements the government’s provision, the rm’s product should be subject to taxes when there is a suciently large marginal willingness to pay for such activities. An ad valorem tax serves as a purely corrective device to balance the relative shares of the firm and the government in the public good provision whilst a specific tax redistributes surplus form the firm to consumers while increasing total welfare in the process. Conditions for optimality of each tax instrument are discussed.

Foreign Demand and Greenhouse Gas Emissions: Empirical Evidence with Implications for Leakage

Geoffrey Barrows – Hélène Ollivier

With asymmetric climate policies, regulation in one country can be undercut by emissions growth in another. Previous research finds evidence that regulation erodes the competitiveness of domestic firms and leads to higher imports, but increased imports need not imply increased emissions if domestic sales are jointly determined with export sales or if emission intensity of manufacturing adjusts endogenously to foreign demand. In this paper, we estimate for the first time how production and emissions of manufacturing firms in one country respond to foreign demand shocks in trading partner markets. Using a panel of large Indian manufacturers and an instrumental variable strategy, we find that foreign demand growth leads to higher exports, domestic sales, production, and CO2 emissions, and slightly lower emission intensity. The results imply that a representative exporter facing the average observed foreign demand growth over the period 1995-2011 would have increased CO2 emissions by 1.39% annually as a result of foreign demand growth, which translates into 6.69% total increase in CO2 emissions from Indian manufacturing over the period. Breaking down emission intensity reduction into component channels, we find some evidence of product-mix effects, but fail to reject the null of no change in technology. Back of the envelope calculations indicate that environmental regulation that doubles energy prices world-wide (except in India) would only increase CO2 emissions from India by 1.5%. Thus, while leakage fears are legitimate, the magnitude appears fairly small in the context of India.

The Role of Individual Preferences in Explaining the Energy Performance Gap

Salomé Bakaloglou – Dorothée Charlier

The aim of this research is to understand the role of socio-economic characteristics and individual preferences to explain the energy performance gap in the residential sector. The gap reflects the difference between theoretical energy consumption of home assessed by engineering models and real energy consumption. Using the ratio of the two consumptions as a measure of the gap, we perform a quantile regression to tease out the effects of preferences on the entire distribution of the energy performance gap spectrum instead of focusing on the conditional average. As a result, this research provides an original contribution: depending on the sense of the gap, our findings suggest that some significant drivers are individual preferences for comfort over economy, explaining until 12% of the gap variability, and poverty. In such a context, some warnings to public authorities are provided regarding the issues of rebound effect and household welfare.

A dynamic model of recycling with endogenous technological breakthrough

Forthcoming in Resource and Energy Economics.

Gilles Lafforgue – Luc Rouge

We develop a growth model in which the use of a non-renewable resource yields waste. Recycling waste produces materials of poor quality. These materials can be reused for production only once a dedicated R&D activity has made their quality reach an exogenous minimum threshold. The economy then switches to a fully recycling regime. We refer to this switch as the technological breakthrough. We analyze the optimal trajectories of the economy and present the Ramsey Keynes and Hotelling conditions in this context. We characterize the determinants of the date of the breakthrough, which is endogenous, as well as the discontinuity in the variables’ paths that is induced by this breakthrough. We show, in particular, that the availability of a recycling technology leads to a more intense exploitation of the resource and possibly to lower levels of consumption before the breakthrough.

How shifting investment towards low-carbon sectors impacts employment: three determinants under scrutiny

Published in Energy Economics (2018), 75, 464-483.

Quentin Perrier – Philippe Quirion

The threat of climate change requires redirecting investment towards low-carbon sectors, and this shift generates heated debates about its impact on employment. Many studies exist, most of
which use CGE or Input-Output (IO) models. However, the economic mechanisms at play remain unclear. This paper disentangles the channels of job creation and studies to what extent the results of simpler IO models diverge from CGE results. Using stylized models, we show that a shift in investment creates jobs in IO if it promotes sectors with a higher share of labour in value added, lower wages or a lower import rate. In CGE, the first two channels also yield job creation, but there is no positive impact of targeting low-imports sectors – unless these do not export.
Then we undertake a numerical analysis of two policies: the installation of solar panels and weatherization in France. Both policies have a positive effect on employment, in both models, due to the high share of labour and low wages in these sectors. IO results provide a good approximation of CGE results for solar (-14% to +34%) and are slightly higher for weatherization (+22% to +87%).
Our findings challenge the idea that renewables boost employment by reducing imports, but they also suggest that a double dividend can be achieved by encouraging low-carbon labour-intensive sectors.

Competitive Advantage in the Renewable Energy Industry: Evidence from a Gravity Model

Published in Renewable energy (2018), 131, 472-481.

Onno Kuik – Frédéric Branger – Philippe Quirion

Pioneering domestic environmental regulation may foster the creation of new eco-industries. These industries could benefit from a competitive advantage in the global market place. This article examines empirical evidence of the impact of domestic renewable energy policies on the export performance of renewable energy products (wind and solar PV). We use a gravity model of international trade with a balanced dataset of 49 (for wind) and 40 (for PV) countries covering the period 1995-2013. The stringency of renewable energy policies are proxied by installed capacities. Our econometric model shows evidence of competitive advantage positively correlated with domestic renewable energy policies, sustained in the wind industry but brief in the solar PV industry. We suggest that the reason for the dynamic difference lies in the underlying technologies involved in the two industries.

From residential energy demand to fuel poverty : income-induced non-linearities in the reactions of households to energy price fluctuations

Forthcoming in Canadian Journal of Economics.

Dorothée Charlier – Sondès Kahouli

In this paper, we propose a panel threshold regression (PTR) model to empirically test the sensitivity of French households to energy price fluctuations – as measured by the elasticity of residential heating energy prices – and to analyze the overlap between their income and fuel poverty profiles. The PTR model allows to test for the non-linear effect of income on the reactions of households to fluctuations in energy prices. Thus, it can identify specific regimes differing by their level of estimated price elasticities. Each regime represents an elasticity-homogeneous group of households. The number of these regimes is determined based on an endogenously PTR-fixed income threshold. Thereafter, we analyze the composition of the regimes (i.e. groups) to locate the dominant proportion of fuel-poor households and analyse their monetary poverty characteristics.
Results show that, depending on the income level, we can identify two groups of households that react differently to residential energy price fluctuations and that fuel-poor households belong mostly to the group of households with the highest elasticity. By extension, results also show that income poverty does not necessarily mean fuel poverty.
In terms of public policy, we suggest focusing on income heterogeneity by considering different groups of households separately when defining energy efficiency measures. We also suggest paying particular attention to targeting fuel-poor households by examining the overlap between fuel and income poverty.

2018.10 2018 FAERE Prize (ex aequo)
The vertical and horizontal distributive effects of energy taxes: A case study of a French policy

Thomas Douenne

This paper proposes a micro-simulation assessment of the distributional impacts of the French carbon tax. It shows that the policy is regressive, but could be made progressive by redistributing the revenue through a flat-recycling. However, it would still generate large horizontal distributive effects and harm an important share of low-income households. The determinants of the tax incidence are characterized precisely, and alternative targeted transfers are simulated on this basis. The paper shows that given the importance of unobserved heterogeneity in the determinants of energy consumption, horizontal distributive effects are much more difficult to tackle than vertical ones.

The supply of non-renewable resources

Published in Canadian Journal of Economics (2019), 52(3), 1084-1111.

Julien Daubanes – Pierre Lasserre

There exists no formal treatment of non-renewable resource (NRR) supply, systematically deriving quantity as function of price. We establish instantaneous restricted (fixed reserves) and
unrestricted NRR supply functions. The supply of a NRR at any date and location depends not only on the local contemporary price of the resource but also on prices at all other dates and locations. Besides the usual law of supply, which characterizes the own-price effect, cross-price effects have their own law. They can be decomposed into a substitution effect and a stock
compensation effect. We show that the substitution effect always dominates: A price increaseat some point in space and time causes NRR supply to decrease at all other points.
Our new—although orthodox—setting takes into account not only NRR supply limitations, but also the heterogeneity of NRR deposits, and the endogeneity of their development and opening. Our analysis extends to NRRs the partial-equilibrium analysis of demand and supply policies. Thereby, it provides a generalization of results about policy-induced changes on NRR markets.

Open space preservation in an urbanization context

Camille Régnier

The objective of this paper is to address the question of open space preservation in an urbanization context. We study the possibility of preserving two different types of open spaces, large open spaces at cities’ outskirt and small intra-urban open spaces. Thus we contribute to the debate of land sharing versus land sparing in a urban context. We analyze these questions by way of a theoretical microeconomics framework taking into account both households’ preferences for open space and regulator’s interest for the preservation of ecosystem services. We compare land use patterns at private equilibrium and when the social planner maximizes social welfare.

Energy efficiency as a credence good : A review of informational barriers to building energy savings

Forthcoming in Energy Economics.

Louis-Gaëtan Giraudet

Information problems have early been suspected to be the main barrier to energy-efficiency investment. I review the vast yet piecemeal research that has been carried out since. Focusing on energy efficiency in buildings, I organize the review around the concept of credence good: just like that of auto repairs or taxi rides, the quality of energy-efficiency measures is never fully revealed to the buyer; as a result, it is subject to multiple information asymmetries. My first contribution is to distinguish symmetric-information problems from information asymmetries. The former arise when information is either incomplete or imperfect, but equally shared by contracting parties; as non-market failures, these can be addressed by technological progress and insurance markets. My second contribution is to give structure to the information asymmetries associated with energy efficiency by disentangling screening, signalling, moral hazard and price discrimination within a variety of contractual relationships involving buyers and sellers, owners and renters, and borrowers and lenders. I find evidence of information asymmetries to be compelling in landlord-tenant relationships, unclear in real estate markets, and scarce in retrofit contracting and financing. I conclude by discussing the intricacies between informational and behavioural problems in energy-efficiency decisions.

Economic growth determinants in countries with blue carbon: Natural capital as a limiting factor?

Laura Recuero Virto – Denis Couvet

In this paper, we explore the determinants of economic growth in countries with blue carbon, i.e. countries with open access to the sea and high mangrove mitigation potential, to explore the effects of potential anthropogenic pressures on these coastal ecosystems. For this purpose, we build a data set with 23 countries with blue carbon across different regions in the world for the period 1960-2009. We estimate the augmented Solow model including new growth theories, under a Bayesian moving average methodology that accounts for uncertainty. We find evidence that the neoclassical theory (the initial income and the investment in physical capital variables) as well as the demography, the macroeconomic policy and the natural capital theories are the robust determinants of economic growth in countries with blue carbon. In contrast, the investment in physical capital variable, and the macroeconomic policy and the natural capital theories are not relevant when using a worldwide sample of countries. Our contribution is twofold. Firstly, natural capital exploitation, together with the high fertility rates in countries with blue carbon, highlight the potential anthropogenic pressures that coastal areas with blue carbon can be subject to such as land conversion for agriculture or aquaculture, farming run-offs, over-exploitation of blue carbon resources, urbanization, uncontrolled sewage and public works which, in turn, can degrade blue carbon ecosystems. Given these findings, we highlight the role of central governments to provide incentives for the protection of these nature-based solutions at the level of local policy makers and communities, and of international financial institutions to provide financial support for such initiatives in the developing countries that are represented in our data set. Secondly, our results on the role of natural capital on economic growth is largely consistent with the findings in the empirical literature on the economic growth determinants in developing countries. Indeed, compared to an average country the value of national natural capital per capita is reduced by more than half and there is evidence in the empirical literature that this is limiting factor for economic growth. In addition, there is also empirical evidence that a too strong economic dependence on national natural capital, almost two times higher than in an average country in our case, has a negative impact on economic growth.

Energy Consumption in the French Residential Sector: How Much do Individual Preferences Matter?

A paraître dans The Energy Journal.

Salomé Bakaloglou – Dorothée Charlier

The aim of this research is to understand the weight of preference heterogeneity in explaining energy consumption in French homes. Using a discrete-continuous model and the conditional mixed-process estimator (CMP) allows us to tackle two potential endogeneities in residential energy consumption: energy prices and the choice of equipment. As a major contribution, we provide evidence that preferences for comfort over energy savings do have significant direct and indirect impacts on energy consumption, especially for high-income households. Preferring comfort over economy or one additional degree of heating implies an average energy overconsumption of 10% and 7.8% respectively, up to 36% for high-income households. Our results strengthen the belief that household heterogeneity is a substantial factor in explaining energy consumption and could have meaningful implications for the design of public policy tools aimed at reducing energy consumption in the residential sector.

Tarification incitative et gestion des déchets ménagers : études du comportement des collectivités locales françaises

Amandine Gnonlonfin – Yusuf Kocoglu

Although the evidence of the incentive-based pricing effectiveness to reduce the production of Municipal Solid Waste (MSW) and to increase the recycling, its adoption in France has been
barely developed over the two last decades. This paper analyses the determinants of incentivebased pricing adoption by French local governments. We investigate the effect of the MSW
management cost on the decision of the local government in two ways. First we estimate the effect of the variation of the MSW management total cost on the probability to observe an
incentive-based pricing and second, we estimate the effect of the incentive-based pricing on the MSW management total cost. Results highlight that the decision of the local government is
subjected to the cost-benefit analysis and the decision of neighboring local governments. Further, results show that the French regulation has skewed the cost-benefit analysis of local
government and consequently has slow down incentive-based pricing adoption.

