Environmental and Energy Economics

April 8 and 9, 2011
Lucas W. Davis of the University of Calfornia, Berkeley and Lawrence H. Goulder of Stanford University, Organizers

Robert Deacon, University of California, Santa Barbara; Dominic Parker, Montana State; and Christopher Costello, University of California, Santa Barbara and NBER
The Efficiency Gains from Coordinating Use of a Shared Resource: Evidence from a Self-Selected Fishery Coop

Deacon, Parker, and Costello analyze a seldom used, but highly promising form of property rights-based management over shared natural resources. In the case they study, the regulator of a fishery assigns one portion of an overall catch quota to a voluntary cooperative of heterogeneous fishermen, with the remainder exploited competitively under the original management regime by those choosing to fish independently. Data from an Alaska commercial salmon fishery confirm the model's key predictions: that the coop would facilitate the consolidation of fishing effort, coordination of harvest activities, sharing of information, and provision of shared infrastructure. The researchers estimate that the resulting rent gains were at least 33 percent. A lawsuit filed by two disgruntled independents led to the coop's demise, an outcome also predicted by this model. The analysis here provides guidance for designing fishery reform that could lead to Pareto improvements for fishermen of all skill levels, which suggests a structure that enables reform without losers.

Yuyu Chen, Peking University; Avraham Ebenstein, Hebrew University of Jerusalem; Michael Greenstone, MIT and NBER; and Hongbin Li, Tsinghua University

The Long-Run Impact of Air Pollution on Life Expectancy: Evidence from China's Huai River Policy

Chen, Ebenstein, Greenstone, and Li exploit an arbitrary Chinese law to provide the first evidence on the impact of sustained exposure to total suspended particulates (TSP) air pollution on life expectancy. During the 1950-80 central planning period, China established free winter heating of homes and offices via the provision of free coal for boilers in cities north of the Huai River as a basic right, but largely denied heat to the South. Using a regression discontinuity design based on distance from the Huai River, the researchers find that in cities to the north, ambient concentrations of TSPs are about 200 Mg/m3 (55 percent) higher and life expectancies are about five years lower. Moreover, the premature mortality is attributable to an increased prevalence of lung-related causes of death. They estimate that long-term exposure to an additional 100 Mg/m3 of TSP is associated with a reduction in life expectancy at birth of about 2.5 years. This estimate is roughly five times larger than the estimated impact of TSPs on life expectancy from the fitting of an ordinary least squares equation.

H. Spencer Banzhaf, Georgia State University and NBER, and B. Andrew Chupp, Illinois State University

Heterogeneous Harm vs. Spatial Spillovers: Environmental Federalism and U.S. Air Pollution (NBER Working Paper No. 15666)

The economics of environmental federalism identifies two book-end departures from the first-best, which equates marginal costs and benefits in all local jurisdictions. Local governments may respond to local conditions, but ignore inter-jurisdictional spillovers. Alternatively, central governments may internalize spillovers, but impose uniform regulations ignoring local heterogeneity. Banzhaf and Chupp provide a simple model that demonstrates that the choice of policy depends crucially on the shape of marginal abatement costs. If marginal costs are increasing and convex, then abatement cost elasticities will tend to be higher around the local policies. This increases the deadweight loss of those policies relative to the centralized policy, ceteris paribus. Using a large simulation model, the authors empirically explore the tradeoffs between local versus second-best uniform policies for U.S. air pollution. They find that U.S. states acting in their own interest lose about 31.5 percent of the potential first-best benefits, whereas the second-best uniform policy loses only 0.2 percent of benefits. The centralized policy outperforms the state policy for two reasons. First, inter-state spillovers are simply more important that inter-state heterogeneity in this application. Second, welfare losses are especially small under the uniform policy because elasticities are much higher over the relevant range of the cost functions.

