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.
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).
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.
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.
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.
WP 2017.26 Polarisation of Eco-Labelling Strategies
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.
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.
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.
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.
WP 2017.22 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.
WP 2017.21 2017 FAERE Prize
Beyond perfect substitutability in public good games: heterogeneous structures of preferences
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.
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.
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.
WP 2017.18 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.
WP 2017.17 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.
WP 2017.16 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.
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 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.
WP 2017.13 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.
WP 2017.12 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.
WP 2017.11 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.
Published in Environmental Modeling and Assessment (2018), https://doi.org/10.1007/s10666-018-9612-8.
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.
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.
Published in Ecological Economics (2018), 154, 42-51.
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.
Published in Journal of Environmental Economics and Management (2018), https://doi.org/10.1016/j.jeem.2018.04.009.
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.
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.
WP 2017.05 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.
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.
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.
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.
WP 2017.02 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.
WP 2017.01 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.