Pollution Havens, Endogenous Environmental Policy, and Foreign Direct Investment
(with P. Missios and H.M. Yildiz)
Southern Economic Journal, 82(1), July 2015, 257-284
Abstract: In an increasingly integrated world economy, countries may have greater incentives to weaken environmental policy as disguised protection intended to give a competitive edge to local firms. This may generate pollution havens as firms relocate in response to different environmental policies. Foreign direct investment (FDI) weakens profit-shifting policy considerations while increasing environmental damages but, at the same time, may provide external benefits. We derive conditions under which the FDI-recipient country has an incentive to manipulate its environmental standard to prevent or attract FDI, potentially eliminating or creating pollution havens, in addition to examining the impact of FDI on the equilibrium state of the environment.
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Inter-regional Competition, Comparative Advantage, and Environmental Federalism
(with P. Missios and H.M. Yildiz)
Canadian Journal of Economics, 47(3), August 2014, 905-952
Abstract: In this paper, we compare endogenous environmental policy setting with centralized and decentralized governments when regions have comparative advantages in different polluting goods. We develop a two-region, two-good model with inter-regional environmental damages and perfect competition in product markets, where both regions produce both goods. Despite positive spillovers of pollution across regions, the model predicts that decentralization may lead to weaker or stricter environmental standards or taxes, depending on the degree of regional comparative advantage and the extent of transboundary pollution. This suggests that federalism can lead to either a "race to the bottom" or a "race to the top," without relying on inefficient lobbying efforts or capital competition.
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Pricing of Drugs with Heterogeneous Health Insurance Coverage
(with P. Missios)
Journal of Health Economics, 31(2), March 2012, 440-456
Abstract: In this paper, we examine the role of insurance coverage in explaining the generic competition paradox in a two-stage game involving a single producer of brand-name drugs and n quantity-competing producers of generic drugs. Independently of brand loyalty, which some studies rely upon to explain the paradox, we show that heterogeneity in insurance coverage may result in higher prices of brand-name drugs following generic entry. With market segmentation based on insurance coverage present in both the pre- and post-entry stages, the paradox can arise when the two types of drugs are highly substitutable and the market is quite profitable but does not have to arise when the two types of drugs are highly differentiated. However, with market segmentation occurring only after generic entry, the paradox can arise when the two types of drugs are weakly substitutable, provided, however, that the industry is not very profitable. In both cases, that is, when market segmentation is present in the pre-entry stage and when it is not, the paradox becomes more likely to arise as the market expands and/or insurance companies decrease deductibles applied on the purchase of generic drugs.
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A Cross-Country Study of Household Waste Prevention and Recycling: Assessing the Effectiveness of Policy Instruments
(with P. Missios)
Land Economics, 88(4), November 2012, 710-744
Abstract: With worldwide concern for how and where to dispose of household waste, policy makers are increasingly looking for tools to efficiently and effectively reduce the amount of waste households produce. Using a comprehensive household-level data set involving 10,251 respondents from a cross section of 10 countries (Australia, Canada, Czech Republic, France, Italy, Korea, Mexico, Netherlands, Norway, and Sweden), we examine waste policy, recycling behavior, and waste prevention. Unlike previous work, we empirically make comparisons across countries, incorporate attitudinal characteristics and a wide range of policy instruments, and allow for interdependence of decisions about recycling different materials.
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Illegal Disposal and Waste Collection Frequency
Pacific Economic Review, 16(2), 2011, 255-266
Abstract: A model of household refuse production is presented in which the implications of the presence of dumping incentives for the public choice of garbage collection frequency under a user fee system are analysed. Insofar as governments wishing to balance their waste collection service budgets can set the marginal benefit of collecting garbage equal to its marginal cost, no externality arises through pick-up frequency. However, when the expected punishment for dumping is zero or independent of its extent, the public provision of refuse collection frequency turns out to be negatively affected by the amount of garbage that individuals dump and, therefore, intervention in the management of household waste is required. The optimal policy is found to consist of taxes on consumption goods and subsidies for curbside (or legal) disposal and recycling that are directly linked to collection costs.
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Trading Rules and the Environment: Does Equal Treatment Lead to a Cleaner World?