The determinants of economic growth in countries with high marine biodiversity: Effects of potential anthropogenic pressures on the marine environment

Laura Recuero Virto – Denis Couvet – Frédéric Ducarme

In this paper, we explore the economic growth determinants in 74 countries with high marine biodiversity for the period 1960-2009 through methodologies that take into account theory and specification uncertainty and the presence of multiple growth regimes. We find, firstly, that neoclassical (income), demography, macroeconomic policy, natural capital, fractionalisation and institutions theories are robust determinants of economic growth in these coastal countries. These results suggest that a country’s capacity to deal with marine biodiversity is associated with factors that impact economic growth. Secondly, in contrast with worldwide data sets, macroeconomic policies and natural capital are additional robust determinants of economic growth. There is strong historical evidence on the role of macroeconomic policies and non-renewable natural resources in trade flows and economic growth in coastal countries. Both factors, together with demography, highlight the pressures that coastal areas can be subject to such as construction and public works, population growth and urbanisation which, in turn, may degrade marine biodiversity. In fact, compared to other countries, coastal countries with high marine biodiversity have higher fertility rates, higher international trade exchanges, greater government consumption and lower institutional endowments. Thirdly, we find that education plays an important role in these countries. The rate of economic convergence increases with the level of education. Moreover, education and investment in physical capital have a significant and positive impact on economic growth in countries with very high levels of marine biodiversity. All together, our results suggest that diversifying away from natural capital wealth by investing in education and, more generally, in intangible capital can enhance economic growth, particularly in countries with very high levels of marine biodiversity. In turn, this structural change can contribute to remove pressure from marine biodiversity hotspots, mainly through lower fertility rates as education increases and lower dependence on natural capital exports via coastal areas.

Do Entrepreneurship Policies Work? Evidence from 460 Start-Up Program Competitions Across the Globe

Geoffrey Barrows

Many organizations around the world implement programs designed to encourage entrepreneurship, including grant prize awards, accelerator programs, incubators, etc. The goal of these programs is to supply entrepreneurs with early-stage support and visibility to help develop ideas and attract capital; but, if capital markets are efficient, good business ideas should find funding anyways. In this paper, I present evidence from the first global-scale, quasi-experimental study of whether entrepreneurship programs improve outcomes for start-up firms. I employ a regression discontinuity design to test whether winners of start-up program competitions perform better ex-post than losers, where the threshold rank for winning the competition provides exogenous variation in program participation. With 460 competitions across 113 countries and over 20,000 competing firms, I find that winning a competitions increases the probability of firm survival by 64%, the total amount of follow-on financing by $260,000 USD, and total employment by 47%, as well as other web-based metrics of firm success. Impacts are driven by medium-size prize competitions, and are precisely estimated both in countries where the costs of starting a business are low and where these costs are high. These results suggest that capital market frictions indeed prohibit start-up growth in many parts of the world.

Unequal vulnerability to climate change and the transmission of adverse effects through international trade

Karine Constant – Marion Davin

In this paper, we consider the unequal distribution of climate change damages in the world
and we examine how the underlying costs can spread from a vulnerable to a non-vulnerable country through international trade. To focus on such indirect effects, we treat this topic in a North-South trade overlapping generations model in which the South is vulnerable to the damages entailed by global pollution while the North is not. We show that the impact of climate change in the South can be a source of welfare loss for northern consumers, in both the short and the long run. In the long run, an increase in the South’s vulnerability can reduce the welfare in the North economy even in the case in which it improves its terms of trade. In the short run, the South’s vulnerability can also represent a source of intergenerational inequity in the North. Therefore, we emphasize the strong economic incentives for non-vulnerable -and a fortiori less-vulnerable – economies to reduce the climate change damages on – more – vulnerable countries.


Transitional Restricted Linkage between Emissions Trading Schemes

Forthcoming in Environmental and Resource Economics (2018).

Simon Quemin – Christian de Perthuis

Linkages between Emissions Trading Systems are deemed an important element of the future climate policy landscape. They are, however, difficult to agree and remain few and far between. Temporary restrictions on permit trading have potential to facilitate and gradually approach unrestricted, full linkage. We compare the relative merits of several link restrictions in this respect, namely quantitative restrictions, border permit taxes, exchange and discount rates, and unilateral linkage. To this end, we develop a simple model to have a unifying, comparative framework which, in conjunction with lessons from real-world experiences, serves a basis for a broader, policy-oriented discussion.

Why is price useless to signal environmental quality ?

Alexandre Volle

In a context where the credibility of green certification is questioned the present paper investigates the role of price as a possible substitute channel of communication as it has been largely developed since Milgrom and Roberts (1986). In this article, the purpose is to examine the pricing behavior of a green firm competing against a brown firm where the polluting good is sold in a perfectly competitive market. Due to the competitive fringe on the low-quality side, the distortion of the price required to signal a green product is too great to face any demand. As a result pooling price equilibria emerge as the most plausible situations as long as the brown firm can mimic the pricing behavior of the green firm. A green producer is thus constrained to practice uninformative prices which can lead to the lemon outcome (Akerlof, 1970).

A cost-benefit approach for prioritizing invasive species

Published in Ecological Economics (2018), 146, 607-620.

Pierre Courtois – Charles Figuières – Chloé Mulier – Joakim Weill

Biological invasions entail massive biodiversity losses and tremendous economic impacts that justify significant management efforts. Because the funds available to control biological invasions are limited, there is a need to identify priority species. This paper first reviews current invasive species prioritization methods and explicitly highlights their pitfalls. We then construct a cost-benefit optimization framework that incorporates species utility, ecological value, distinctiveness, and species interactions. This framework offers the theoretical foundations of a simple method for the management of multiple invasive species under a limited budget. We provide an algorithm to operationalize this framework and render explicit the assumptions required to satisfy the management objective.

Stacking up the Ladder: A Panel Data Analysis of Tanzanian Household Energy Choices

Published in World Development (2018), 115, 222-235.

Johanna Choumert – Pascale Combes Motel – Leonard Le Roux

Energy-use statistics in Tanzania reflect the country’s low level of industrialization and development. In 2016, only 16.9% of rural and 65.3% of urban inhabitants in mainland Tanzania were connected to some form of electricity. We use a nationally representative three-wave panel dataset (2008-2013) to contribute to the literature on household energy use decisions in Tanzania in the context of the stacking and energy ladder hypotheses. We firstly adopt a panel multinomial-logit approach to model the determinants of household cooking- and lighting-fuel choices. Secondly, we focus explicitly on energy stacking behaviour, proposing various ways of measuring what is inferred when stacking behaviour is thought of in the context of the energy transition and presenting household level correlates of energy stacking behaviour. Thirdly, since fuel uses have gender-differentiated impacts, we investigate women’s bargaining power in the decision-making process of household fuel choices. We find that whilst higher household incomes are strongly associated with a transition towards the adoption of more modern fuels, especially lighting fuels, this transition takes place in a context of significant fuel stacking. In Tanzania, government policy has been aimed mostly at connecting households to the electric grid.
However, the public health, environmental and social benefits of access to modern energy sources are likely to be diminished in a context of significant fuel stacking. Lastly, we present evidence that the educational attainment of women in the household is an important aspect of householdfuel choices.

Recycling of a Primary Resource and Market Power: The Alcoa Case

Bocar Samba Ba

The purpose of this paper is threefold. First, it investigates the influence of the prospect of recycling on the per-period market power of an extractor, which can be associated with Alcoa when the recycling sector it faces is competitive. Second, it analyzes whether or not the extractor’s first period market power is affected when it is capacity constrained. Third, it explores whether the structure of the recycling sector affects the extractor’s per-period market power or not. Toward these ends, we study a two-period Cournot framework where the extractor produces aluminum over two consecutive periods. In the second period, it engages in competition with a recycling sector that can be competitive or not. Our results run as follows. (1) When the recycling sector is not competitive, recycling does not affect the extractor’s first period market power but increases its second period market power. (2) When the recycling sector is competitive, the extractor’s second period market power increases with the recycled output but becomes lower (compared to the non-competitive case), while its first period market power can be lower or higher (compared to the non-competitive case). Then, it can increase or decrease with the recycled output. (3) In either case, the extractor’s first period market power further increases when the primary resource constraint is binding. (4) We also show that the extractor’s market power can increase or decrease over time.

Polarisation of Eco-Labelling Strategies

Vera Danilina

This research investigates two main types of voluntary eco-labels – multiple-criteria-based programmes (ISO Type I) and self-declared environmental claims (ISO Type II) – both of which are simultaneously introduced due to the environmental concerns of consumers. The model illustrates the polarisation of eco-labels when the least productive firms tend to avoid green strategies, and the most efficient firms are incentivized to greenwash. The choice of middle-productive firms is determined by the stringency of the environmental programmes and the eco-sensitivity of consumer demand. The paper also indicates the increase of promotion activity and the decrease of application and licence fees of the Type I programme as the most efficient policy tools to narrow greenwashing market segments.

Intergenerational equity under catastrophic climate change

Aurélie Méjean – Antonin Pottier – Stéphane Zuber – Marc Fleurbaey

Climate change raises the issue of intergenerational equity. As climate change threatens irreversible and dangerous impacts, possibly leading to extinction, the most relevant trade-off may not be between present and future consumption, but between present consumption and the mere existence of future generations. To investigate this trade-off, we build an integrated assessment model that explicitly accounts for the risk of extinction of future generations. We compare different climate policies, which change the probability of catastrophic outcomes yielding an early extinction, within the class of variable population utilitarian social welfare functions. We show that the risk of extinction is the main driver of the preferred policy over climate damages. We analyze the role of inequality aversion and population ethics. Usually a preference for large populations and a low inequality aversion favour the most ambitious climate policy, although there are cases where the effect of inequality aversion is reversed.

Does the Expansion of Biofuels Encroach on the Forest?

Published in Journal of Forest Economics (2018), 33, 75-82.

Derya Keles – Johanna Choumert – Pascale Combes Motel – Eric Kere

In this article, we explore the role of biofuel production on deforestation in developing and emerging countries. Since the 2000s biofuel production has been rapidly developing to address issues of economic development, energy poverty and reduction of greenhouse gas (GHG) emissions. However, the sustainability of biofuels is being challenged in recent research, particularly at the environmental level, due to their impact on deforestation and the GHG emissions they can generate as a result of land use changes. In order to isolate the impact of bioethanol and biodiesel production among classic determinants of deforestation, we use a fixed effects panel model on biofuel production in 112 developing and emerging countries between 2001 and 2012. We find a positive relationship between bioethanol production and deforestation in these countries, among which we highlight the specificity of Upper-Middle-Income Countries (UMICs). An acceleration of incentives for the production of biofuels, linked to a desire to strengthen energy security from 2006 onwards, enables us to highlight higher marginal impacts for the production of bioethanol in the case of developing countries and UMICs. However, these results are not significant before 2006 for developing countries, and biodiesel production appears to have an impact on deforestation before 2006 on both subsamples. These last two results seem surprising and could be related to the role of biofuel production technologies and the crop yields used in their production.

Voluntary agreements as correlated equilibria of a subscription game

Anne-Sarah Chiambretto

We develop a n-player subscription game, modified so as to represent firms’ incentives to participate to an environmental Voluntary Agreement (VA). Specifically, the latter is assumed to be preemptive, i.e. to occur under the threat of a mandatory regulation. We suggest the use of a correlation device to strengthen firms’ participation decisions, formalized by the concept of correlated equilibrium (CE). The multiple pure and mixed Nash equilibria (NE) of the game without the correlation device are characterized. It is shown that the unique symmetric mixed NE can be implemented by using the correlation device. Furthermore, we find that such a device not only solves the problem raised by multiplicity of NE, but also ensures that a higher expected aggregate payoff is reached for any given level of threat, t. We thus provide a comparative efficiency analysis and study the impact of the threat stringency. Our general results are illustrated in a specified example of pollution abatement model.

Logging Concessions, Certification & Protected Areas in the Peruvian Amazon: forest impacts from combinations of development rights & land-use restrictions

Jimena Rico – Stephanie Panlasigui – Colby J. Loucks – Jennifer Swenson – Alexander Pfaff

Economic activities (agriculture, logging, mining) drive tropical forest loss, so balancing development and conservation involves tradeoffs – as well as synergies. Conservation policies, such as protected areas (PAs), may save more forest when they include some development rights (Pfaff et al. 2014). There is less evidence about when development policies, such as logging concessions, include some conservation restrictions. The right to log creates an incentive for private firms to defend their forest assets, although firms could raise or reduce forest loss depending upon their capacities to defend, their motivations to log and public oversight. Reduced loss may be rewarded through voluntary certification or third-party oversight of logging practices, whose impact we hypothesize depends upon firms’ logging motivations and their capacities to restrict loss. To shed empirical light, we examine forest impacts from rights and restrictions within the Peruvian Amazon during 2000-2013, removing biases using location and year effects. Compared to control forests outside of concessions and PAs, we find PAs reduce tree-cover loss − while those PAs that include development rights save more forest than strict PAs, for each region. Logging concessions reduce forest loss in Madre de Dios, yet they increase loss in Ucayali. Certification has an impact – 1% reduction in 2000-2013 forest loss − only in Madre de Dios, consistent with higher certification impacts if private firms choose to restrict loss.

