I have a new working paper, co-authored with Guy Meunier from INRA in Paris, with the long but clear title “The importance of considering optimal government policy when social norms matter for the private provision of public goods“. In the social norms literature that is concerned with the private provision of public goods we always see some arguments for policy interventions. However, these policy interventions are introduced as an exogenous tool void of any welfare analysis. As a result of these exogenous policies the literature focused on whether these policies crowd out or crowd in private contributions. Much of the experimental literature has thus focused also on crowding in our crowding out. Even the fashionable topic of nudging is concerned with this. However, it should be clear that the usefulness of a policy should not be measured based on whether or not a policy crowds in or out private contributions. Instead, the yardstick should be a question of optimality – in some cases a policy maker may want to crowd in contributions, in others (s)he may crowd out contributions. As long as we know that the policy choice is an optimal one, then we frankly shouldn’t care whether or not there is crowding in or out! This is the starting point for our paper.

In the paper we develop quite a few results, but one of the most important ones is that an optimal policy not necessarily induces the full contribution equilibrium, even if that full contribution equilibrium is otherwise welfare maximizing. Thus, we show that the original argument used in the literature, namely that a policy should induce the full contribution equilibrium, is not correct once one takes an optimal policy into account. This, obviously, has many implications for policy interventions when social norms and public goods interact. We also discuss social traps, government debt, path dependency, multiplicity of equilibria and the importance of parameter stability.

The abstract:

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.

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

Enjoy reading the paper, and comments are obviously warmly welcome!

 

Some information on my co-author: Guy Meunier is a Senior Research Fellow at the French Agricultural Research Institute (INRA), and belongs to the Food and Social Sciences Unit (ALISS). He is an Associated Researcher at the Department of Economics of the Ecole Polytechnique, Paris, and a member of the steering committee of the Chair Energy & Prosperity. His articles have been published, among many others, in the Journal of Public Economic Theory, Journal of Environmental Economics and Management, Resource and Energy Economics, and the Review of Industrial Organization.

 

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Together with a co-author of mine, Martin Henseler from the Universite du Havre, France, I have a new working paper entitled “The impact of temperature on production factors”. We believe that the results significantly update previous studies on the impact of climatic variables on production factors and GDP growth and help policy makers to more clearly understand which impacts from climatic changes are likely to matter most in the future. Furthermore, these results should help to more carefully calibrate the damage functions in integrated assessment models.

Here is the abstract:

In a recent econometric study Burke et al. (2015) find that temperature affects economic growth non-linearly. We extend their analysis by investigating the influence of temperature on the main components of production, namely total factor productivity, capital stock and employment. Our panel dataset includes observations on 103 countries for the period 1961-2010. We confirm Burke et al. (2015) assumption that the main impacts of temperature arise in total factor productivity, which is significantly negatively affected for high levels of temperature. Neither capital nor employment seem to be affected by temperature. However, we find that temperature impacts rich and poor differently, with the poor being significantly more strongly impacted for higher temperature levels. These results hold across all components of production. We find these results to be robust across different cutoff points dividing the rich and poor samples, continue to hold if we use temperature anomaly instead of temperature, and also apply for further robustness exercises. The findings provide empirical evidence for negative impacts of temperature on poor countries and support the political and scientific discussions of mitigation policies and climate change impacts.

Here is the link to the paper

MSWI_AUSSENANSICHT_160502011.9d093f46.fill-1800x600On the 4th of May 2017 I will be speaking as a panelist at the `Dialog on Deck‘ on the MS Wissenschaft in Trier. The topic will be economic and political aspects to local as well as global means by which climate change can be curtailed. The other panelists are Prof. Dr. Antje Bruns, expert for sustainable development and climate change, University of Trier; Prof. Dr. Günther Heinemann, Polar- und climate scientist, University of Trier; Dr. Dietmar Kraft, climate expert and consultant, Trier; everything being moderated by Martin Schmitt from SWR. This event is organized by the German Ministry of Education and Research.

The main idea behind this panel is to have a deep exchange with the general public. So, if you are interested, please feel free to attend and ask questions. You will find us in Trier, on the 4th May 2017, 18.00-19.30, at Zurlaubener Ufer, Anleger Kaiser-Wilhelm-Brücke, Viking River Cruises. The overall language will be German.

