Handbook of Environmental Economics PDF
Preview Handbook of Environmental Economics
Handbook of Environmental Economics, Volume 4 Edited by Partha Dasgupta Subhrendu K. Pattanayak V. Kerry Smith North-HollandisanimprintofElsevier Radarweg29,POBox211,1000AEAmsterdam,Netherlands TheBoulevard,LangfordLane,Kidlington,OxfordOX51GB,UnitedKingdom Copyright©2018ElsevierB.V.Allrightsreserved. Nopartofthispublicationmaybereproducedortransmittedinanyformorbyanymeans,electronicor mechanical,includingphotocopying,recording,oranyinformationstorageandretrievalsystem,without permissioninwritingfromthepublisher.Detailsonhowtoseekpermission,furtherinformationaboutthe Publisher’spermissionspoliciesandourarrangementswithorganizationssuchastheCopyrightClearance CenterandtheCopyrightLicensingAgency,canbefoundatourwebsite:www.elsevier.com/permissions. ThisbookandtheindividualcontributionscontainedinitareprotectedundercopyrightbythePublisher(other thanasmaybenotedherein). Notices Knowledgeandbestpracticeinthisfieldareconstantlychanging.Asnewresearchandexperiencebroadenour understanding,changesinresearchmethods,professionalpractices,ormedicaltreatmentmaybecomenecessary. Practitionersandresearchersmustalwaysrelyontheirownexperienceandknowledgeinevaluatingandusing anyinformation,methods,compounds,orexperimentsdescribedherein.Inusingsuchinformationormethods theyshouldbemindfuloftheirownsafetyandthesafetyofothers,includingpartiesforwhomtheyhavea professionalresponsibility. Tothefullestextentofthelaw,neitherthePublishernortheauthors,contributors,oreditors,assumeanyliability foranyinjuryand/ordamagetopersonsorpropertyasamatterofproductsliability,negligenceorotherwise,or fromanyuseoroperationofanymethods,products,instructions,orideascontainedinthematerialherein. LibraryofCongressCataloging-in-PublicationData AcatalogrecordforthisbookisavailablefromtheLibraryofCongress BritishLibraryCataloguing-in-PublicationData AcataloguerecordforthisbookisavailablefromtheBritishLibrary ISBN:978-0-444-53772-0 ForinformationonallNorth-Hollandpublications visitourwebsiteathttps://www.elsevier.com/books-and-journals Publisher:ZoeKruze AcquisitionEditor:JasonMitchell EditorialProjectManager:ShellieBryant ProductionProjectManager:VigneshTamil Designer:MatthewLimbert TypesetbyVTeX Contributors JoshuaK.Abbott ArizonaStateUniversity,SchoolofSustainability,Tempe,AZ,UnitedStatesof America MaximilianAuffhammer UniversityofCalifornia,Berkeley,Berkeley,CA,UnitedStatesofAmerica NBER,Cambridge,MA,UnitedStatesofAmerica WilliamA.Brock UniversityofWisconsin,Madison,WI,UnitedStatesofAmerica UniversityofMissouri,Columbia,MO,UnitedStatesofAmerica OlivierDeschenes UCSantaBarbara,SantaBarbara,CA,UnitedStatesofAmerica IZA,Bonn,Germany NBER,Cambridge,MA,UnitedStatesofAmerica EliP.Fenichel YaleUniversity,SchoolofForestry&EnvironmentalStudies,NewHaven,CT, UnitedStatesofAmerica JohnHassler InstituteforInternationalEconomicStudies(IIES),Stockholm,Sweden CEPR,London,UnitedKingdomofGreatBritainandNorthernIreland GeoffreyHeal ColumbiaUniversity,NewYork,NY,UnitedStatesofAmerica KellyJones DepartmentofHumanDimensionsofNaturalResources,ColoradoState University,FortCollins,CO,UnitedStatesofAmerica MatthewE.Kahn DepartmentofEconomics,UniversityofSouthernCalifornia,LosAngeles,CA, UnitedStatesofAmerica UniversityofCalifornia,Berkeley,Berkeley,CA,UnitedStatesofAmerica AnnKinzig ArizonaStateUniversity,Tempe,AZ,UnitedStatesofAmerica xi xii Contributors PerKrusell InstituteforInternationalEconomicStudies(IIES),Stockholm,Sweden CEPR,London,UnitedKingdomofGreatBritainandNorthernIreland NBER,Cambridge,MA,UnitedStatesofAmerica ErinL.Litzow VancouverSchoolofEconomics,UniversityofBritishColumbia,Vancouver,BC, Canada KyleC.Meng UCSantaBarbara,SantaBarbara,CA,UnitedStatesofAmerica NBER,Cambridge,MA,UnitedStatesofAmerica AntonyMillner GranthamResearchInstitute,LondonSchoolofEconomicsandPolitical Science,London,UnitedKingdomofGreatBritainandNorthernIreland EmilyL.Pakhtigian