Environmental and Resource Economics

Transitional Restricted Linkage Between Emissions Trading Schemes Abstract 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 transfer limits, border taxes on transfers, exchange and discount rates, and unilateral linkage. To this end, we develop a simple model to have a unifying framework which, in conjunction with lessons we draw from real-world experiences, serves as a basis for a broader, policy-oriented discussion. While quantitative restrictions seem to be the natural route to full linkage, they can lead to uncertain distributional effects and weaken price signals. These aspects are mitigated under a border permit tax, but this policy seems harder to implement. Exchange rates have potential to adjust for programmes’ stringencies and raise ambition over time, but can be challenging to select. As experience corroborates, unilateral linkage can be a convenient approach.

Oil Abundance and Income Inequality Abstract The paper empirically investigates the impact of natural resource abundance, in particular oil, on income disparities. It employs common correlated effects pooled mean group methodology for estimation to account for the cross-country heterogeneity and cross-section dependence in the oil-inequality nexus. In a sample of developed and developing countries, we find that oil abundance as well as oil dependence reduce income inequality. This inequality-reducing effect is highly likely to operate from better education attainments and improved health status due to oil booms.

The Representative Consumer Approximation Bias in Discrete Choice Welfare Analysis Abstract Discrete choice welfare analysis is essential in non-market valuation to accompany studies using choice experiments and recreation choice models. McFadden (in: Melvin, Moore, Riezman (eds) Trade, theory and econometrics: essays in honor of John S. Chipman, Routledge, London, 1999) shows that discrete choice welfare measures derived by the common representative consumer approach can be biased under nonlinear income effects, and the percentage bias increases monotonically with the size of quality improvement. We present contrary results that percentage measurement errors in such welfare measures can go either direction and provide conditions under which the direction of bias can be identified. We also show that price and non-price variables play different roles in discrete choice welfare analysis.

Decentralization Effects in Ecological Fiscal Transfers: A Bayesian Structural Time Series Analysis for Portugal Abstract Portugal has a unitary system in which the central government transfers funds to lower government levels for their public functions. In 2007, Portugal introduced Ecological Fiscal Transfers (EFT), where municipalities receive transfers for hosting protected areas (PA). We study whether introducing EFT in Portugal incentivized municipalities to designate PA and has led to a decentralization of conservation decisions. We employ a Bayesian structural time series approach to estimate the effect of introducing EFT in comparison to a simulated counterfactual time series. Quantitative results show a significant increase in the ratio of municipal and national PA designations following Portugal’s EFT introduction—which we infer to be a causal consequence. The analysis furthermore places emphasis on the importance of relevant municipal conservation competencies for the functioning of the instrument. Results have important implications for conservation policy-making in terms of allocating budgets and competencies in multi-level governments.

The Value of Air Quality in Chinese Cities: Evidence from Labor and Property Market Outcomes Abstract Using a dual-market sorting model of workers’ location decisions, this paper studies the capitalization of air pollution in wages and property prices across Chinese cities. To account for endogeneity of air pollution in the determination of wages and property prices, we exploit quasi-experimental variation in air quality induced by a policy subsidizing coal-based winter heating in northern China, and document a discontinuity in average air quality for cities located north and south of the policy boundary. Using data for all 288 Chinese cities in 2011, we estimate an equilibrium relationship between wages and house prices for the entire system of Chinese cities, and specify a regression discontinuity design to quantify how variation in air quality induced by the policy affects this relationship locally. Our preferred estimates of the elasticity of wages and house prices with respect to \(\text {PM}_{10}\) concentration are 0.53 and \({-}\)  0.71 respectively. At the average of our sample, the willingness to pay for a unit reduction in \(\text {PM}_{10}\) concentration is CNY 261.28 ( \(\simeq \)  USD 40.50), with a significant share reflected in labor market outcomes.

The Impact of Resource Uncertainty and Intergroup Conflict on Harvesting in the Common-Pool Resource Experiment Abstract How do resource uncertainty and intergroup conflict affect intragroup cooperation over resources in the common pool dilemmas? Does a danger of sudden resource depletion encourage random acts of violence? There are concerns that climate change will escalate conflicts over, and the scarcity of, renewable resources, which are already under threat or in a state of decline. However, we know surprisingly little about the impact of uncertainty on intergroup conflict over resources. In this paper, we present experimental evidence from a mixed design experiment with two-between-group factors: (1) the presence (or absence) of shocks that can destroy a part of resources; and (2) the availability of intergroup conflict. We find that random shocks encourage resource conservation within groups. The positive impact of resource uncertainty on resource conservation disappears in the presence of conflict. It seems that subjects protect themselves from resource exhaustion in the presence of shocks by engaging in conflict and taking resources from the out-group instead of reducing extraction. In general, conflict promotes intragroup cooperation, but this is conditional on the outcomes of past conflicts. In particular, groups harvest more after wins, and only reduce extraction after losing resources in conflict.