2017.21   2017 FAERE Prize
Beyond perfect substitutability in public good games: heterogeneous structures of preferences

Marion Dupoux

The literature on public good games is very focused on the additive separability of the values of the private and the public goods. Yet, the additive structure underlies a perfect
substitutability relationship between private and public goods, which is a strong assumption. This paper studies the effect of payoff/preference structures on contributions to the
public good within a voluntary contributions experiment in both homogeneous and heterogeneous groups. Within the structure of substitutability, I find that subjects free-ride more often when they interact with subjects of the other type (complementarity) for whom it is optimal to contribute. Introducing such a heterogeneity may provide a method for the identification of free-riders. Nonetheless, an advantageous inequality aversion emerges as well. This means that under perfect substitutability, subjects tend to dislike earning too much compared to their group member whose payoffs underlie complementarity, a more constraining structure.

Institutional determinants of protest responses in stated preference studies

Victor Champonnois

In stated preference surveys, institutional context is often found to be an important determinant of protest responses. However, the very same institutional context does not change within one survey, enabling no strong conclusion about its effect on the protest behavior. Moreover, although the importance of the institutional context on the choice of a payment vehicle has been suspected, no study is specifically devoted to the way their interaction affects the protest rate. This paper tries to fill these gaps by relying on meta-data on stated preference studies for environmental goods along with institutional variables at the country level. Results show that institutional variables are significant determinants of the protest rates, but there is no significant evidence to suggest that the choice of a payment vehicle affects differently the probability of protesting depending on the institutional context.

Do climatic events influence internal migration ? Evidence from Mexico

Vincente Ruiz

A growing body of evidence suggests that changes in both environmental quality and climatic patterns influence population movements. In this paper, I provide evidence-based analysis on the effects of climatic factors on internal migration in Mexico. In particular, I focus my analysis on the role of droughts and abundant rainfall. My results show that, in addition to socio-economic conditions and violence, both natural phenomena act as push factors for internal migration in the country.

Combining Rights and Welfarism: a new approach to intertemporal evaluation of social alternatives

Published in Social Choice and Welfare (2018), 50(1), 35-54.

Ngo Van Long – Vincent Martinet

We propose a new criterion reflecting both the concern for rights and the concern for welfare in the evaluation of economic development paths. The concern for rights is captured by a pre-ordering over combinations of thresholds corresponding to floors or ceilings on various quantitative indicators. The resulting constraints on actions and on levels of state variables are interpreted as minimal rights to be guaranteed to all generations, for intergenerational equity purposes. The level of these rights are endogenously chosen, accounting for the « cost in terms of welfare” of granting them. Such a criterion could embody the idea of sustainable development. We provide an axiomatization of such a criterion and characterize the tension between rights and welfare in a general economic framework. We apply the criterion to the standard Dasgupta-Heal-Solow model of resource extraction and capital accumulation. We show that if the weight given to rights in the criterion is sufficiently high, the optimal solution is on the threshold possibility frontier. The development path is then « driven” by the rights. In particular, if a minimal consumption is considered as a right, constant consumption can be optimal even with a positive utility discount rate. In this case, the shadow value of the right plays an important role in the determination of the rate of discount to be applied to social investment projects.

The importance of considering optimal government policy when social norms matter for the private provision of public goods

Guy Meunier – Ingmar Schumacher

Social pressure can help overcome the free rider problem associated with public good provision. In the social norms literature concerned with the private provision of public goods there seems to be an implicit belief that it is best to have all agents adhere to the `good’ social norm. We challenge this view and study optimal government policy in a reference model (Rege, 2004) of public good provision and social approval in a dynamic setting. We discuss the problem with the standard crowding in and out argument and analyze the relationship with Pigouvian taxes. We show that even if complete adherence to the social norm maximizes social welfare it is by no means necessarily optimal to push society towards it. We stress the different roles of the social externality and the public good problem. We discuss the role of the cost of public funds and show how it can create path dependency, multiplicity of optimal equilibria and optimal paths, and discuss the role of parameter instability. We argue that extreme care must be taken when formulating policies and subsequent results will fully depend on this formulation.

A simple method to study local bifurcations of three and four-dimensional systems : characterizations and economic applications

Published in Mathematical Social Sciences (2019), 97, 38-50.

Stefano Bosi – David Desmarchelier

We provide necessary and sufficient conditions to detect local bifurcations of three and four-dimensional dynamical systems in continuous time. We characterize not only the bifurcations of codimension one but also those of codimension two. The added value of this methodology rests on its generality and tractability. To illustrate the simplicity of our approach, we provide two analytical applications of dimension three and four to environmental economics, complemented with numerical simulations.

The impact of renewable versus non-renewable natural capital on economic growth

Laura Recuero Virto – Denis Couvet

This paper examines whether natural capital is a robust determinant of economic growth, distinguishing the contribution of direct and indirect effects in renewable and non-renewable natural capital. Our hypothesis is that renewable natural capital may have a rather indirect but more important impact on economic growth than non-renewable natural capital, particularly through human well-being. In contrast, non-renewable natural capital can be a source of immediate financial wealth, but can have adverse social and environmental effects. To test this hypothesis we use a data set on 83 countries for the period 1960-2009 to compare the relevance of proximate and fundamental theories to explain economic growth. We find some evidence of an indirect negative impact of renewable natural capital in wealth on economic growth through through human well-being and, more precisely, population growth rates and fertility. This is particularly the case for countries with higher levels of human development. In contrast, the share of non-renewable natural capital in wealth has a direct positive impact on economic growth in countries with lower income inequality and higher institutional quality. This finding reflects the effect of capital accumulation in the domestic economy, as capacity constrainst are relaxed. Finally, countries with higher income per capita, higher human development and higher institutional quality have a higher share of higher renewable natural capital per capita, although they also have a lower share of lower renewable natural capital in wealth. Such result emphasises that renewable natural capital is very necessary for people (per capita), hence isa primary concern for empowered countries, although such capital contributes less to wealth, and economic growth, in these countries. Our results question the way ‘wealth’ and economic growth are defined in economics when the effect of natural capital is examined.

Can a hazardous event be another source of poverty traps ?

Can Askan Mavi

This paper aims to present a new explanation for poverty traps, by the presence of hazardous event probability. We show that adaptation and mitigation policies have different effects on the occurrence of poverty traps : the former could cause a poverty trap while the latter could save from the trap since it decreases the abrupt event probability. As a result, we present a new trade-off between adaptation and mitigation policy other than the usual dynamic trade-off highlighted in many studies (Zemel (2015), Tsur and Zemel (2015)), which is crucial for developing countries. Our simulation results show that a trapped economy adopts an aggressive exploitation policy with higher abrupt event risk while the economy at high equilibrium becomes more precautionary. We also show that when the economy faces a higher risk, the social planner gives more weight to adaptation than to mitigation activity.

Does the literature support a high willingness to pay for green label buildings? An answer with treatment of publication bias

Published in Revue d’économie politique (2018), 128(5), 1013-1046.

Florian Fizaine – Pierre Voye – Catherine Baumont

Increasing attention is being paid to the building sector due to its importance in the climate change debate. In recent years, a growing literature on the price premium paid by consumers to access more efficient and sustainable buildings has emerged as a common topic in hedonic model estimations. In this paper, we aim to provide a summary of this literature by conducting a meta-analysis of more than 50 studies from around the world. In this way, based on a random effects models and weighted OLS robust clustering estimations, we offer an average estimation of the price premium accepted by economic agents (in terms of sale prices) in order to enjoy energy efficient and sustainable buildings. This supports the argument that investing in building refurbishment is worthwhile and economically relevant. However, our data seem to show a major publication bias. Correcting for this bias leads us to halve the original estimation (from 8% to 4%). In addition, we analyze the sources of result dispersion by performing a meta-regression using different moderators (type of publication, sample analysis period, econometric method, etc.). We also carry out different statistical tests and use alternative selection criteria in order to check whether our estimations are robust. Finally, we make recommendations for future hedonic studies as well as for upcoming meta-analyses of the green building premium.

Spatial Analysis of Emissions in Sweden

Published in Energy Economics (2017), 168, 383-394.

George Marbuah – Franklin Amuakwa-Mensah

This paper contributes to an emerging literature on the environmental Kuznets curve (EKC) relationship between pollution and income at the local level by analyzing emissions of carbon dioxide (CO2), sulfur dioxide (SO2), nitrogen oxides (NOX), carbon monoxide (CO), particulate matter (PM2.5 and PM10) and total suspended particulate (TSP). We conduct several spatial statistical and econometric tests to account for spatial dependence between 290 Swedish municipalities on the selected emissions. Results highlight evidence that the pollution and income relationship is significantly characterized by spatial interaction effects. That is, municipality per capita emissions are strongly influenced by emissions trajectories in neighbouring municipalities. Implications of our findings on policy are discussed.

Towards a less vulnerable and more sustainable development : heritage tourism in island economies

Natalia Zugravu-Soilita – Vincent Geronimi – Christine Le Gargasson – Jessy Tsang King Sang

For many small island economies, international tourism is an essential source of growth. However, considering the sustainability of their development path, it is not necessarily possible nor desirable for all of them. We consider the existence of nonlinear relationships between specialization in tourism, vulnerability and sustainability. By using panel regression analysis, we
show that international tourism reduces vulnerability and increases sustainability—captured by the genuine savings—only for intermediate tourism specialization levels. Alternatively, vulnerability increases and sustainability decreases when tourism specialization levels are below [above] certain thresholds, found to be twice less [higher] (or even insignificant) for island economies compared to other countries in the world. We assume that the level of differentiation (through the mobilization of natural and/or cultural heritage) of tourist services should moderate the effect of specializing in tourism on vulnerability and sustainability. Empirical results show that heritage-based tourism is one of the most sustainable strategies for the islands highly relying on tourism activities. Alternative tourism strategies are discussed based on our empirical results and illustrative case studies.

Assessing the sustainability of optimal pollution paths in a world with inertia

Published in Environmental Modeling and Assessment (2018),

Marc Léandri – Mabel Tidball

Most formal optimal pollution control models assume a constant natural assimilative capacity, despite the biophysical evidence on feedback effects that can degrade this environmental function, as it is the case with the reduction of ocean carbon sinks in the context of climate change. The few models that do consider this degradation establish a bijective relation between the pollution stock and the assimilative capacity, thus ignoring the inertia mechanism at stake. Indeed the level of assimilative capacity is not solely determined by the current pollution stock but by the history of this stock and by the time the ecosystem remains above the degradation threshold. We propose an inertia assessment tool that tests the sustainability of any benchmark optimal pollution path when the inertia of the assimilative capacity degradation process is taken into account. Our simulations show a strong sensitivity to both the inertia degradation speed and the discount rate.

Smart Grids and Renewable Electricity Generation by Households

Prudence Dato – Tunç Durmaz – Aude Pommeret

The aim of the study is to analyze investments in intermittent renewable energy and energy storage by a household (HH). The novelty of our model accrues from the flexi-bility it assigns to a HH in feeding (purchasing) electricity to (from) the grid or storing energy from renewable energy installations. We study the consequences of demand-side management for a HH by accounting for three levels of equipment in smart grids. The first level refers to the possibility of feeding electricity to the grid, which can be achieved relatively simply by net metering. The second level concerns the installation of smart meters. The third level relates to energy storage. We analyze decisions concerning photovoltaic system and energy storage investments, and the consequences of energy storage and smart meters for electricity consumption and purchases of electricity from the grid. Additionally, we study the desirability of a smart meter installation and the implications of curtailment measures for avoiding congestion. Our results indicate that dynamic tariffs, which should encourage HHs to use the power system efficiently and, thus, to save energy, can lead to more reliance on the grid. Thus, the dynamic tariff structure needs to be carefully planned.

Can Land Fragmentation Reduce the Exposure of Rural Households to Weather Variability?

Published in Ecological Economics (2018), 154, 42-51.

Stefanija Veljanoska

Climate change continuously affects African farmers that operate in rain-fed environments. Coping with weather risk through credit and insurance markets is almost inexistent as these markets are imperfect in the African economies. Even though land fragmentation is often considered as a barrier to agricultural productivity, this article aims at analyzing whether land fragmentation, as an insurance alternative, is able to reduce farmers’ exposure to weather variability. In order to address this research question, I use the Living Standards Measurement Study-Integrated Surveys on Agriculture (LSMS-ISA) data on Uganda. After dealing with the endogeneity of land fragmentation, I find that higher land fragmentation decreases the loss of crop yield when households experience rain deviations. Therefore, policy makers should be cautious with land consolidation programs.

Environmental Policy and Human Capital Inequality: A Matter of Life and Death

Published in Journal of Environmental Economics and Management (2018),

Karine Constant

This paper analyzes the economic implications of an environmental policy when we account for the life expectancy of heterogeneous agents. In a framework in which everyone suffers from pollution but health status also depends on individual human capital, we find that the economy may be stuck in a trap in which inequality rises steadily, especially when the initial pollution intensity of production is too high. We emphasize that such inequality is in the long run costly for the economy in terms of health and growth. Therefore, we study whether a tax on pollution associated with an investment in pollution abatement can be used to address this situation. We show that a stricter environmental policy may allow the economy to escape from the inequality trap while enhancing the long-term growth rate when the initial inequality in human capital is not too large.