SanfordSchoolofPublicPolicy,DukeUniversity,Durham,NC,UnitedStatesof America SubhrenduK.Pattanayak SanfordSchoolofPublicPolicy,DukeUniversity,Durham,NC,UnitedStatesof America CharlesPerrings ArizonaStateUniversity,Tempe,AZ,UnitedStatesofAmerica ElizabethJ.Z.Robinson SchoolofAgriculture,Policy,andDevelopment,UniversityofReading,United KingdomofGreatBritainandNorthernIreland ErinO.Sills DepartmentofForestryandEnvironmentalResources,NorthCarolinaState University,Raleigh,NC,UnitedStatesofAmerica ThomasSterner DepartmentofEconomics,UniversityofGothenburg,Gothenburg,Sweden AnastasiosXepapadeas AthensUniversityofEconomicsandBusiness,Athens,Greece UniversityofBologna,Bologna,Italy SeongDoYun MississippiStateUniversity,MississippiState,MS,UnitedStatesofAmerica Introduction to the Series TheaimoftheHandbooksinEconomicsseriesistoproduceHandbooksforvarious branches of economics, each of which is a definitive source, reference, and teach- ingsupplementforusebyprofessionalresearchersandadvancedgraduatestudents. Each Handbook provides self-contained surveys of the current state of a branch of economicsintheformofchapterspreparedbyleadingspecialistsonvariousaspects ofthisbranchofeconomics.Thesesurveyssummarizenotonlyreceivedresultsbut also newer developments, from recent journal articles and discussion papers. Some originalmaterialisalsoincluded,butthemaingoalistoprovidecomprehensiveand accessiblesurveys.TheHandbooksareintendedtoprovidenotonlyusefulreference volumes for professional collections but also possible supplementary readings for advancedcoursesforgraduatestudentsineconomics. KennethJ.Arrow† MichaelD.Intriligator† †Deceased. xiii Preface Overthepast35yearsElsevierhaspublishedsixHandbookssurveyingmanyaspects ofthefieldofresourceandenvironmentaleconomics.Thisserieshashadakeyrole inshapingourunderstandingoftheprogressinthefield.Themostrecentthreevol- umeadditiontoitin2002,byKarlGöranMälerandJeffreyVincentwasorganized into three broad themes – Environmental Degradation and Institutional Responses, ValuingEnvironmentalChanges,andEconomy-WideandInternationalEnvironmen- talIssues–thirtychaptersinall1.Whenthesevolumeswerepreparedtheeditorshad to justify their sustained attention to environmental problems. Indeed, their Preface beginsbyarguingitwouldbeaseriousmistaketoaccepttheviewsofthosenaysayers whowereclaiming,atthetime,thatmostenvironmentalproblemshadbeensolved. The past decade and a half has proved Mäler and Vincent’s answers to the skeptics werecorrect!Wewerejustbeginningtounderstandthefulldimensionsofourenvi- ronmentalproblems. Thepaceoftransformationtoourearth’secosystemseemstobeaccelerating.So itshouldnotbesurprisingtofindthattodayenvironmentaleconomicsisoneofthe mostactiveresearchfieldsineconomics.Wecannotattempttoofferreaderssurvey chaptersthatdocumentallthathasbeenaccomplishedoverthistimeandfortunately we do not need to. There are a growing set of publications that provide literature reviews on a periodic basis. Instead, we propose a different goal. Rather than look backwardoverthenearlytwodecadessinceMälerandVincent’smasterfuloverview, our authors consider topics that highlight where as a field we need to go. In short, theytakeaselectivesamplingofcurrentresearchanduseittohighlightthefrontier questionsforthefuture. This volume has ten chapters after this short Preface. While each is focused on distinctive issues, there are multiple common themes that link them and we will highlight a few here. Climate change is a recurring theme throughout all the chap- ters. As most geologists have argued, it appears the earth’s ecosystem has entered theAnthropoceneepoch,wherehumansarethedominateforceshapinghowfuture scientists will characterize the global changes taking place today. As a result, the issue of the scale of these impacts, of the associated policies, and of the people’s responsestothemarisesinmanychapters.PerringsandKinzig,forexample,inpro- vidingtheiroverviewandassessmentof thepast 40years ofcollaborationbetween ecologists and economists