A Cautionary Note on the Use of Benefit Metrics for Cost-Effective Conservation Abstract Cost-effective land conservation techniques, such as optimization, have the potential to contribute substantially to the provision of many important environmental benefits, such as biodiversity protection, flood control, food security, water quality, and reduction of greenhouse gas emissions. There has been a recent push for conservation organizations to adopt project selection optimization approaches such as binary linear programming. The metrics used to measure the benefits of a project however, are often poorly defined in that they do not directly compute a value. These scores represent normalized measurements of underlying values that are likely log-normally distributed. Applying such metrics in optimization will tend to undervalue high-benefit projects and select a suboptimal portfolio of projects relative to simpler approaches. This suboptimal performance can lead to losses in efficiency as high as 30%. We propose a hybrid optimization heuristic that can improve performance and, additionally, provide conservation professionals with more flexibility and freedom to select conservation projects at their discretion—potentially overcoming a substantial real-world adaptation hurdle.

The Impact of Climate Change on Agriculture: Findings from Households in Vietnam Abstract This paper examines farm household-level impacts of climate change by examining the relationship between climatic variables and Vietnamese agricultural output. The Ricardian technique is applied with panel data which accounts for both adaptation strategies and household characteristics. This study proposes a two-stage Hsiao model to correct for collinearity between climatic variables and individual effects. The results show that in the dry season, increases in temperatures are beneficial to all farms in the warmer southern regions, while increases in precipitation will damage only irrigated farms in the Central and South regions. The impact of higher temperature in the wet season is similar, except that it will negatively affect net revenue of irrigated farms in the long run. More rainfall in the wet season will increase net revenue in the North region only. Finally, this study combines the estimated results with future climate scenarios to predict how future changes in climate will affect farmers on aggregate.

Appropriate Payment Vehicles in Stated Preference Studies in Developing Economies Abstract Selecting appropriate payment vehicles is critical for the perceived consequentiality and incentive compatibility of stated preferences surveys. We analyze the performance of three different payment vehicles in a Malaysian case of valuing wetland conservation. Two are well-known: voluntary donations and income taxes. The third is new: reductions in government subsidies for daily consumer goods. Using donations is common, but this payment vehicle is prone to issues of free-riding. An income tax usually has favorable properties and is commonly used in environmental valuation. However, in Malaysia as well as in many other low- to middle-income economies, large proportions of people do not pay income taxes, putting the validity of this payment vehicle into question. Instead, citizens in Malaysia and many other countries benefit from subsidies for a range of consumer goods. We find that price sensitivity is higher and the unexplained variance smaller when using subsidies rather than donations or income taxes. Importantly, this approach translates into completely different conclusions concerning policy advice. Our results suggest that in developing countries, using reduced subsidies as a payment vehicle may have favorable properties in terms of improved payment consequentiality compared to alternative payment vehicles, thus enhancing the external validity of stated preference surveys.

Fractional Integration Versus Structural Change: Testing the Convergence of $$\hbox {CO}_{2}$$ CO 2 Emissions Abstract This paper assesses the stochastic convergence of relative \(\hbox {CO}_{2}\) emissions within 28 OECD countries over the period 1950–2013. Using the local Whittle estimator and some of its variants we assess whether relative per capita \(\hbox {CO}_{2}\) emissions are long memory processes which, although highly persistent, may revert to their mean/trend in the long run thereby indicating evidence of stochastic convergence. Furthermore, we test whether (possibly) slow convergence or the complete lack of it may be the result of structural changes to the deterministics of each of the relative per-capita emissions series by means of the tests of Berkes et al. (Ann Stat 1140–1165, 2006) and Mayoral (Oxford Bull Econ Stat 74(2):278–305, 2012). Our results show relatively weak support for stochastic convergence of \(\hbox {CO}_2\) emissions, indicating that only between 30 and 40% of the countries converge to the OECD average in a stochastic sense. This weak evidence disappears if we enlarge the sample to include 4 out of the 5 BRICS, indicating that our results are not robust to the inclusion of countries which are experiencing rates of growth which are far larger than those of the OECD members. Our results also decisively indicate that a slow or lack of convergence is not the results of a structural break in the relative \(\hbox {CO}_{2}\) emissions series.