Intertemporal Abatement Decisions under Ambiguity Aversion in a Cap and Trade

Simon Quemin

We study intertemporal abatement decisions by an ambiguity averse firm covered under a cap and trade. Ambiguity aversion is introduced to account for the prevalence of regulatory uncertainty in existing cap-and-trade schemes. Ambiguity bears on both the future permit price and the firm’s demand for permits. Ambiguity aversion drives equilibrium choices away from intertemporal efficiency and induces two effects: a pessimistic distortion of beliefs that overemphasises ‘detrimental’ outcomes and a shift in the effective discount factor. Permit allocation is non neutral and the firm’s intertemporal abatement decisions do not solely depend on expected future permit prices, but also on its own expected future market position. In particular, pessimism leads the expected net short (resp. long) firm to overabate (resp. underabate) early on relative to intertemporal efficiency. We show that there is a general incentive for early overabatement and that it is more pronounced under auctioning that under free allocation.

Investment in Energy Efficiency, Adoption of Renewable Energy and Household Behaviour: Evidence from OECD countries

Revised version 01.2018
Published in The Energy Journal (2018), 39(3), 213-245.

Prudence Dato

There are possible synergies between the decision to invest in energy efficiency measures and to adopt renewable energy, in the sense that the former reduces energy demand so that the latter can further cut future greenhouse gas (GHG) emissions, and which has great potential in the residential sector. Much work has been done in the residential sector on demand for clean energy and on investment in energy efficiency, but to our knowledge there is no specific study that investigates the relationship between the two. This paper fills a gap in the literature, and first shows theoretically that there are relationships of substitution or complementarity between the two decisions depending on the threshold of the cross effect related to the environmental motivation of the consumer. Second, the paper empirically shows that the two decisions are positively interrelated due to unobserved characteristics that determine both decisions. Third, the paper provides differential impact of energy poverty, split incentive problem, dwelling characteristics, commitment and trust on the two decisions. Finally, the paper investigates household characteristics that significantly affect the joint adoption of energy efficient and renewable energy technologies. This contribution can serve to define incentive policies to advance the energy transition.

The Biofuel-Development Nexus: A Meta-Analysis

Published in Ecological Economics (2018), 147, 230-242.

Johanna Choumert – Pascale Combes Motel – Charlain Guegang

Although the production of biofuels has expended in recent years, the literature on its impact on growth and development finds contradictory findings. This paper presents a meta-analysis of computable general equilibrium studies published between 2006 and 2014. Using 26 studies, we shed light on why results differ. We investigate factors such as the type of biofuels, the geographic area and the characteristics of models. Our results indicate that the outcomes of CGE simulations are sensitive to models parameters. They also suggest a divide between developed / emerging countries versus Sub-Saharan African countries.

Sustainability of an economy relying on two reproducible assets

Robert D. Cairns – Stellio Del Campo – Vincent Martinet

Evaluating the sustainability of a society requires a system of shadow or accounting values derived from the sustainability objective. As a first step toward the derivation of such shadow values for a maximin objective, this paper studies an economy composed of two reproducible assets, each producing one of two consumption goods. The effect of the substitutability between goods in utility is studied by postulating, in turn, neoclassical diminishing marginal substitutability, perfect substitutability and perfect complementarity. The degree of substitutability has strong effects on the maximin solution, affecting the regularity or non-regularity of the program, and on the accounting values. This has important consequences for the computation of genuine savings and the sustainability prospects of future generations.

Natural cycles and pollution

Published in Mathematical Social Sciences (2018), 96, 10-20.

Stefano Bosi – David Desmarchelier

In this paper, we study a competitive Ramsey model where a pollution externality, coming from production, impairs a renewable resource which affects the consumption demand. A proportional tax, levied on the production level, is introduced to finance public depollution expenditures.
In the long run, two steady states may coexist, the one with a low resource level, the other with a high level. Interestingly, a higher green tax rate lowers the resource level of the low steady state, giving rise to a Green Paradox (Sinn, 2008). Moreover, the green tax may be welfare-improving at the high steady state but never at the low one. Therefore, at the latter, it is optimal to reduce the green tax rate as much as possible. Conversely, the optimal tax rate is positive when the economy experiences the high steady state. This rate is unique.
In the short run, the two steady states may collide and disappear through a saddle-node bifurcation. Since consumption and natural resources are substitutable goods, a limit cycle may arise around the high stationary state. To the contrary, this kind of cycles never occur around the low steady state whatever the resource effect on consumption demand. Finally, focusing on the class of bifurcations of codimension two, we find a Bogdanov-Takens bifurcation.

Exploitation and Recycling of Rare Earths

Bocar Samba Ba – Raphaël Soubeyran

We study the exploitation of recyclable exhaustible resources such as rare earths and Phosphorus. We use a standard Hotelling model of resource exploitation that includes a primary sector and a recycling sector. We show that, when the primary sector is competitive, the price of the recyclable resource increases through time. This result stands in contrast to durable resources, for which the optimal price path is either decreasing or U-shaped. We then show a new reason why the price of an exhaustible resource may decrease: when the primary sector is monopolistic, the primary producer has incentives to delay its production activities in order to delay recycling. As a consequence, the price path of the recyclable resource may be U-shaped. We also show that a technological improvement in the recycling sector increases the price in the short term but decreases it later.


2016.30   2016 FAERE Prize
Common Resources Management and the “Dark Side” of Collective Action : an Impact Evaluation for Madagascar’s Forests

Sébastien Desbureaux

A sufficient level of collective action between community members is often presented as a strong pre-requisite to sustainably governing local common property resources (CPR).
What if in some contexts instead, strong collective action led to short-term depletion of CPR instead of their sustainable use ? This paper brings to light causal evidence on the environmental impact of establishing community-managed forests in Madagascar and highlights the complexities underlying collective action in their sustainable management. I compile fine-scale deforestation data over 15 years, use a unique spatial census of locally managed CPR and mobilize firsthand field data from four case studies to show that transferring management rights to local communities has failed to decrease deforestation. Instead, the policy has led to an increase in deforestation in some areas, often when collective action was strong, not when it was weak. This is what I call the possible “dark side” of collective action.

Phasing out the U.S. Federal Helium Reserve: Policy insights from a world helium model

Published in Resource and Energy Economics (2018), 54, 186-211.

Olivier Massol – Omer Rifaat

This paper develops a detailed partial equilibrium model of the global helium market to study the effects of the recently decided rapid phase out of the U.S. Federal Helium Reserve (FHR), a vast strategic stockpile accumulated during the 1960s. The model incorporates a detailed representation of that industry and treats both helium producers and the FHR as players in a dynamic non-cooperative game. The goal of each player is assumed to be the maximization of discounted profit, subject to technical and resource constraints. We consider two alternative policies aimed at organizing the phase out of the FHR: the currently implemented one and a less stringent one whereby the FHR would be allowed to operate as a profit-maximizing agent during a 20-year extended period. Evidences gained from a series of market simulations indicate that, compared to the current policy, the less stringent policy mandate systematically increases the financial return to the U.S. federal budget, always enhances environmental outcomes as it lowers helium venting into the atmosphere, and also augments global welfare in three out of the four scenarios considered in the paper.

Merchants of Doubt: Corporate Political Influence when Expert Credibility is Uncertain

Mireille Chiroleu-Assouline – Thomas P. Lyon

A key role of science-based non-governmental organizations (NGOs) is to communicate scientific knowledge to policymakers. However, recent evidence has emerged showing that industry-backed groups often attempt to undermine the credibility of such NGOs and weaken their ability to influence policy. To investigate the mechanisms by which a firm can profitably create doubt about scientific information, we use a signaling model of interest-group lobbying in which the policymaker has fixed costs of taking action. We explore two mechanisms for the creation of doubt. The first involves using Bayesian persuasion to imply that the NGO may be a radical extremist whose lobbying is not credible. The second involves the creation of a think tank which can offer its own testimony on scientific matters. We show the firm prefers that the think tank does not act as a credible moderate, but instead sometimes takes radical, non-credible, positions. We identify conditions under which each mechanism is preferred by the firm.

The role of conflict for optimal climate and immigration policy

Fabien Prieur – Ingmar Schumacher

In this article we investigate the role that internal and external conflict plays for optimal climate and immigration policy. Reviewing the empirical literature, we put forward five theses regarding the link between climate change, migration, and conflict. Based on these theses, we then develop a theoretical model in which we take the perspective of the North who unilaterally chooses the number of immigrants from a pool of potential migrants that is endogenously determined by the extent of climate change. Accepting these migrants allows increases in local production which not only increases climate change but also gives rise to internal conflicts. In addition, those potential migrants that want to move due to climate change but that are not allowed to immigrate may induce external conflict. While we show that the external and internal conflict play a significant yet decisively different role, it is the co-existence of both conflicts that makes policy making difficult. Considering only one conflict induces significant immigration but no mitigation. Allowing for both types of conflict, then depending on parameters, either a steady state without immigration but with mitigation will be optimal, or a steady state with a larger number of immigrants but less mitigation. Furthermore, we find the possibility of Skiba points, signaling that optimal policy depends on initial conditions, too. During transition we examine the substitutability and complementarity between the mitigation and immigration policy.

Global warming as an asymmetric public bad

Louis-Gaëtan Giraudet – Céline Guivarch

We extend the canonical dynamic game of global warming to capture three stylized facts: (i) while most countries are expected to suffer damages, some might enjoy short-term benefits; (ii) countries’ exposure to impacts bears little relation to their mitigation capabilities; (iii) some adaptation technologies, such as air conditioning, may exacerbate warming. These sources of asymmetry add free driving to the classical free riding problem. This opens up possibilities for excessive mitigation in a non-cooperative regime, even though damages outweigh benefits. Moreover, it restricts the possibilities of Pareto improvements without transfers. Finally, it can provide a rationale for differentiating Pigouvian prices across countries.

The land use change time-accounting failure

Marion Dupoux

Land use change (LUC) is the second human-induced source of greenhouse gases (GHG). This paper warns about the LUC time-accounting failure in internalizing GHG impacts in economic appraisal (within policies). This emerges from (i) relative carbon prices commonly following the Hotelling rule as if climate change were regarded as an exhaustible resource problem and (ii) a uniform annualization (i.e. constant flows over time) of LUC impacts supported by most energy policies. First, carbon prices time evolution should account for the climate change framework specificities (natural carbon absorption, uncertainty), which makes a departure from the Hotelling rule necessary. Second, there is a carbon dynamic after land conversion: GHG impact flows are strictly decreasing over time. With a theoretical framework, I show that the employment of the uniform annualization, within a benefit-cost analysis, enhances both the discounting overwhelming effect and the carbon price increase, whatever the type of impact (emissions or sequestrations). It results in skewed values of LUC-related projects as long as relative carbon prices deviate from the Hotelling rule. I apply this framework to global warming impacts of bioethanol in France and quantify this bias. In particular, carbon profitability payback periods under the uniform approach do not reflect the LUC effective carbon investment. This potentially modifies the conclusions regarding a project’s achievement of imposed environmental criteria.

L’économicisation de la nature, réalités historiques et mythes contemporains

Published in Revue économique (2018), 120-146.

Harold Levrel – Antoine Missemer

It is more and more common to read in scientific papers that there is a deep trend of economicization of nature that would be expressed through monetization mechanisms, privatization and commodification. No doubt some phenomena of economicisation are real. Nevertheless, they deserve to be closely examined to see firstly that they are not new in the history of human-nature relationships, and to emphasize that they compete with some trends of dis-economicization of nature, that it is also necessary to take into account today in order to have a complete picture of the situation. Our contribution therefore aims to clarify the debate, distinguishing the reality of such phenomenon with some myths in this economization of nature, stressing that this trend is neither new nor irreversible, nor linear and it does not seem inextricably linked to the raise of the (neo) liberalism.

Effect of gold mining on income distribution in Ghana

George Adu – Franklin Amuakwa-Mensah – George Marbuah – Justice Tei Mensah

This paper examined the effect of mining on household income and welfare and how such effects are distributed over different quantiles of income and welfare. Using the three most recent rounds of the Ghana Living Standards Surveys together with information on the location of gold mines during the survey years, we estimated effects of living in a mining area on real gross income, employment income, and real per capita household expenditure (a proxy for welfare) using average and quantile treatment effect models. We find robust evidence of negative effect of mining on household income and welfare. Our results also indicate that the income reducing effect of mining activity falls heavily on households at bottom of the income distribution. In the case of household welfare, the interesting revelation from our result is that the negative effect of mining falls largely on both the lower and upper ends of the welfare distribution, with much heavier burden at the lower relative to the upper tail. Our paper, thus, provides ample evidence that mining activity does not only reduce income and welfare, but further increases inequality in the distribution of income and welfare.

Pollution and infectious diseases

Published in International Journal of Economic Theory (2018), 14(4), 351-372.

Stefano Bosi – David Desmarchelier

Recent empirical contributions highlight the negative impact of pollution on labor supply. This relationship is explained by two mechanisms: (1) pollution modifies agents’ work-leisure trade-off as it deteriorates their working conditions (incentive effect); (2) a polluted environment is likely to generate more frequent epidemic outbreaks and to affect agents’ immune systems (health effect). Bosi et al. (2015) explore the aggregate consequences of the incentive effect and show that it can generate endogenous fluctuations of the economic activity. The present paper rather focuses on the health effect as we study a Ramsey model augmented with the spread of infectious disease. We find that industrial pollution may generate limit cycles around an endemic steady state. More precisely, the economic system may undergo a transcritical bifurcation followed by two Hopf bifurcations near this steady state.

