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new working paper

I have a new working paper which is joint work with Fabien Prieur (see further information below) who just accepted a professor position at the University of Nanterre in Paris, France. Our paper is entitled “[t]he role of conflict for optimal climate and immigration policy”, and we show the following:

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.

You can find the full paper HERE. In a post during the next days I hope to write a more policy-oriented view of this topic.

 

Some information on my co-author:

Fabien Prieur held a professor position at the University of Montpellier but has now accepted a professor position at the University of Nanterre. Fabien also holds a visiting position at Toulouse School of Economics. He is a researcher in environmental and resource economics and has published, among others, in journals such as the European Economic Review, Economic Theory,  and Journal of Economic Dynamics and Control. If you google his images then he is the guy with the beard and glasses, not the one with the gold chain and the beers…

I have a new working paper which clearly shows that a policy maker who evaluates mankind’s well-being would fully favour mitigation over adaptation. In fact, the result is that a policy maker should not invest in adaptation, because this may reduce global well-being significantly.  If you want to know more, please do read on.

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THIS is the currently latest version of the previously entitled paper `An Aggregation Dilemma’. I thank especially Reyer Gerlagh, Humberto Llavador and Gwenaël Piaser for extensive discussions and comments.

Abstract
The results in this paper show that a policy maker who ignores regional data and instead relies on aggregated integrated assessment models will strongly underestimate the carbon price and thus the required climate policy. Using a stylized theoretical model we show that, under the mild and widely-accepted assumptions of asymmetric climate change impacts and declining marginal utility, an Aggregation Dilemma may arise that dwarfs most other policy-relevant aspects in the  climate change cost-benefit analysis. Estimates based on the RICE model (Nordhaus and Boyer 2000) suggest that aggregation leads to around 26% higher total world emissions than those from a regional model. The backstop energy use would be zero in aggregated versions of the model, while it is roughly 1.3% of Gross World Product in the regionally-disaggregated models.
Though the policy recommendations from fully aggregated models like the DICE model are always used as a benchmark for policy making, the results here suggest that this should be done with the reservations raised by the Aggregation Dilemma in mind.

For anyone interested, please feel free to comment.

I am currently working on a project on aggregation issues in integrated assessment models. I noticed that there is what I call an Aggregation Dilemma in these models which can have sizable impacts on climate policy. You can find a preliminary version of the paper HERE.

I would be very happy for comments and discussions. Please also disseminate this paper to interested co-authors.

At the moment I am extending this work to country-level data, so watch out for more news soon.

Abstract:

The results in this paper show that the level of aggregation used in a social welfare function matters significantly for policy analysis. Using climate change as an example, it is shown that, under the mild and widely-accepted assumptions of asymmetric climate change impacts and declining marginal utility, an aggregation dilemma may arise that dwarfs most other policy-relevant aspects in the  climate change cost-benefit analysis. Estimates based on the RICE-99 model (Nordhaus and Boyer, 2000) suggest that aggregation leads to around 26% higher total world emissions than those from a regional model. The backstop energy use would be zero in the model which aggregates consumption in utility, while it would be 1.3% of Gross World Product in a regionally-disaggregated version. In general we observe that richer countries will be required to undertake stronger efforts toward climate policy based on the aggregated utility social welfare function and compared to both the aggregated utility function with Negishi weights and the aggregated consumption function. We propose criteria that may aid in deciding on the level of aggregation one might wish to choose depending on both positive and normative criteria. Though the policy recommendations from fully aggregated models like the DICE model are always used as a benchmark for policy making, the results here suggest that this should be done with the reservations raised by the Aggregation Dilemma in mind.

Thank you for your interest!

In this new working paper I take a shot at trying to understand how agents with optimistic beliefs about environmental disasters/costs interact with agents holding pessimistic beliefs, if those two groups of agents need to decide about the optimal level of prevention expenditure. I analyze this in a static model, in a dynamic one, but also empirically. You can download the paper HERE. Please comment and give thoughts! Thanks!!

Here is the Abstract:

We study how beliefs affect individuals’ willingness to undertake  prevention  expenditure through a  two-type, N-person  public good game and test several results empirically. We show analytically that pessimistic agents will invest more in prevention expenditure than optimists. We should how pessimistic beliefs lead to a `double deprivation’ and discuss potential issues and remedies. The more optimistic the society the lower will be its total green expenditure. We also demonstrate how small differences in beliefs may induce substantial differences in type-related prevention expenditure. The more atomistic agents are the less they will contribute to the public good.