highlight the issue of the scale used in defining ecosys- temsandtheirresilienceaskeyinsightsthathaveshapedsubsequentresearch.Brock andXepapadeas’chapterrecognizesscaleinmultipleways–consideringthespatial 1Twoofushadthegreatopportunitytobeamongtheauthorsofchaptersinthosevolumesandtheother (Pattanayak)hadjuststartedhiscareeratRTIInternational.Asaresultithasbeenespeciallyrewardingto havetheopportunitytorevisittheterrain. xv xvi Preface andtemporaldimensionsthatariseinthemodelingofhowtocoupleeconomicsys- tems with ecosystems. These couplings must capture the dynamic interactions and the feedbacks between these systems. Scale is central to such characterizations. As theysuggest,climatechangeisthe“MotherofallCollectiveActionPrograms”.Con- sistentwiththistheme,SternerandRobinson’schapterreviewingpolicyinstruments recognizes how free riding and global scale can create conflicting institutions that govern public and private actions on a global scale. This point is reinforced by the SillsandJones’argumentsabouttheimportanceofrecognizingtherolesplayedby formalandinformalinstitutions.Whiletheformerismorereadilyrecognized,both can influence measures of the effectiveness of policy interventions. Knowledge of these types of local conditions, together with an appreciation of the potential het- erogeneityintreatment,isessentialforinterpretingestimatesoftheeffectivenessof policy instruments. The bottom line general implication of these arguments for ef- fortstoaddressclimatechangeisthatpolicydesignmustfosterlocaladaptationand globalmitigation–againrecognizinghowscalemattersindifferentwaysforthetwo typesofactivities. Effectivepolicymustalsorecognizetheimportanceoftheissuesindecomposing thetemporalandspatialdimensionsofthephysicalandeconomicmodelsthatBrock andXepapadeas(B&X)describeintheiranalysisofthesecouplings.Thejointeco- nomicandnaturalsystemresponsestoglobalchangecanlead,astheydemonstrate, tosolutionsinvolvingbifurcationsand/ortippingpoints.Anothercomplementaryre- lationshipbetweenchaptersarisesbetweenB&X’sanalysisandtheHassler–Krusell (H&K)chapter.H&Kalsouseclimatechangeasanorganizingfeaturefortheirdis- cussion of what might be termed environmental macro-economics. They highlight theimportanceofageneralequilibriumperspectiveandofrecognizinghowmarket incentivesinteractwiththosecreatedbypolicy.B&Xadoptasocialperspectivethat allowsthemtofocusonhowvaryingthemodelingoftheconnectionsbetweeneco- nomicandnaturalsystemsasconstraintstotheplanneraffectwhatcanbeexpected from the “best” of policies. By contrast, Hassler and Krusell consider how relative pricesinadynamicsettingsignaltheimportanceofpolicyinducedconstraints.Akey insightfromthetwopaperstakentogetherisdescribedbyB&Xas“scalematching” of the benefits and costs of different actions. It is possible with adaptation as a re- sponsetoclimatechangebutnotwithmitigationpolicies. Thecomplexityoftheclimaticchangeimpliesuncertaintyinwhatweknowmust beacknowledgedand,asHealandMillnernote,mustbetreateddifferently.Analysts simply do not know enough to characterize the uncertainty. As a result, applica- tionsofconventionalapproachestodecisionmakingundertheseconditions,suchas expectedutilityanalysis,mustbereconsidered.Theyproposethattheconceptofam- biguitybeintroducedintotheframeworktoreflecthow“uncertaintyaboutthenature oftheuncertainty”canbeintegratedintotheevaluationofpolicydesign.Ambiguity describes the lack of resolution in how to characterize the uncertainty about what isknown.Ifwearepreparedtoassumepolicymakersare“ambiguityaverse”,then byusingaframeworkthatconsidersalltheprobabilitydistributionsconsistentwith a given information set, we can describe how policies should be selected. Within a Preface xvii staticsetting,thesechoiceswouldfavorpoliciesthatoffergreaterresolution,ormore consistency in the outcomes, so ambiguity is reduced. In some cases the choices wouldimplygreaterstringencyintheincentivesforpollutioncontroloversituations wheredecisionsaremadeintheabsenceofthisambiguity.Extensionstoadynamic