A simple degrowth model

Published in Ecological Economics (2017), 136, 266-281.

Marc Germain

With the help of a growth model à la Ramsey with a natural resource and pollution and relying on the postulates of ecological economics, this paper studies the impact of voluntary degrowth
policies on production and welfare. The instrument of these policies is a tax levied on the natural resource. These policies are assumed to be applied by the public authorities after the downturn of the households’utility function due to the increase of pollution. With respect to the laissez-faire situation, their impact is to simultaneously decrease production and pollution on the one hand and increase welfare on the other. A delayed reaction of the public authorities after the turnover of the households’utility function implies a higher tax rate on the resource during the first periods. If the authorities’preference for the future is higher, then welfare gains from the degrowth policy are lower for the first generations of the dynasty and higher for the later. The impact of technical progress saving the resource or improving the pollution treatment is also analysed.

Bring Back Our Light: Power Outages and Industrial Performance in Sub-Saharan Africa

Justice Tei Mensah

Power cuts have become a characteristic feature of many Sub-Saharan African economies. This paper attempts to investigate the micro and macro impacts of power outages by estimating the effects on firm revenue and productivity, and output growth of the manufacturing and industrial sectors. Further, I evaluate the impact of self-generation in ameliorating the effects of electricity shortages on firm performance using a quasi-experimental approach. Results from the analysis reveal significant negative effects of electricity shortages on firm revenue and productivity, and output growth of manufacturing and industrial sectors. Finally, contrary to the notion that self-generation may be helpful to firms during outage periods, evidence from this paper suggest the reliance on self-generation is associated with productivity losses albeit short run revenue gains.

The actual impact of shale gas revolution on the U.S.manufacturing sector

Yassine Kirat

This paper investigates the comparative advantage allowed by the U.S shale gas revolution to the U.S manufacturing sector. It estimates the response of various economic variables related to the U.S manufacturing sector using dynamic panel data models that allow each sector’s response to vary with its energy intensity. We show that the decline in natural gas prices in the US relative to natural gas prices in Europe has led to an increase in industrial activity by nearly 2%. We show also that exports increased by 0,86% and imports decreased by 1,11%. Moreover, we find an empirical evidence that the relationship between natural gas prices and imports or exports has experienced structural breaks. Overall, we conclude that the shale gas revolution expended some industries but it does not have a strong effect on the manufacturing sector as a whole.

An evaluation of French municipal solid waste pricing system

Houévoh Amandine Gnonlonfin

This study investigates the preventive effect and substitution effect of the Municipal Solid Waste (MSW) pricing policy in France. We examine the relationship between quantities of MSW and incentive taxes with the use of a panel of 96 French metropolitan departments between 2005 and 2011, and we use panel data and Heckman two-step estimation in order to consider sample selection. We perform the analysis for the collection of MSW and six technologies of management of the waste, namely recycling materials, composting, incineration with and without energy recovery, landfilling and dumping. We estimate the elasticity of the collection of MSW and the elasticity of these technologies in relation to three incentive taxes of the French pricing system by considering the endogeneity of municipality’s decisions about both local incentive tax and technology choice. The results confirm that the French MSW pricing system has a preventive and a substitution effect and show that these effects are complementary.

Climate agreements in a mitigation-adaptation game

Published in Journal of Public Economics (2018), 165, 101-113.

Basak Bayramoglu – Michael Finus – Jean-François Jacques

We study the strategic interaction between mitigation (public good) and adaptation (private good) strategies in a climate agreement. We show that these two strategies are strategic substitutes considering various definitions of substitutability. Moreover, adaptation may cause mitigation levels between different countries to be no longer strategic substitutes but complements. We analyze under which conditions this leads to more succesful self-enforcing agreements. We argue that our results extend to many important externality problems involving public goods.

Trade in environmental goods and sustainable development: What are we learning from the transition economies’ experience?

Published in Environmental Economics and Policy Studies (2018), 20(4), 785-827.

Natalia Zugravu-Soilita

We investigate the causal effects of trade intensity in environmental goods (EGs) on air and water pollution by treating trade, environmental policy and income as endogenous. We estimate a system of reduced-form, simultaneous equations on extensive data, from 1995 to 2003, for transition economies that include Central and Eastern Europe and the Commonwealth of Independent States. Our empirical results suggest that although trade intensity in EGs (pooled list) reduces CO₂ emissions mainly through an indirect income effect, it increases water pollution because the income-induced effect does not offset the direct harmful scale-composition effect. No significant effect is found for SO2 emissions with respect to the list of aggregated EGs. In addition to diverging effects across pollutants, we show that results are sensitive to EGs’ classification: e.g., cleaner technologies and products, end-of-pipe products, environmentally preferable products, etc. For instance, a double profit—environmental and economic—is found only for “cleaner technologies and products” in the models explaining greenhouse gases emissions. Interesting findings are discussed for imports and exports of various classifications of EGs. Overall, we cannot support global and uniform trade liberalization for EGs in a sustainable development perspective. Regional or bilateral trade agreements taking into account the states’ priorities could act as building blocks towards a global, sequentially achieved liberalization of EGs.

Environmental Incentives: Nudge or Tax?

Benjamin Ouvrard – Sandrine Spaeter

We consider a model where individuals can voluntarily contribute to improve the quality of the environment. They differ with regard to their confidence in the announcement made by the regulator about the risk of pollution, modelized in a RDEU model, and to their environmental sensitivity. We compare the efficiency of a tax in increasing individual contributions with the advantages of a nudge based on the announcement of the social optimum to each individual. Under some conditions, a nudge performs better than a tax, in particular, because the individual reaction depends directly on sensitivity, while only indirectly with a tax. Moreover, a nudge does not require information about private contributions, contrary to a tax based on the contributions that are not provided compared to the social optimum. Lastly, its implementation is much cheaper. Yet, some drawbacks are discussed and simulations illustrate our results.

Interaction between CO2 emissions trading and renewable energy subsidies under uncertainty: feed-in tariffs as a safety net against over-allocation

Published in Climate Policy (2019), 18(9), 1002-1018.

Oskar Lecuyer – Philippe Quirion

We study the interactions between a CO2 emissions trading system (ETS) and renewable energy subsidies under uncertainty over electricity demand and energy costs. We first provide evidence that uncertainty has generated over-allocation (defined as an emissions cap above business-as-usual emissions) during at least part of the history of most ETSs in the world. We then develop an analytical model and a numerical model applied to the European Union electricity market in which renewable energy subsidies are justified only by CO2 abatement. We show that in this context, when uncertainty is small, renewable energy subsidies are not justified, but when it is big enough, these subsidies increase expected welfare because they provide CO2 abatement even in the case of over-allocation.
The source of uncertainty is important when comparing the various types of renewable energy subsidies. Under uncertainty over electricity demand, renewable energy costs or gas prices, a feed-in tariff brings higher expected welfare than a feed-in premium because it provides a higher subsidy when it is actually needed i.e. when the electricity price is low. Under uncertainty over coal prices, the opposite result holds true. These results shed new light on the ongoing switch from feed-in tariffs to feed-in premiums in Europe.

Willingness to pay for environmental quality and social capital influence in Sweden

George Marbuah

The growing recognition of social capital as an important parameter necessary for shaping pro-environmental behaviour and attitudes is well established in the literature and continues to engage the attention of policymakers, academics and citizens in many jurisdictions. In this paper, we contribute to this strand of literature by investigating the extent to which various elements of social capital influences Swedish public’s tendency to contribute financially or through lifestyle changes in order to protect the environment. Using data from the latest wave of the International Social Survey Programme (ISSP) on the environment in 2010, we explore empirically the link between individuals’ willingness to pay (WTP) and social capital influence using an ordered logistic model. The results show, that, individuals in Sweden are fairly willing to pay for the environment and that this decision is principally and significantly influenced by elements of social capital. In particular, we find quite robust results to show that social and institutional trust, environmental group membership among related civic participation activities and adherence to environmental norms significantly impacts the probability of individuals’ decision to sacrifice toward environmental sustainability by paying higher environmental taxes, prices or through standard of living adjustments.

How useful are (Censored) Quantile Regressions for Contingent Valuation? Evidence from a flood survey

Victor Champonnois – Olivier Chanel

We investigate the interest of quantile regression (QR) and censored quantile regression (CQR) to deal with issues from contingent valuation (CV) data. Indeed, although (C)QR estimators have many properties of interest for CV, the literature is scarce and restricted to six studies only. We proceed in three steps. First, we provide analytical arguments showing how (C)QR can tackle many econometric issues associated with CV data. Second, we show by means of Monte Carlo simulations, how (C)QR performs w.r.t. standard (linear and censored) models. Finally, we apply and compare these four models on a French CV survey dealing with flood risk. Although our findings show the usefulness of QR for analyzing CV data, findings are mixed on the improvements from CQR estimates with respect to QR estimates.

The determinants of household’s flood mitigation decisions in France – evidence of feedback effects from past investments

Published in Ecological Economics (2017), 131, 342-352.

Claire Richert – Katrin Erdlenbruch – Charles Figuières

In this paper, we investigate the determinants of private flood mitigation in France. We conducted a survey among 331 inhabitants of two flood-prone areas and collected data on several topics, including individual flood mitigation, risk perception, risk experience, and sociodemographic characteristics. We estimate discrete choice models to explain either the presence of precautionary measures implemented by the household, or the intention to take such measures. We test the robustness of the Protection Motivation Theory in France, discuss its scope and investigate the existence of feedback effects from past investments on people’s protection intentions. Our results confirm that the Protection Motivation Theory is a relevant framework to describe the mechanisms of private flood mitigation in France, highlighting in particular the importance of threat appraisal, threat experience appraisal, and coping appraisal. Some sociodemographic features are also significant to explain private flood mitigation. Our results also give evidence for feedback effects as they suggest that implementing precautionary measures reduces perceptions of the risk of flooding. The existence of these feedback effects implies that intended measures, rather than implemented ones, should be examined to explore further the determinants of private flood mitigation.

From Primary Resources to Useful Energy: The Pollution Ceiling Efficiency Paradox

Jean-Pierre Amigues – Michel Moreaux

We study an economy producing energy services from a polluting fossil fuel and a carbon free renewable resource under a constraint on the admissible atmospheric carbon concentration, equivalently under a constraint on the admissible temperature. The transformation rates of natural primary resources energy into useful energy are costly endogenous variables. Choosing higher efficiency rates requires to bring into operation more sophisticated ones, that is more costly ones. We show that, independently of technical progress, along a perfect foresight equilibrium path which is Pareto optimal, the transformation rate of any exploited resource should increase though out time, excepted within the period during which the carbon constraint is binding, what we call the ‘ceiling paradox’.

La transition énergétique est-elle favorable aux branches à fort contenu en emploi ? Une approche input-output pour la France

Published in Revue d’économie politique (2017), 127(5), 851-887.

Quentin Perrier – Philippe Quirion

In the public debate on energy transition in France, employment figures prominently. We calculate, for the French economy in 2010, the employment content and greenhouse gas intensities in different branches, that is to say the number of jobs and tonne-CO2 equivalent per million euro of final demand. For this we use the input-output table at the most disaggregated level available (64 branches). We develop and then apply a unique methodology to decompose the differences in job content between industries in five factors: the rate of imports of final products, the rate of imports of intermediate goods, the rates of taxes and subsidies, the levels of wages and the share of labor compensation in value added. Finally, we study some intersectoral substitutions that would result from an energy transition to reduce emissions of greenhouse gases.

Trade and fisheries subsidies

Published in Journal of International Economics (2018), 112, 13-32.

Basak Bayramoglu – Brian R. Copeland – Jean-François Jacques

World Trade Organization members included fishery subsidies in the Doha round of trade negotiations, which subsequently stalled. This paper develops a simple model to show why prospects for a deal on fisheries subsidies may be difficult. Typically international spillover effects create incentives among exporters to negotiate reductions in subsidies: one country’s subsidy worsens other exporters’ terms of trade. These incentives may not exist in fisheries for 3 reasons. First, if fisheries are severely depleted, one country’s subsidy reduces its long run supply of fish, raising prices and benefiting other fish exporting countries. Second, if governments use other policies to manage fish stocks, then changes in subsidies may not affect harvests and hence may not generate international spillover effects. And third, even if governments were compelled to reduce fishery subsidies, there may be little real effect because governments would be motivated to weaken other regulations targeting the fish sector.

Precautionary Storage in Electricity Markets

Tunç Durmaz

As renewable energy depends on meteorological shocks and is non-controllable, the overall energy production becomes riskier with the rising renewable share. Although this has led to a renewed interest in storage technologies, not much consideration has been given to energy storage due to precautionary motives. In our study, we look at to what extent a convex marginal utility (prudence) and a convex marginal cost (frugality) can spur precautionary energy storage. We set up a simple theoretical model of energy consumption and production with intermittent renewable sources, dispatchable thermal systems, and energy storage. First, we characterize the optimum and demonstrate how prudence and frugality can lead to higher levels of energy storage. By applying our findings to perfectly competitive markets, we further show that prudence and frugality increase the market energy price through higher demand for energy storage and decrease price volatility. The results present important lessons about the direct and indirect impacts precautionary motives can have on electricity prices and energy generation decisions.