Michael Anderson, University of California, Berkeley, and Maximilian Auffhammer, University of California, Berkeley and NBER
Vehicle Weight, Highway Safety, and Energy Policy

Heavier vehicles are safer for their own occupants but more hazardous for the occupants of other vehicles. Anderson and Auffhammer estimate the increased probability of fatalities from being hit by a heavier vehicle in a collision. They show that, controlling for own-vehicle weight, being hit by a vehicle that is 1,000 pounds heavier results in a 49 percent increase in the baseline fatality probability. Estimation results further suggest that this risk is even higher if the striking vehicle is a light truck (SUV, pickup truck, or minivan). The authors calculate that a second best gasoline tax, which accounts for the external risk generated by the gain in fleet weight since 1989, is approximately 28 cents per gallon. They further calculate that the total fatality externality is roughly equivalent to a gas tax of $1.04 per gallon. They find that the difference between a gas tax and an optimal weight varying mileage tax is modest for most vehicles.

Stephen P. Holland, University of North Carolina, Greensboro and NBER; Jonathan E. Hughes, University of Colorado, Boulder; Christopher R. Knittel, University of California, Davis and NBER; and Nathan C. Parker, University of California, Davis

Some Inconvenient Truths about Climate Change Policy

Economists often point to Pigouvian taxes and cap-and-trade programs as means of reducing greenhouse gases. In contrast, policymakers have relied on measures that either explicitly or implicitly subsidize low carbon fuels. Holland, Hughes, Knittel, and Parker simulate a transportation-sector cap-and-trade program (CAT) and three policies currently in use: ethanol subsidies, a renewable fuel standard (RFS), and a low carbon fuel standard (LCFS). They confirm that the alternatives to CAT are quite costly: 2.5 to 4.5 times more expensive. Why do these alternative policies persist in spite of their higher costs? This paper shows that the answer lies in the political economy of carbon policy. The authors find that the alternatives to cap-and-trade exhibit a feature making them amenable to adoption: a right-skewed distribution of gains and losses, whereby many counties have small losses, but a smaller share of counties gain considerably, in fact as much as $7,200 per capita per year. The authors correlate their estimates of county- level gains from CAT and the RFS with Congressional voting on the Waxman-Markey cap-and- trade bill, H.R. 2454. Because Waxman-Markey would weaken the RFS, House members likely viewed the two policies as competitors. Increases in a district's CAT gains are associated with increases in the likelihood of voting for Waxman-Markey, while increases in a district's RFS gains are associated with decreases in the likelihood of voting for Waxman-Markey.

Reed Walker, Columbia University

The Transitional Costs of Policy: Evidence from the Clean Air Act and the Workforce

Walker characterizes and estimates the transitional costs of new environmental regulations in terms of costly workforce reallocation. New environmental regulations lead to a rearrangement of production away from polluting industries, and workers in those industries are disproportionately affected. To characterize and estimate the costs incurred by the affected workforce, he draws upon linked worker-firm data in the United States to follow workers over time and across employers, before and after new environmental regulations take place. He exploits panel variation induced by the 1990 Clean Air Act Amendments to estimate the change in earnings and sectoral transition rates for workers in newly regulated firms. Walker finds that the reallocative costs of policy are significant, accounting for more than $9 billion in foregone wages for the six years after the change in policy. Most of these costs are driven by non-employment rather than reductions in worker productivity, and the effects differ quite dramatically by destination sectors. This work highlights the importance of accounting for frictions in the labor market when characterizing the cost and incidence of labor market adjustments.

Hunt Allcott, MIT, and Sendhil Mullainathan, Harvard University and NBER
External Validity and Partner Selection Bias

External validity is an integral part of empirical work and has become a central theme in recent debates over the usefulness of randomized field experiments and the merits of structural versus reduced-form approaches. While there is substantial evidence of the value of experimental relative to non-experimental estimates (for example, Lalonde 1986), there is little quantitative evidence on the external validity of experimental estimates because experiments are rarely implemented in multiple settings. Allcott and Mullainathan exploit a remarkable series of 14 nearly-identical energy conservation field experiments run by a company called OPOWER, involving 550,000 households across the United States. Despite the availability of potentially-promising individual-level covariates, they show that differences in observable characteristics explain very little of the variation in treatment effects across populations. Furthermore, they show that the electric utilities that partner with OPOWER differ systematically on characteristics that are correlated with the treatment effect, providing evidence of a "partner selection bias" that is analogous to biases caused by individual-level selection into treatment. The authors present suggestive but quantitative evidence that partner selection bias may exist in other domains.

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