(with P. Missios and H.M. Yildiz)
Journal of Environmental Economics and Management, 58(2), September 2009, 206-225
Abstract: In this paper, we consider a three-stage game in the context of a competing exporters model to compare and contrast the effects of discriminatory and uniform (Most Favored Nation, MFN) tariffs on countries' choice over environmental standards for varying degrees of pollution spillovers. Because of the presence of punishment effects and stronger own and cross-tariff effects, we find that discrimination yields higher standards than MFN (and free trade) independently of the extent of pollution spillovers. When pollution is local and incentives to free ride on other countries' abatement efforts are weak, we show, however, that welfare is larger under MFN than under discrimination. In a dynamic setting, we consider the impact of symmetric and asymmetric treatments on the sustainability of an international environmental agreement (IEA) and obtain that multilateral cooperation is easier to sustain under discrimination than under MFN (or free trade).
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Can Health Insurance Coverage Explain the Generic Competition Paradox?
(with Y. Kong)
Economics Letters, 101, 2008, 48-52
Abstract: In the context of a three-stage model with consumers differing in their health insurance coverage, the paper shows that there exist conditions under which the price of brand-name drugs increases following the entry of generic drugs.
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Illegal Disposal of Commercial Solid Waste: A Dynamic Analysis
Atlantic Economic Journal, 36(2), June 2008, 211-232
Abstract: This paper is concerned with the waste stock externality associated with production decisions when garbage collection services are financed by means of user charges and illegal disposal is a viable option to firms. As waste accumulates over time, providing disutility not only to present generations but also to future generations by negatively affecting environmental quality, the private and social production choices are compared in the context of a dynamic (intertemporal) model. The inclusion of the dynamics of the waste stock, which translates into a function describing how the deterioration of environmental quality over time is linked to waste production as well as disposal mix (recycling, curbside disposal, and illegal disposal), enables the design of dynamic Pareto-efficient incentive mechanisms for optimal waste production and management.
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Automobile Quality Choice under Pollution Control Regulation
Environmental and Resource Economics, 38(3), November 2007, 353-372
Abstract: In this paper, we develop a modified quality choice model to study the effects of various mobile-source air pollution control regulations. We have a single producer that supplies a fixed number of car types (two) but faces a spectrum of consumers differing in their valuation of car quality. The car manufacturer chooses the quality levels of the two car types as well as the sales mix between the two types and the size of the market it wishes to supply. By endogenizing both the sales mix and the market size, while still allowing quality to be a choice variable, we are able to more completely analyze the impact of any car pollution control regulation. Existing studies of this impact either focus on the model line adjustment response (shifts in the quality array) or on the price adjustment response (changes in the sales mix and market size). In allowing for both the model line and the price adjustment options, we find that the corporate average fuel efficiency (CAFE) standard is unambiguously welfare superior to the low-emission vehicle quantity constraint (LEV) and zero-emission vehicle (ZEV) programs. We also show that the effects of the CAFE standard are not equivalent to those of a fuel tax, as previously found, and that, for a given car pollution target, the former is preferred to the latter.
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Local Willingness-to-Pay Estimates for the Remediation of the Sydney Tar Ponds in Nova Scotia
(with S. McComb and P. Missios)
Canadian Public Policy, 33(4), 2007, 441-458
Abstract: The Sydney Tar Ponds and Coke Ovens site in Nova Scotia, Canada, is among the most toxic hazardous waste sites in North America. This study presents hedonic estimates of the willingness-to-pay for remediation of the site using housing sales data from urban Sydney. Negative impacts are estimated with a maximum likelihood spatial autoregressive model of property values. Premiums on homes farther from the site are found to be substantial, and, when aggregated into a community willingness-to-pay measure ($169.2 million), cover a large proportion of the estimated remediation costs.
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Recycling and Waste Diversion Effectiveness: Evidence from Canada
(with P. Missios)
Environmental and Resource Economics, 30(2), February 2005, 221-238
Abstract: In this paper, we investigate the relationship between recycling policy options and recycling behavior to study the most effective methods of diverting post-consumer waste from landfills. We employ data from a unique, micro-data set collected from households in communities across Ontario, Canada. We estimate the relationships between several commonly recycled materials (newsprint, glass, plastics, aluminum cans, tin cans, cardboard, and toxic chemicals) and individual household characteristics, recycling program attributes, and garbage collection financing methods. We find that user fees on garbage collection have significant impacts on recycling levels for all materials except toxic chemicals, and mandatory recycling programs on particular items have significant effects on recycling for almost all materials. Limits on the amount of garbage that can be placed at the curb, and providing free units under user fee systems, however, generally have a negligible or detrimental impact on recycling.