Energy Tax Reform in Time of Crisis : The Case of Energy-Dependent and Open Economies

Emmanuel Combet

The increase in energy prices resulting from energy taxation and environmental pricing is the cornerstone for policies that seek to manage efficiently the energy systems in the long run. However, such a price increase may harm the economy during the transition, when substitutions have not yet taken place. In this paper, we consider an increase in the relative price of energy with respect to labour costs, and we analyse its consequences for aggregate domestic production and employment. A relative price adjustment is implemented through a marginal tax reform by swapping labour taxes for energy taxation. We develop a general equilibrium model of an open-economy assuming unemployment and high dependence to imported energy. Simplified enough to be solved analytically, this model does not restrict the analysis to the neighbourhood of an optimum. We show how the impact on production and employment is sensitive to a set of parameters on 1) the behaviour of the economy (the reactions of domestic wages to unemployment, and external trade to the level of domestic costs), and 2) the initial state of the economy (energy consumptions, import price of fossil energy, levels of unemployment and wages, taxation of energy and labour). When the economy does not benefit from important ‘non-cost’ comparative advantages (the Marshall-Lerner condition holds), the impact is positive regardless of the other parameters. When this condition does not hold, the impact is positive only when wages adjust to compensate the higher energy bills for households, and therefore, to maintain the level of internal demand.

Groundwater Overdraft, Electricity, and Wrong Incentives: Evidence from Mexico

Vicente Ruiz

Groundwater overdraft is threatening the sustainability of an increasing number of aquifers in Mexico. The excessive amount of groundwater extracted by farming activities relying on irrigation methods have significantly contributed to this problem. The objective of this paper is to analyse the effect of changes in groundwater’s price over the allocation of different production inputs from a structural approach. Using a combination of multiple micro-data sources, I model the technology of producers facing groundwater overdraft through a Translog cost function. The results following this analysis show that groundwater’s own price elasticity for the sample analysed is -0.54. Moreover, these results also show that both labour and fertiliser can act as substitutes for groundwater, further reacting to changes in groundwater’s price.

The nature and impacts of environmental spillovers on housing prices: A spatial hedonic analysis

Published in Revue d’économie politique (2016), 126(5), 921-945.

Masha Maslianskaia-Pautrel – Catherine Baumont

This paper investigates the spatial dimension of the environmental effects. We use recent advances in spatial econometrics to show that hedonic equations produce estimates to be differently interpreted as implicit prices according to spatial models. In particularly, the implicit price of housing attribute combines a feedback effect and a propagation effect and may be interpreted in terms of local or global spillovers. We drive an empirical study in the estuary of the Loire, a rural and urban area well occupied by various natural areas and more artificialized ones. We study various spatial interaction patterns to test the robustness of our estimates and we find that spatial dependencies based on inverse distance and small neighborhoods provide stable estimations. It is consistent too with realistic spatial interaction patterns for household behaviors: information on closer housings is more reliable and comparison areas are in fact limited by the research process. As expected, positive impacts are concentrated on traditional attributes like the proximity to the ocean frontage and quiet places. On the contrary, the presence of various natural wet amenities is negatively valued because of the impression of housing density associated to flood risk. If urban places are more valued by households, it’s rather because rural location are less desired than because of urban intrinsic attributes.

Preferences and pollution cycles

Stefano Bosi – David Desmarchelier – Lionel Ragot

We consider a competitive Ramsey economy where a pollution externality affects both consumption demand and labor supply, and we assume the stock of pollution to be persistent over time. Surprisingly, when pollution jointly increases the consumption demand (compensation effect) and lowers the labor supply (leisure effect), multiple equilibria arise near the steady state (local indeterminacy) through a Hopf bifurcation (limit cycle). This result challenges the standard view of pollution as a flow to obtain local indeterminacy, and depends on the leisure effect which renders the pollution accumulation process more volatile.

Climate variability and infectious diseases nexus: evidence from Sweden

Published in Infectious Disease Modelling (2017), 2(2), 203–217.

Franklin Amuakwa-Mensah – George Marbuah – Mwenya Mubanga

In this paper, we present evidence based on a theoretical model developed that links the impact of climate change on health. Using Swedish data on infectious diseases, we empirically estimate the causal relationship between climate variability and health outcomes. Generally, we find that the number of infectious disease patients and admissions are significantly driven by indicators of climate change and socio-economic variables such as income and number of immigrants. Specifically, the effect of temperature variation on the health outcomes is ambiguous and sensitive to the choice of winter, summer or average temperature. Precipitation is relevant in explaining the number of infectious disease patients and admissions only when summer temperature considered in the model. Further, we find that an increase in carbon emissions directly causes the number patients and admissions in the summer. The relationship between infectious disease proxies (i.e. patients and admissions) and inc ome per capita follows an inverted-U shape.

Adaptation and mitigation are not enough: turning to emissions reduction abroad

Published in Environmental and Resource Economics (2016), 68(4), 875–891.

Aude Pommeret – Alain Ayong Le Kama

In this paper we focus on a long-term dynamic analysis of the optimal adaptation/mitigation mix in the presence of a pollution threshold above which adaptation is no longer efficient. We account for accumulation in abatement capital, greenhouse gases, and adaptation capital in order to better capture the arbitrage between abatement and adaptation investments. Pollution damages arise from the emissions due to the country consumption but also from the emissions of the rest of the world (ROW). A pollution threshold is then introduced, above which adaptation is no longer efficient. We obtain that if this threshold is lower than the steady-state level of pollution, there is no way for the modeled economy to avoid it. In particular, such a situation will appear if the ROW’s emissions are high. Next step is then to introduce another type of investment allowing for lower ROW pollution ie. emissions reduction abroad through CDM for instance. We obtain that CDM may be a means to avoid a pollution threshold above which adaptation becomes of no use.


A Tale of Two Diversities

Chloé Mulier – Pierre Courtois – Charles Figuières

Efficient management of biodiversity aims at allocating conservation efforts in order to maximize diversity. Defining a diversity criterion is however far to be trivial; there is not one but several indices that can be used as biodiversity measures. This paper elicits and compares two in situ criterions for biodiversity conservation, based on two biodiversity indices stemming from different disciplines: Weitzman’s index in economics and Rao’s index in ecology. Both indices combines differently pieces of information about (1) species survival probability, and (2) measures of dissimilarity between species. In order to truly have in situ protection criterions, we add another layer of information about (3) the ecological interactions between species. Considering a simple three species ecosystem, we show that choosing one criterion or the other has policy implications, for they sometimes deliver diverging protection recommendations. We unravel the role played by the elements (1), (2) and (3) in the ranking, which allows us to highlight some specificities of the in situ criterions. For example, other things equal, Weitzman’s in situ ranking tends to favor “robust” species, while Rao’s in situ ranking gives priority to “fragile” species.

Optimal Timing of Carbon Capture Policies under Learning-by-doing

Published in Journal of Environmental and Economics Management (2016), 78: 20-37.

Jean-Pierre Amigues – Gilles Lafforgue – Michel Moreaux

Using a standard Hotelling model of resource exploitation, we determine the optimal energy consumption paths from three options: dirty coal, which is non-renewable and carbon-emitting; clean coal, which is also non-renewable but carbon-free thanks to carbon capture and storage (CCS); and solar energy, which is renewable and carbon-free. We assume that the atmospheric carbon stock cannot exceed an exogenously given ceiling. Taking into account learning-by-doing in CCS technology, we show the following results: i) Clean coal exploitation cannot begin before the outset of the carbon constrained phase and must stop strictly before the end of this phase; ii) The energy price path can evolve non-monotonically over time; and iii) When the solar cost is low enough, an unusual energy consumption sequence along which solar energy is interrupted for some time and replaced by clean coal may exist.

Environmental regulation with and without commitment under irreversible investments

Jean-Philippe Nicolai

This paper analyzes the long-term investment decisions of firms that are regulated by an emissions tax and that perceive a degree of market power in their respective output markets. Firms invest in abatement equipment that is fixed over the medium term (e.g., buying a new generator). This paper focuses on environmental regulation with and with- out commitment. In the commitment case, the government announces a long-run tax on emissions, and firms decide upon their investment levels. In the no-commitment case, the regulator announces a tax level and is free to modify it once firms have invested. This paper considers differentiated product goods and determines whether no-commitment regulation leads to more lenient or more stringent regulation than regulation with commitment.

Climate element of migration decision in Ghana: Micro Evidence

Franklin Amuakwa-Mensah

The debate about how environmental or climate factors affect migration decision has generated a lot of interest in recent times, however empirical studies about the subject are limited and fragmented. This paper investigates the effect of climate factors on migration decisions by comparing the 2005/06 and 2012/13 rounds of Ghana Living Standards Survey (GLSS5 and GLSS6), using Heckman two-stage method to account for selectivity bias. This is done by relating the climate conditions in the various ecological zones in Ghana to investigate the effect of climate elements on migration decision. We find socio-economic factors together with climatic element to significantly affect an individual’s migration decision, with variation over the years. Whereas climate element does not significantly explain migration decision in 2005/06, we observed climate element do have significant effect on migration decision in 2012/13. Thus, we find the coastal savannah and forest ecological zones t o accommodate more in-migrants relative to the northern savannah ecological zones. Also, we observe that individuals do not prefer extreme climate conditions. With the current climate change of high temperature and low rainfall, migration may be considered as one of the several adaptation strategies in response to changes in the environment.

L’information préventive améliore-t-elle la perception des risques? Impact de l’Information Acquéreur Locataire sur le prix des logements

Amélie Mauroux

This article evaluates the impact of a seller’s disclosure, the ”Information Acquéreur Locataire” (IAL), on the housing prices and natural risk perception in at-risk areas. The date of implementation of the IAL, June the 1st 2006, as an exogenous shock on the buyers’ information on risk exposure of the housing units. A difference-in-differences hedonic price model is estimated on an unique database merging notary data on individual transactions in 2006 and the maps of the at-risk regulated areas. The results suggest that the implementation of the IAL increased the share of informed buyers: every else hold equal, in towns under a PPRi the price of some housing units under IAL decreased compared to the price of similar units located outside the at-risk regulated perimeters. It is the case for apartments on the first floor or in towns hit by a natural disaster the year before the sale.
The implementation of the IAL also decreased the probability that, after June 2006, at-risk individual houses were sold to buyers living in another town and thus less likely to be informed on the local natural risk exposure.

The Long-Run Impact of Biofuel on Food Prices

Published in The Scandinavian Journal of Economics (2017), 119(3), 733-767.

Ujjayant Chakravorty – Marie-Hélène Hubert – Michel Moreaux – Linda Nostbakken

More than 40% of US corn is now used to produce biofuels, which are used as substitutes for gasoline in transportation. Biofuels have been blamed universally for past increases in world food prices, and many studies have shown that these energy mandates in the US and EU may have a large (30-60%) impact on food prices. In this paper, we use a partial equilibrium framework to show that demand-side effects – in the form of population growth and income-driven preferences for meat and dairy products rather than cereals – may play as much of a role in raising food prices as biofuel policy. By specifying a Ricardian model with differential land quality, we find that a significant amount of new land will be converted to farming, which is likely to cause a modest increase in food prices. However, biofuels may increase aggregate world carbon emissions, due to leakage from lower oil prices and conversion of pasture and forest land for farming.

Climate damages on production or on growth: what impact on the social cost of carbon

Published in Environmental Modeling & Assessment (2018), 23(2), 117-130.

Céline Guivarch – Antonin Pottier

Recent papers have investigated with Integrated Assessment Models the possibility that climate damages bear on productivity growth and not on production, the traditional route that follows Nordhaus’s work. According to these papers, damages on growth lead to a higher social cost of carbon (SCC).Here, we reconsider the evidence with the introduction of a measure of the amount of damages, to allow the comparison between alternative representations of damages.We build a simple climate-economy model and compare three damages specifications: quadratic damages on production, linear damages on growth and quadratic damages on growth. We show that when total damages are the same, the ranking of SCC between a model with damages on production and a model with damages on growth is not unequivocal. It depends on welfare parameters such as the utility discount rate or the elasticity of marginal social utility of consumption. The difference in SCC comes both from when damages occur and from their total amount.

Carbon Emissions and Social Capital in Sweden

George Marbuah – Ing-Marie Gren

This paper addresses the issue of whether or not social capital explains per capita CO2 emissions dynamics in Swedish counties in an augmented environmental Kuznets curve framework. By accounting for issues of endogeneity in the presence of dynamic and spatial effects using geo-referenced emissions data, we show that per capita carbon emissions in a county matters for other counties and that net of economic, demographic and environmental factors, social capital has the potential to reduce carbon emissions in Sweden albeit less robustly. We test two different social capital constructs; trust in government and environmental engagement. Specifically, trust in the government inures to the reduction in CO2 emissions. Membership and engagement in environmental organisations reduces CO2 emissions only through its interaction with per capita income or trust. The implication of our estimates suggest that investment geared toward increasing the stock of social capital could inure to re ductions in CO2 emissions in addition to climate policy instruments in Sweden.

