4 Presentations

• 
  02:00 PM - 02:30 PM

  The inefficiency of the centralized economy with a pollution externality under non-constant discounting

  • Francisco Cabo, IMUVA, Universidad de Valladolid
  • Guiomar Martín-Herrán, presenter, IMUVA, Universidad de Valladolid
  • María Pilar Martínez-García, Universidad de Murcia

  We analyze an endogenous growth model with non-constant discounting and a pollution externality affecting utility. With a decreasing rate of impatience time-consistent agents anticipate the behavior of their future selves and play a game against them. The strategic interaction between subsequent central planners implies slower growth than the market solution, where the pollution externality is not internalized. Indeed it can be too slow from a social welfare standpoint. Contrary to exponential discounting, for any non-constant discount function we prove that the market equilibrium is Pareto-improving provided that the pollution externality is sufficiently small.

• 
  02:30 PM - 03:00 PM

  International environmental cooperation and dynamic stock effects

  • Yulia Pavlova, presenter, Luke Natural Resources Institute Finland
  • Marita Laukkanen, Vatt Institute for Economic Research

  Many key environmental concerns today involve strategic interactions among sovereign countries. While most transboundary pollution problems involve stock pollutants, much of the literature on international environmental agreements (IEAs) uses static models. Such models ignore the fact that changes in the stock of pollution may affect the incentives of countries to join an IEA.
  In this paper we analyze effect of pollutant stock dynamics on IEA membership assuming that at any time period each country makes a decision whether to participate in an IEA or not, and depending on the outcome on these decisions, each country adjusts its emission policy according to the feedback Nash equilibrium. Our objective is to find equilibrium size of an IEA, which withstands possible one-shot deviations. Numerical analysis allows us to conclude that the number of countries exposed to pollution changes the qualitative results from the previous literature about the size of the stable IEA. Our findings suggest that smaller, perhaps, local or regional, agreements may have higher chances for success than global agreements in terms of share of participating countries. Pollution stock can either increase or decrease, depending on total number of involved countries and their characteristics. Additionally, initial level of the stock makes a difference, and if it is too high, it leads to a lower number of signatories in the steady state. Our results demonstrate that free-riding incentives increase if the stock of pollution goes up, especially if total number of the countries is very large.

• 
  03:00 PM - 03:30 PM

  When does eco-efficiency rebounds or backfires? an analytical model

  • Chenavaz Régis, presenter, Kedge Business School
  • Dimitrov Stan, University of Waterloo
  • Figge Frank, Kedge Business School

  It is known that an eco-efficiency strategy, which save ressources in the production process, may be offset by a rebound effect; it may even backfire. Less known are the exact conditions under which eco-efficiency rebounds or backfires. This article fills the gap by providing an analytical model of the rebound and backfire effects. We propose an optimal control framework of dynamic pricing and eco-efficiency investment, for which eco-efficiency reduces the unit production cost and boosts the demand of green consumers. Results, which hold with general demand formulations, examine the analytic conditions for the rebound and backfire effects. They also highlight the possibility of a reverse rebound effect. Such results pave the way to sounder green economic strategies.

• 
  03:30 PM - 04:00 PM

  Self-enforcing international environmental agreements: adaptation and complementarity

  • Santiago J. Rubio, presenter, University of Valencia

  This paper studies the impact of adaptation on the stability of an international emission agreement. To address this issue we solve a three-stage coalition formation game where in the first stage countries decide whether or not to sign the agreement. Then, in the second stage, signatories (playing together) and non-signatories (playing individually) select their levels of emissions. Finally, in the third stage, each country decides on its level of adaptation noncooperatively. We solve this game for two models. For both, it is assumed that damages are linear with respect to emissions which guarantees that emissions are strategic complements in the second stage of the game. However, for the first model adaptation reduces the marginal damages of emissions in a multiplicative way whereas for the second model the reduction occurs in an additive way. Our analysis shows that the models yield different predictions in terms of participation. In the first case, we find that the larger the gains of full cooperation, the larger the cooperation. However, in the second case, the unique stable agreement we find consists of three countries regardless of the gains of full cooperation. These results suggest that complementarity can play in favor of cooperation but that it is not a sufficient condition to obtain more participation in an emission agreement. Finally, we would like to point out that our research indicates that the way adaptation reduces damages plays a critical role over the outcome of the coalition formation game.