settinghavebegunandB&Xdescribesomeofthem. Theglobalnatureofclimatechangealsohighlightstheimportanceoftakingac- countoftheequityimplicationsofwhathappensunderbusinessasusualaswellas withalternativepolicies.ThisissueisacommonthemeoftheAuffhammerandKahn (A&K) and Pattanayak, Pakhtigian, and Litzow (PP&L) chapters. A&K emphasize the mechanisms for adaptation and whether they will exacerbate or reduce the im- pact of climate change on the low income householdspredominantlyin developing economies.Theycasttheiranalysisintermsofthedecisioncontextforthe“farmer” in the less developed economy – how each one can adapt given that their current situations yield only a subsistence level of consumption. Current empirical studies provide preliminary answers, but A&K emphasize the need for panel studies with longertimehorizons. PP&Lfocusonalltheenvironmentalrisksthesehouseholdscurrentlyface;what we know about them; and how their current situations will affect their abilities to respond to a changing climate. Policy selection in this context must recognize how resources devoted to private and public adaptation can interact – are they comple- mentsorsubstitutes?Bothchapterspointtothelimitationsinourunderstandingwhen andwhypoliciesworkandwhentheyfail.Incentivesareimportantbutsoalsoisthe cultureandthelevelofeducationoftheselowincomehouseholds.Trustintheperfor- manceandreliabilityofinstitutionsatdifferentscalesclearlymatterstothepotential performanceofpolicies.Unfortunately,wesimplydon’thavetheempiricalinforma- tion to fully describe what we can expect.Both chapters highlight priority research needs. Resolving these information needs would be easier if experiments were possi- ble.Theyarenot.Fortunately,recentadvancesinempiricalmodelingshowpromise and Deschenes and Meng’s chapter provides an ideal window on what we can and cannotexpectfromquasi-experiments.Theirfocus contrastswhathas beenlearned when these methods were applied with private goods versus what is feasible when ourattentionisturnedtolocalpublicgoods.Bydistinguishingtheindividualandthe groupleveleffectsofchangesinapublicgoodtheyidentifythepotentialsourcesof bias in current quasi-experimental methods and offer a strategy for resolving these sourcesofbias.Theyclosewithadiscussionofhownewmethodsofanalysismight cometogripswiththeempiricalchangesforclimatechange.Theyreviewtwostrate- gies. The first considers on small scale studies that focus on outcomes that are not likely to be impacted directly by general equilibrium price changes. In these cases quasi-experimental methods hold the promise of estimating unbiased reduced form effects.Thesecondcallsforaprocessofextractingempiricalhypothesesfromstruc- turalmodelsoflargescaleimpactsandtestingtheimpliedeffectsofclimatechange againstthenullhypothesisofnoeffect.Thisapproachprovidesonemeansofoffering supportthemodel’sdescription.Itisnotnecessarilyatestofthepredictionbutrather xviii Preface astrategyforaccumulatingsupportforthemodel’scharacterizationofclimate’sim- pact.Anotherpotentialareaforextensionrecognizesthepotentialtousethemethods fordetectingcasualstructuresreviewedinSillsandJoneschaptertogetherwiththe strategiesDeschenesandMengdescribeinassessingtheplausibilityofestimatesof climateimpactatdifferentscales. Finally,manyoftheissuesconfrontingenvironmentaleconomicsatthelocal,na- tional,andglobalscalesarisebecausetherearenotmarketmechanismsthatallowus to“keepscore”.DuringtheGreatDepressiontheneedforaggregateinformationon the economy was recognized and today we take for granted the extensive data that resulted. In the U.S., the Department of Commerce, working with the NBER, pro- ducedthefirstsetofinformationonthenationalincomeaccountsandcapitalstock measures in the mid 1930s. Unfortunately, there has not been a comparable effort forenvironmentalresources.Fenichel,Abbott,andYun’schapterdetailwhatwillbe neededbydescribingthetheoryandempiricaldimensionsofdevelopingnaturalcap- italmeasuresforecosystemservices.Theirchapterintegratesmanyoftheconcepts