Environmental tax reform in a federation with rent-induced migration

Jean-Denis Garon – Charles Séguin

We study the welfare effects of a revenue-neutral green tax reform in a federation. The reform consists of increasing a tax on a polluting input and reducing that on labor income. Households are fully mobile within the federation. Regions are unequally endowed with a nonrenewable natural resource. Resource rents are owned by regions and are redistributed to citizens on a residence basis, which generates a motive for inefficiently relocating to the resource-rich jurisdiction. Since the resource-poor region has a higher marginal product of labor than does the resource-rich region, the tax reform mitigates the scope of inefficient migration. This positive welfare effect may significantly reduce abatement costs of pollution and calls for higher environmental tax, as compared with a model where migration is assumed away.

Environmental impacts of the French final consumption

Laurent Meunier – Frédéric Gilbert – Eric Vidalenc

In order to fight against climate change, ambitious targets have been set, such as decreasing carbon emissions by 75% in France compared to 1990. Yet, focusing on territorial impacts leads to overlook import-embedded impacts. As a matter of fact, French territorial greenhouse gases (henceforth GHG) emissions have slightly decreased since 1990, whereas consumption-based emissions have been shown to increase. This is why we focus in this paper on consumption-based emissions rather than territorial emissions. Moreover, other environmental impacts are taken into account: air acidification (ACD), photochemical oxidation(PCO) and non-dangerous industrial wastes (NDIW). The contribution of the research presented in this paper is three-fold: first, the quantification of import-embedded impacts of consumption-based emissions is more accurate than previous studies; secondly, we build a scenario of French households final consumption in 2030 aiming at decreasing its environmental impacts; finally, a deep matrix algebra analysis gives us precious hints on the reliability of the results.

Energy efficiency subsidies with price-quality discrimination

Published in Energy Economics (2015), 52(S1): S53-62.

Marie-Laure Nauleau – Louis-Gaëtan Giraudet – Philippe Quirion

We compare a range of energy efficiency policies in a durable good market subject to both energy-use externalities and price-quality discrimination by a monopolist. We find that the social optimum can be achieved with differentiated subsidies. With ad valorem subsidies, the subsidization of the high-end good leads the monopolist to cut the quality of the low-end good. The rates should always be decreasing in energy efficiency. With per-quality subsidies, there are no such interference and the rates can be increasing if the externality is large enough relative to the market share of low-type consumers. Stand-alone instruments only achieve second-best outcomes. A minimum quality standard may be set at the high-end of the product line if consumers are not too dissimilar, otherwise it should only target the low-end good. An energy tax should be set above the marginal external cost. Likewise, a uniform ad valorem subsidy should be set above the subsidy that would be needed to spec ifically internalize energy-use externalities. Lastly, if, as is often observed in practice, only the high-end good is to be incentivized, a per-quality schedule should be preferred over an ad valorem one. An ad valorem tax on the high-end good may even be preferred over an ad valorem subsidy if the externality is small enough and low-end consumers dominate the market.

Heterogeneous firms and the environment: a cap-and-trade program

Published in Journal of Environmental Economics and Management (2017), 84, 84-101.

Lisa Anouliès

Cap-and-trade programs are presently the cornerstone of climate change policies and proposals in many countries. I investigate the economic and environmental effects of different designs for this policy in a general equilibrium setting when firms are heterogeneous and in monopolistic competition. This study first predicts that the cap on emissions perfectly defines the environmental quality but has no effect on firms’ profits and decisions to enter or exit the market. On the contrary, increasing the share of free allocation of emissions allowances reallocates resources among firms toward the most productive ones: the initial allocation of allowances therefore impacts firms’ entry and exit decisions and aggregate economic variables but not the environment. Firm heterogeneity magnifies this economic effect of a change in the initial allocation of allowances.

Cross-commuting and housing prices in a polycentric modeling of cities

Vincent Viguié

Long term strategies, relying on city planning and travel demand management, are essential if deep GHG reduction ambitions are to be achieved in urban transport sector. However, how to precisely design such strategies remains unclear. Indeed, whereas there is a broad consensus that urban spatial structure is a key determinant in explaining travel pattern generation, the mechanisms are not yet fully understood. Especially, the interplay between commuting and localization choices leading to cross commuting in a polycentric city remains an open question, and cannot be easily explained using existing urban economics frameworks. In this study, we introduce a novel urban economic framework, fully micro-economic based, which describes land prices, population distribution and commuting travel choices in a polycentric city, with jobs locations exogenously given. It relies on the modeling of moving costs and market imperfections, especially housing-search imperfections. Using Paris as a case study, we show how this model, when adequately calibrated, reproduces available data on the internal structure of the city (rents, population densities, travel choices). A validation over the 1900-2010 period also shows that the model captures the main determinants of city shape evolution over this time. This suggests that this tool can be used to inform policy decisions.

Quel mode de soutien pour les énergies renouvelables électriques?

Published in Revue Française d’Economie (2015), XXX(4), 105-140.

Philippe Quirion

While most developed and emergent countries support renewable energies in the power sector, they do so in a different manner. The three main existing support systems are feed-in-tariffs, feed-in-premiums and tradable renewable quotas. We provide a survey of the literature which compares these support systems. We conclude that tradable renewable quotas suffer from many weaknesses compared to the other two: bad reaction to uncertainty, important risk for funders which increases investment cost, higher transaction costs. Both feed-in-tariffs and premiums have pros and cons and there is little evidence that the transition from the former to the latter, currently occurring in Germany and France, is justified. Finally, beyond the choice between tariff and premium, many concrete choices are at least as important such as the way to finance the support and the differentiation between market segments, necessary to limit the rents but potentially a source of inefficiency.

Hedonic Model with Discrete Consumer Heterogeneity and Horizontal Differentiated Housing

Masha Maslianskaia Pautrel

This paper investigates how the hedonic equilibrium is modified when discrete consumer heterogeneity with horizontal differentiated housing supply is assumed. Our results are threefold. First, discrete consumer heterogeneity leads to a segmentation of the hedonic price function at equilibrium and the discontinuity of the implicit price of environmental quality on the borders of the segments. Second, we demonstrate that horizontal differentiation may lead to a partial sorting of consumer demand for housing attributes at hedonic equilibrium. Finally, we show that the discrete consumer heterogeneity with horizontal differentiation can lead to modification of welfare assessment related to changes in environmental quality.

Global Sensitivity Analysis of an Energy-Economy Model of the Residential Building Sector

Published in Environmental Modelling & Software (2015) 70, 45-54.

Frédéric Branger – Louis-Gaëtan Giraudet – Céline Guivarch – Philippe Quirion

In this paper, we discuss the results of a sensitivity analysis of Res-IRF, an energy-economy model of the demand for space heating in French dwellings. Res-IRF has been developed for the purpose of increasing behavioral detail in the modeling of energy demand. The different drivers of energy demand, namely the extensive margin of energy efficiency investment, the intensive one and building occupants’ behavior are disaggregated and determined endogenously. The model also represents the established barriers to the diffusion of energy efficiency: heterogeneity of consumer preferences, landlord-tenant split incentives and slow diffusion of information. The relevance of these modeling assumptions is assessed through the Morris method of sensitivity analysis, which allows for the exploration of uncertainty over the whole input space. We find that the Res-IRF model is most sensitive to energy prices. It is also found to be quite sensitive to the factors parameterizing the di fferent drivers of energy demand. In contrast, inputs mimicking barriers to energy efficiency have been found to have little influence. These conclusions build confidence in the accuracy of the model and highlight occupants’ behavior as a priority area for future empirical research.

Energy Transition under Irreversibility: a Two-sector Approach

Published in Environmental and Resource Economics (2017), 68(3), 797-820.

Prudence Dato

In this paper, we analyze the optimal energy transition of a two-sector economy (energy and final goods) with exhaustible oil reserves, a renewable source of energy and a pollution threat. The latter corresponds to a pollution threshold above which a part of the capital is lost (following flooding for instance). Part of the energy is used as energy services by a representative consumer through a CRRA utility function and the other part is used as input in a Leontief production function to produce final goods. Moreover, we assume that both energy sources are complementary. We use the optimality conditions as in Boucekkine et al. (2013) to show that the optimal energy transition path may correspond to a corner regime in which the economy starts using both resources, then crosses the pollution threshold and therefore loses a part of its capital. At the end, the economy never adopts only renewable energy. This result is in line with the asymptotic energy transition arguments stating that the transition to “clean” energy may happen only in the long run. We extend the present model to allow for additional investment in energy saving technologies. Our main results show that this additional investment favours the energy transition in the sense that it increases the time within which the economy may experience the catastrophe and the welfare of the society. For policy implications, economic instruments such as taxes on “dirty” energy, subsidies on “clean” energy or incentives for energy saving technologies need to be implemented in order to promote the energy transition. But those economic instruments should be carefully designed in line with the asymptotic energy transition result.

Can the Energy Transition Be Smooth?

Jean-François Fagnart – Marc Germain

We analyse the transition of a decentralized economy whose energy supply switches progressively from non-renewable (NRE) to renewable energy (RE) sources. The two energies are perfect substitutes but RE production offers a lower Energy Return On Energy Invested (EROEI). The transition is characterized by a decreasing trend of the aggregate EROEI and by major changes both in the allocation of output between consumption and investment and in the allocation of capital between energy and final good productions. As a result, the energy transition may (and will usually) be characterized by a non-monotonic evolution of aggregate income and private consumption: after a peak and before the NRE exhaustion, the economy experiences a contraction. We analyze what affects 1) its magnitude and 2) the possibility of an ulterior recovery of income. Incidentally, a complementarity appears between a rapid development of RE production and the availability of NRE: the end of the NRE era puts a drag on the development of the RE production.

Protecting Biodiversity by Developing Bio-Jobs: a Multi-branch Analysis with an Application on French Data

Published in International Journal of Sustainable Development (2017), 20(3-4), 306-323.

Jean De Beir – Céline Emond – Yannick L’Horty – Laetitia Tuffery

In each economy there is employment favourable to biodiversity, which we call bio-jobs. These jobs are located in a small number of branches linked to or controlling natural resources: green core activities, quarrying, public works, water and waste management, etc. We are interested in the economic policies for the preservation of biodiversity which affect the development of employment. We consider a model where government wields two types of instrument: it can support demand in sectors concentrating bio-jobs, through public procurement, or it can seek to promote the development of new productive combinations with more bio-jobs, with subsidies targeted at employment. We seek the most effective combination of these two instruments- demand and supply- and show that government must adopt a differentiated approach depending on the sectors being regulated. We find that the level of private demand and of wages play a major role in the government choice. Finally, we apply these recommendations to French data.

Non-renewable and Intermittent Renewable Energy Sources: Friends and Foes?

Published in Energy Policy (2017), 111, 58-67.

Edmond Baranès – Julien Jacqmin – Jean-Christophe Poudou

This paper studies the links between renewable and non-renewable intermittent energy sources in the production of electricity. More precisely, we argue that the relationship between the natural gas price and capacity investments in solar and wind power energy is far from univocal. We find that this relationship is not linear but is better represented by a bell-shaped curve. Hence, for relatively low gas price, the two modes of production are substitutable. After a price threshold is reached, the two are complementary. A theoretical model explains this as the trade-o resulting from two forces: the input price di fferential of these two modes of production and the risks related to the unpredictable nature of the intermittence of renewable energies. Using U.S. state level data from 1998 to 2012, we find that this relationship is robust to various empirical speci fications.

Consumer Misperception of Eco-labels, Green Market Structure and Welfare

Published in Journal of Regulatory Economics (2017), 51(3), 340-364.

Dorothée Brécard

How does consumer misperception of competing eco-labels affect environmental and economic efficiency of eco-labels? This article provides a theoretical insight into this issue by using a double-differentiation model, where three products are potentially in competition: an unlabeled product and two eco-labeled products of medium and high environmental qualities (with distinct labels). We compare the case of perfect information, where consumers can perfectly assess the environmental quality of the three products, and the case of imperfect information, where consumers cannot fully assess the environmental quality associated with each label while perceiving all eco-labels as a sign of high environmental quality and each label as a particular variety of a product. We show that consumer confusion can affect the market structure by weakening the firm that provides the greenest product. Paradoxically, consumer misperception is not always detrimental to social welfare because, when th e perceived quality of both eco-labeled products is relatively high, it can improve the quality of the environment and raise global profits and consumer surplus. Moreover, although firms would harmonize their demanding eco-labeling criteria if they face full-informed consumers, they turn to greenwashing when they know the way the consumers form their belief on environmental quality. Finally, we show that an NGO faced with consumer misperception will require less stringent standard than in the perfect information case, while conclusions on the regulator eco-labeling strategy are not clear-cut.


Interval Bidding in a Distribution Elicitation Format

Published in Applied Economics (2017), 1-12.

Pierre-Alexandre Mahieu – François-Charles Wolff – Jason Shogren

Interval bidding allows people to report a range of values for a non-market good. Herein we allow people to choose their distribution over this range endogenously. Using elephant protection as our motivating example, our results suggest the shape of the distribution greatly varies across people and the degree of uncertainty is proportional to their willingness to pay. We also find that both the expected willingness to pay and the degree of uncertainty differ when the valuation exercise is real versus hypothetical.