In a recent piece entitled “Our Climate Future Is Actually Our Climate Present” (April 19, 2017) the New York Times discusses what Benteng Zou and myself in an article published in the Journal of Environmental Economics and Management in 2008 called Pollution Perception. We argued that individuals perceive pollution to differ from its actual level because ” consecutive generations are not truly aware of, or cannot fully relate to, the environment as it was a generation ago.” We argued that this not only leads to higher levels of pollution and lower welfare, but also that it poses problems for the most commonly used measures of intergenerational equity.

Interestingly, a psychologist had already defined this concept earlier than us, and we were unfortunately not aware of this. This shows how little interaction there is among different academic disciplines sometimes. Peter Kahn, a Psychology Professor from Washington, called this “environmental generational amnesia.”

What the NYtimes article emphasized was that “”it’s possible to adapt and diminish the quality of human life.” Adapting to avoid or cope with the suffering wrought by climate change might gradually create other suffering.” This is quite interesting and a valid point that we did not study. For example, increased carbon emissions will lead to more heat death due to warmer climates, but it could also trigger large scale shifts in ecosystems which would result from e.g. a change in the Thermohauline Circulation. If we can mentally adapt to warmer temperatures, which would arise from a change in pollution perception, then we may be less inclined to lower our carbon emissions and thereby make the shifts in the ecosystems more likely. Thus, in a sense, a limited pollution perception or environmental amnesia implies a decrease in the social cost of carbon and, while it may be argued to be an adaptation mechanism, it can have unwanted side effects.

The other point is obviously whether or not we want our future generations to adapt to a worsened environment. For example, a variety of studies “found that the reported happiness of people who lost a body part was only marginally lower than the reported happiness of population means. Therefore, people are simply able to learn to live with certain health problems.” Nevertheless, forcing our future generations to adapt to a worsened environment decreases their menu of choice, which in turn is likely to decrease their capabilities or opportunities. And if we believe philosophers like Amartya Sen, then precisely these are  to be maximized.

Together with Cees Withagen and Eric Strobl I organized the IPAG Workshop New Challenges in Environmental Economics 2017, which we held on the 4th and 5th of April 2017 in Paris and which was financed by IPAG Business School. We were really happy to have an impressive line-up of speakers, with a good mix of theory, empirical and experimental papers.

For those interested here is the Programme. This will be a recurring event at IPAG so keep your eyes open!

We would be very grateful if you can distribute this call to anyone interested. Thank you!

We warmly invite you to submit your paper for presentation in the Subconference in Environmental Economics, organized by Ingmar Schumacher (IPAG Business School) and Eric Strobl (AMSE, Aix-Marseille School of Economics and IPAG Business School) and Cees Withagen (IPAG Business School & VU University Amsterdam) at the 8th International Research Meeting in Business and Management that will take place on 5-6 July 2017 in Nice, France.

Submission deadline (full paper) April 2, 2017

We welcome both theoretical and empirical contributions on environmental economics and resource and energy economics, with emphasis on climate change economics; green growth; welfare, discounting and sustainable development; uncertainty and irreversibilities in dynamic resource use; the nexus between population, economic growth and the environment; environmental policy; empirical studies that focus on economic aspects of the environment.

We are very happy to announce that the keynote lectures will be held by Kjell Arne Brekke, University of Oslo, Norway and Lint Barrage, Brown University, United States.

Only papers in English are considered. They must be submitted electronically at http://ipag-irm.sciencesconf.org/. Please choose the Topic Subconference in Environmental Economics.

 

IMPORTANT DATES

Submission deadline (full paper) April 2, 2017
Notification of review results May 2, 2017
Registration deadline June 5, 2017
Conference event July 5-6, 2017

More information

On Sunday 5th March there is the deadline for submissions to the ISEFI conference, organized by IPAG Business School in Paris, to be held 22-23 May 2017. Eric Strobl, Cees Withagen and myself are organizing the environmental economics half of that conference, while the rest of the conference will focus on energy and finance. Keynote speakers are Amy Myers Jaffe and Richard S.J. Tol. You can find more information and submission guidelines here: https://isefi.sciencesconf.org/   Please do consider presenting your article if you feel you have a nice contribution to environmental economics that you would like to share with us.

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