developedthroughoutthisvolume.Byfocusingonthefactorsinfluencingtheshadow valueofnaturalcapitalunderdifferenteconomicprograms–theyhighlighthowinsti- tutionsinfluencewhatwecanobserveaboutthevaluesofecosystemservicesthatare impliedbyourcurrentrulesofaccessandhowpolicymightbedesignedtochange them. Many people contributed to this effort. We want to especially thank our authors for preparing their chapters, for assisting us in the process of assuring all the chap- ters offered accessible descriptions of the research challenges facing environmental and resource economics, and for their patience with us over the long process dur- ing which this volume developed. We would also like to thank our colleagues who alsocontributedtoassuringtheauthorswereawareofresearchcontributionsrelevant to their chapters including Joseph Aldy, Scott Barrett, Maureen Cropper, Gretchen Daily,TatyanaDeryugina,StephanieFried,DavidKaczan,FarazUsmani,andmany otherwhosegeneralcouncilwasespeciallyhelpful.Ourhomeinstitutionsandsup- porting personnel along with Jason Mitchell and the editorial team at Elsevier also assuredoureffortsandthoseofourauthorswouldresultinavolumeconsistentwith thehighstandardsthisseries’pastvolumeshasmaintained. ParthaDasgupta SubhrenduK.Pattanayak V.KerrySmith CHAPTER 1 Modeling coupled climate, ecosystems, and economic systems WilliamA.Brock∗,†,#,AnastasiosXepapadeas‡,§,1,## ∗UniversityofWisconsin,Madison,WI,UnitedStates †UniversityofMissouri,Columbia,MO,UnitedStates ‡AthensUniversityofEconomicsandBusiness,Athens,Greece §UniversityofBologna,Bologna,Italy 1Correspondingauthor:e-mailaddress:[email protected] CONTENTS 1 Introduction ...................................................................................... 2 2 CoupledEcological/EconomicModelingforRobustness................................. 4 2.1 RobustControlMethodsinCoupledEcological/EconomicSystems ....... 7 3 ClimateEconomicswithEmphasisonNewModeling:CarbonBudgetingand Robustness....................................................................................... 11 3.1 CumulativeCarbonBudgetingtoImplementTemperatureLimits.......... 12 3.2 ClimateChangePolicywithMultipleLifetimeforGreenhouseGases..... 21 4 Implementation.................................................................................. 21 5 EnergyBalanceClimateModelsandSpatialTransportPhenomena.................... 23 5.1 SpatialPatternScaling........................................................... 27 5.2 DiscountingforClimateChange................................................. 29 6 SpatialAspectsinEconomic/EcologicalModeling........................................ 32 7 FutureDirections................................................................................ 33 7.1 BottomUpImplementationRatherthanTopDownImplementation ...... 33 #Brock thanks the DMUU: Center for Robust Decision Making on Climate and Energy Policy of the UniversityofChicago(RDCEP)undertheNSFforessentialsupportbothintellectualandfinancial.Brock thanksEvanAnderson,IanFoster,LarsHansen,KenJudd,LizMoyer,AlanSanstad,VictorZhorin,and theRDCEPcommunityformanyconversationsonclimatescienceandeconomicscience.Noneofthe aboveisresponsibleforerrorsorotherproblemswiththisarticle. ##Xepapadeasacknowledgesthatthisresearchhasbeenco-financedbytheEuropeanUnion(European SocialFund–ESF)andGreeknationalfundsthroughtheOperationalProgram“EducationandLifelong Learning”oftheNationalStrategicReferenceFramework(NSRF)–ResearchFundingProgram:“Thalis –AthensUniversityofEconomicsandBusiness–OptimalManagementofDynamicalSystemsofthe EconomyandtheEnvironment.”WewouldliketothankParthaDasguptaandGeoffreyHealforvaluable commentsandsuggestionsonanearlierdraftofthispaper.WewouldliketothankJoanStefanfortechnical editing. HandbookofEnvironmentalEconomics,Volume4,ISSN1574-0099,https://doi.org/10.1016/bs.hesenv.2018.02.001 1 Copyright©2018ElsevierB.V.Allrightsreserved.
The list of books you might like