Un modèle de mobilité résidentielle avec taxe foncière

Marc Germain – Dominique Peeters

Individuals with heterogeneous incomes occupy a territory divided into zones with unequal levels of amenities. Using the concept of land rent à la Ricardo, we propose a model determining the land rent in the different zones as well as the distribution of individuals across them.
A land tax modifies the equilibrium of the land market without tax if its amount exceeds the rent in some zones. In this case, individuals are led to concentrate on a reduced part of the territory, which affects negatively their utility. If the tax incomes are used to finance a global public good, the direct negative impact of the tax can be reduced and possibly more than compensated.
An externality that affects negatively the amenities in one zone impacts the rents in all zones via a process of “voting with the feet”. In the presence of a land tax, the externality may lead to a reduction in the populated part of the territory. However, the tax incomes may finance a compensation system where the landowners victims of the externality are compensated by those who are not affected.

Tradable Renewable Quota vs. Feed-In Tariff vs. Feed-In Premium under Uncertainty

Robert Marschinski – Philippe Quirion

We study the performance under uncertainty of three renewable energy policy instruments: Tradable Renewable Quota (TRQ), Feed-In-Tariff (FIT), and Feed-In-Premium (FIP). We develop a stylized model of the electricity market, where renewables are characterized by a positive learning externality, which the regulator aims to internalize. Assuming shocks on the fossil-based electricity supply, renewables supply, or on total electricity demand, we analytically derive the conditions determining the instruments’ relative welfare ranking. Although we generally confirm the key role of the slopes of marginal benefits and costs associated with the policy, the specific ranking depends on which type of uncertainty is considered, and whether shocks are permanent or transitory. However, a high learning rate generally favours the FIT, while TRQ is mostly dominated by the other two instruments. These results are confirmed in a numerical application to the US electricity market, in which the FIP emerges as the most robust overall choice and TRQ as the least robust.

Inducing Sorting Investment and Implementation of an Alternative e-Waste Market under Imperfect Information

Published in Economics Bulletin (2018), 38(1), 629-637.

Prudence Dato

In a context of high disposal costs in rich countries together with an imperfect monitoring system, the non reusable part of e-wastes is often illegally mixed with the reusable part and ends up in developing countries leading to an `environmental injustice’ and important negative externalities. To tackle this problem, we propose an alternative e-waste market for a joint trade in reusable and non-reusable e-wastes, other than the monitoring system and we analyze the optimal mechanism design for its implementation. In this paper, we use the theory of incentives applied to e-waste market. We want to show how to induce firms in North to undertake sorting investment that would help implementing the alternative e-waste market. Results show that, if the sorting cost is low, the optimal contract to induce sorting investment and to implement the alternative e-waste market for a joint trade in reusable and non-reusable e-wastes is the Baron-Myerson (BM) contract. Moreover, we iden tify conditions to avoid the standard market. Finally, we construct the optimal decisions of the firm in South over the set of sorting costs. One of the direct implications of the results is that if the cost is not too high to deter the sorting investment, the firm in South should give incentives to the firm in North to invest in sorting so that the alternative market can easily be implemented.

Is Choice Experiment Becoming more Popular than Contingent Valuation? A Systematic Review in Agriculture, Environment and Health

Pierre-Alexandre Mahieu – Henrik Andersson – Olivier Beaumais – Romain Crastes – François-Charles Wolff

This paper provides a systematic review based on a large sample of articles published between 2004 and 2013 in economic journals and listed in ISI Web of Science. Results from descriptive statistics and regression models show that choice experiment (CE) is becoming more popular than contingent valuation (CV) in terms of number of publications and citations. Also, journals related to health economics and agricultural economics are more CE oriented than journals related to environmental economics. Finally, divergences across economic journals are found when comparing recent CE articles in terms of questionnaire design, econometric procedure, administration of questionnaire and type of participants. In particular, it is more standard to allow for unobserved taste heterogeneity in environmental journals than in health or agricultural journals.

Optimal Carbon Sequestration Policies in Leaky Reservoirs

Alain Jean-Marie – Michel Moreaux – Mabel Tidball

We study in this report a model of optimal Carbon Capture and Storage in which the reservoir of sequestered carbon is leaky, and pollution eventually is released into the atmosphere. We formulate the social planner problem as an optimal control program and we describe the optimal consumption paths as a function of the initial conditions, the physical constants and the economic parameters. In particular, we show that the presence of leaks may lead to situations which do not occur otherwise, including that of non-monotonous price paths for the energy.

Reaping the Carbon Rent: Abatement and Overallocation Profits in the European Cement Industry, Insights from an LMDI Decomposition Analysis

Published in Energy Economics (2015), 47, 189-205.

Frédéric Branger – Philippe Quirion

We analyse variations of carbon emissions in the European cement industry from 1990 to 2011, at the European level (EU 27), and at the national level for six major producers (Germany, France, Spain, United Kingdom, Italy and Poland). We apply a Log-Mean Divisia Index (LMDI) method, crossing data from three databases: the Getting the Numbers Right (GNR) database developed by the Cement Sustainability Initiative, the European Union Transaction Log (EUTL), and the Eurostat International Trade database.
Our decomposition method allows disentangling seven channels of emissions change: activity, clinker trade, clinker share, alternative fuels, thermal and electric energy efficiency, and electricity decarbonisation. We find that, apart from a slow trend of emissions reductions coming from technological improvements (first from a decrease in the clinker share, then from an increase in alternative fuels), most of the emissions changes can be attributed to the activity effect.
Using counterfactual scenarios, we estimate that the introduction of theEU ETS brought small but positive technological abatement (2.0% plus or minus 1.1% between 2005 and 2011). Moreover, we find that the European cement industry have gained 3.5 billion euros of “overallocation profits”, mostly due to the slowdown of production.
Based on these findings, we advocate for output-based allocations, based on a stringent hybrid clinker and cement benchmarking.

Price versus Quantities versus Indexed Quantities

Frédéric Branger – Philippe Quirion

We develop a stochastic model to rank different policies (tax, fixed cap and relative cap) according to their expected total social costs. Three types of uncertainties are taken into account: uncertainty about abatement costs, business-as-usual (BAU) emissions and future economic output (the two latter being correlated). Two parameters, the ratio of slopes of marginal benefits and marginal costs on the one hand, and the correlation between uncertainty in BAU emissions and future economic output on the other hand, are crucial to determine which instrument is preferred.
When marginal benefits are relatively flatter than marginal costs, prices are preferred over fixed caps (Weitzman’s result). When the former correlation is higher than a parameter- dependent threshold, relative caps are preferred to fixed caps. An intermediate condition is found to compare the tax instrument and the relative cap. We establish a bridge between the literature which minimizes the variance of abatement costs and the one which also includes the variance of benefits, and find that setting environmental benefit aside introduces a bias favoring relative caps over fixed caps.
The model is then empirically tested for seven different regions (China, the United States, Europe, India, Russia, Brazil and Japan) using past GDP and emissions data, and International Energy Outlook forecasting. We find that tax is preferred to caps (absolute or relative) in all cases, and that relative caps are preferred to fixed caps in the US and emerging countries (except Brazil where it is ambiguous), whereas fixed cap are preferred to relative cap in Europe and Japan.

Renewable Energy, Subsidies, and the WTO: Where has the ‘Green’ Gone?

Published in Energy Economics (2015), 51, 407-416.

Patrice Bougette – Christophe Charlier

Faced with the energy transition imperative, governments have to decide about public policy to promote renewable electrical energy production and to protect domestic power generation equipment industries. For example, the Canada – Renewable energy dispute is over Feed-in tariff (FIT) programs in Ontario that have a local content requirement (LCR). The EU and Japan claimed that FIT programs constitute subsidies that go against the SCM Agreement, and that the LCR is incompatible with the non-discrimination principle of the World Trade Organization (WTO). This paper investigates this issue using an international quality differentiated duopoly model in which power generation equipment producers compete on price. FIT programs including those with a LCR are compared for their impacts on trade, profits, amount of renewable electricity produced, and welfare. When `quantities’ are taken into account, the results confirm discrimination. However, introducing a difference in the quality of the power generation equipment produced on both sides of the border provides more mitigated results. Finally, the results enable discussion of the question of whether environmental protection can be put forward as a reason for subsidizing renewable energy producers in light of the SCM Agreement.

Limit-Pricing and the (Un)Effectiveness of the Carbon Tax

Published in Journal of Public Economics (2016), 139, 28-39.

Saraly Andrade de Sa – Julien Daubanes

This paper questions the ability of a carbon tax to reduce oil extraction. Demand for oil is very price inelastic. Facing such demand, an extractive cartel induces the highest price that does not destroy its demand: it tolerates ”non-drastic” substitutes but deters substitution possibilities that have the potential to drastically deteriorate its demand. Limit-pricing equilibria of non-renewable resource markets sharply differ from conventional Hotelling outcomes. Oil taxes become neutral. Policies only reduce current oil extraction when they support existing non-drastic substitutes. Since the carbon tax applies to oil and to its current carbon substitutes, it induces higher oil current production.

Nutrient Allowances Market and Wetland Abatement

Natacha Fauvet – Jean-Christophe Pereau

The buffering function of wetlands is one of the most efficient mechanisms for regulating agricultural runoffs and water pollution. The aim of this paper is to show how farmers could use wetland abatement as a way to achieve pollution targets set by a regulator in a nutrient allowance market. The introduction of allowances into farmers’ maximisation programs creates an incentive to either reduce fertilizer use per hectare of crops, or to restore wetlands on agricultural land. Comparative statics results express a negative correlation between the quantity of allowances per farmer and the fertilizer use. Furthermore, the quantity of allowances per farmer is negatively correlated to the wetland surface area.

Assessing and Ordering Investment in Polluting Fossil-fueled and Zero-carbon Capital

Oskar Lecuyer – Adrien Vogt-Schilb

We study the transition from preexisting polluting fossil-fueled capital (coal power) to cleaner fossil-fueled capital (gas) and zero-carbon capital (renewable). We model exhaustible resources, irreversible investment, adjustment costs and a carbon budget; both fossil-fuel and renewable energy consumption are subject to capacity constraints. To smooth investment and spread costs, optimal investment in expensive renewable power may start before the cheaper fossil resources are exhausted. Gas power operates as a bridge technology between coal and renewable: it allows building less renewable at the beginning of the transition, moving some efforts from the short to the middle term. Finally, the popular criteria of the levelized cost of electricity is biased toward cheaper and lower-potential alternatives (gas instead of renewable) if computed against current prices. We provide numerical simulations of the European power sector based on the Commission’s energy roadmap to 2050.

An Instrument that Could Turn Crowding-out into Crowding-in

Antoine Beretti – Charles Figuières – Gilles Grolleau

Using a simple decision-theoretic approach, we formalize how agents with different kinds of intrinsic motivations react to the introduction of monetary incentives. We contend that empirical results supporting the existence of a crowding-out effect in various contexts hide a more complex reality. We also propose a new policy instrument which taps into agents’ heterogeneity regarding intrinsic motivations in order to turn a situation subject to crowding-out into a crowding-in outcome. This instrument uses a self-selection mechanism to match adequate monetary incentives with individuals’ types regarding intrinsic motivations.

Towards a Clean Vehicle Fleet: from Households’ Valuation of Fuel Efficiency to Policy Implications

Bénédicte Meurisse – Maxime Le Roy

This paper investigates household behaviour with regard to vehicle fuel efficiency. We propose to approach the Willingness to Pay (WTP) for better fuel efficiency through the Hicksian compensating variation in income. Specifically, we distinguish the Willingness to Pay or to Accept (WTA) buying a more fuel-efficient car from the theoretical WTP for a reduction in fuel consumption without changing one’s car. Then by assuming that the household has to replace its car, we estimate a WTP for the cleanest car.
We also analyse what effect a fuel tax and/or a feebate scheme (e.g. a bonus-malus scheme) have on the WTP for the cleanest car and on the driven mileage. We find that the WTP for the cleanest car decreases following the implementation of a fuel tax. To the contrary, a feebate system leads to an increase in this WTP. But we also find that reducing the market price of the new vehicle (i.e. through a bonus) is not worthwhile in the light of the rebound effect. However, a fuel tax – as soon as it exceeds a certain level – is able to nullify the rebound effect.

Conservation Priorities when Species Interact: the Noah’s Ark Metaphor Revisited

Published in PLoS ONE 9(9), September 2014.

Pierre Courtois – Charles Figuières – Chloé Mulier

This note incorporates ecological interactions into the Noah’s Arch problem [M.L. Weitzman, The Noah’s Arch problem, Econometrica 66(6) (1998) 1279-1298]. In doing so, we arrive at a general model for ranking in situ conservation projects accounting for species interrelations and provide an operational cost-effectiveness method for the selection of best preserving diversity projects under a limited budget constraint.

Optimal Abatement of Carbon Emission Flows

Revised version 06.2015. Published in Journal of Environmental and Economics Management, 74, 55-70 (2015).

Michel Moreaux – Cees Withagen

We study optimal carbon capture and storage (CCS) from point sources, taking into account damages incurred from the accumulation of carbon in the atmosphere and exhaustibility of fossil fuel reserves. High carbon concentrations call for full CCS, meaning zero net emissions. We identify conditions under which partial or no CCS is optimal. In the absence of CCS the CO2 stock might be inverted U-shaped. With CCS more complicated behavior may arise. It can be optimal to have full capture initially, yielding a decreasing stock, then partial capture while keeping the CO2 stock constant, and a final phase without capture but with an inverted U-shaped CO2 stock. We also introduce the option of adaptation and provide a unified theory regarding the optimal use of CCS and adaptation.