We then use a large international survey to study determinants of prevention expenditure. We proxy beliefs through three variables, namely science optimism, eco optimism and feelings of atomism. For each variable we find, as predicted by the theoretical model, a significant relationship with the willingness to undertake prevention expenditure. However, environmental education shapes these relationships. While environmental education does not affect the relationship between eco optimism and prevention expenditure, it leads to a stronger relationship between both science optimists, and those who feel atomistic, and prevention expenditure.

Finally, we develop a dynamic game with endogenous beliefs based on the static model and discuss the main differences in the optimal choices of the agents. We find that pessimistic agents have a higher prevention expenditure compared to the static case since they take the endogenous feedback of the prevention expenditure on their beliefs into account.

First – a little bit of history on this. In 2012, myself and two very nice co-authors, Luca Marchiori and Jean-Francois Maystadt, published a paper entitled “The impact of weather anomalies on migration in sub-Saharan Africa” in the Journal of Environmental Economics and Management. Some time later, our paper (the previous working paper version, but not much different to the published one) was put under fire in another article (Lilleør and Van den Broeck 2011). This paper suggested that income variability was omitted in our work which would thus bias our results.

We were a little surprised about this, since only our paper was addressed along these lines while clearly any article in this line of literature should also have been criticised long these lines. These critics spiced us up, motivated us to get back to our original work and re-think it with the criticisms that we received in mind. And so that we did. And then we saw the same thought coming up in a first draft of the new IPCC report, page 21 (by the way – read the report it is a nice one).

And now, exclusively for the readers here, we have a new paper discussing whether it makes sense to introduce income variability into these migration frameworks, study its role, and see whether there is really an omitted variable bias in our work or not. Find out about all this and more,  HERE. Enjoy!

Abstract:

It was recently suggested that the role of environmentally-induced income variability as a determinant of migration has been studied little to none. We provide a theoretical discussion and an overview of the empirical literature on this. We also extend a previous empirical study of ours by including income variability. Our findings lead us to acknowledge that income variability is a negligible driver of migration decisions at the macroeconomic level.

UPDATE (25 July 2013): Michael Oppenheimer just contacted us (me and my co-authors) and let us know that in the second draft of the IPCC report the criticism is taken out. Let us note that the critics of Lilleør and Van den Broeck were not wrong ex ante. In my opinion they simply tried to point out that in a microeconomic study the variable income variability was found to be important, while no macroeconomic study had picked up on this.

But if one then thinks more carefully – like we hopefully did in our new working paper – about the reasons for which macroeconomic studies should use income variability (instead of, or in conjunction with, the income level) as a determinant of migration, then the case for income variability seems shaky at most…

So today I present some new work that I did together with my co-author Benteng Zou from the Department of Economics at the University of Luxembourg. We have a previous work together on endogenous preferences and environmental economics, which you can find HERE and download HERE. We have kept interest in the role that endogenous preferences play for the environment, and our current article also studies this particular role. It is entitled “Threshold Preferences and the Environment“. What do we do? Here is the abstract:

In this article we study the implication of thresholds in preferences. To model this we extend the basic model of John and Pecchenino (1994) by allowing the current level of environmental quality to have a discrete impact on how an agent trades off future consumption and environmental quality. In other words, we endogenize the semi-elasticity of utility based on a step function. We motivate the existence of the threshold based on research from political science, from arguments based on regulation and standards, cultural economics as well as ecological economics.

Our results are that the location of the threshold determines both the potential steady states as well as the dynamics. For low (high) thresholds,  environmental quality converges to a low (high) steady state. For intermediate levels it converges to a stable p-cycle, with environmental quality being asymptotically bounded below and above by the low and high steady state. We discuss implications for intergenerational equity and policy making.

As policy implications  we study shifts in the threshold. Our results are that, in case it is costless to shift the threshold, it is always worthwhile to do so. If it is costly to change the threshold, then it is worthwhile to change the threshold if the threshold originally was sufficiently low. Lump-sum taxes may lead to a  development trap and should be avoided if there are uncertainties about the threshold or the effectiveness of the policy.

If you are interested, you can download our new paper HERE. Please feel free to think, discuss and comment, openly or privately. We are happy about any discussion. Enjoy!

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