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Differential Provision of Solid Waste Collection Services in the Presence of Heterogeneous Households
Environmental and Resource Economics, 26(2), October 2003, 211-226
Abstract: A model of household refuse production is presented in which individuals differ in their distaste for the waste stock and the supply of waste collection services is continuous in pick-up frequency. The inclusion of pick-up frequency into household solid waste management analyses has already been shown to have policy implications. In fact, even in the absence of the waste stock externality, a system of uniform consumption taxes and legal (or curbside) disposal and recycling subsidies has been found to be necessary (and sufficient) to induce households to socially optimally allocate their resources when illegal disposal (or simply dumping) incentives exist but a per unit punishment system for dumping is lacking. This policy is here concluded to be no longer feasible; instead, a system of differential consumption taxes and recycling subsidies and uniform legal disposal subsidies is found to be optimal (but possibly nonimplementable). In the presence of heterogeneous households, which are however identifiable on the basis of their relative location to the landfill site, an optimal and implementable policy is then shown to require a differential provision of collection services.
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Refillable versus Non-Refillable Containers: The Impact of Regulatory Measures on Packaging Mix and Quality Choices
(with C. Plourde)
Resources Policy, 29, 2003, 1-13
Abstract: With the continually declining percentage of soft drink sales in refillable bottles in favour of cans and PET bottles, despite a growing soft drink market, governments have become increasingly concerned about the alleged more environmentally harmful impacts of throw-away convenience packaging and tried to enact policies to induce consumers to switch to refillable glass bottles. In many cases, fully or partially refundable deposits have been opted for to provide consumers with the incentive to properly dispose of packaging, but not to switch between different container types, and thus, they may not constitute the most desirable solution. The effects of various regulatory measures on produceers' choices of packaging quality and mix in the presence of consumers with differing demand intensities are therefore analyzed to discern the least distortionary alternative.
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Effective Speed Enforcement and Photo Radar: Evidence from Australia
(with P. Missios)
International Journal of Transport Economics, 28(3), October 2001, 373-385
Abstract: Photo radar, or an automatic camera-equipped traffic monitoring device, is designed to reduce speeding by increasing the likelihood of catching drivers going over a predetermined speed limit. However, it can be limited in certain circumstances by the inability to identify the driver. This paper examines the effectiveness of photo radar in reducing road fatalities and collisions. A simplified driver-choice model is provided to demonstrate the effects of photo radar on speeding when the driver can be identified and demerit points given, and when the vehicle owner is given a monetary fine alone. Empirical analysis using raw data from Victoria, Australia, and controlling for other factors such as weather conditions and drunk driving, suggests that photo radar reduces traffic fatalities, injuries and collisions in the situation where demerit points are applied to speeding offences.
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Non-Use Values and the Management of Transboundary Renewable Resources
(with P. Missios)
Ecological Economics, 25, 1998, 281-289
Abstract: It has long been recognized in economics that individuals can derive benefits from a resource stock without directly or indirectly utilizing that resource. Such non-use values, including existence values and bequest values, are often ignored in models of resource management. In this paper, a simple, two-country model of the management of a renewable resource is developed in which at least one country has a non-economic interest in the conservation of the fish stock to examine the impact of such a non-use value on the end-of-period harvest and self-enforcing sharing rule. The model shows that this non-lucrative pursuit serves to decrease the total allowable catch for each period at the expense of the catch share of the more conservation-oriented country, a result that is consistent with the September 1995 decision by NAFO ending the dispute between Canada and the EU over turbot.
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Transboundary Renewable Resource Management: A Dynamic Game with Differing Non-Cooperative Payoffs
(with P. Missios)
Marine Resource Economics, 11(4), Fall 1996, 239-245
Abstract: Recent conflicts over fish stocks, such as salmon and turbot, have revived public interest in the optimal management of transboundary renewable natural resources. Given that enforcement of binding contracts is often a major obstacle, dynamically consistent or self-enforcing contracting, as proposed by Vislie (1987), must be relied upon. A more general model is developed which recognizes that, in the absence of a cooperative agreement, two countries may enjoy differing economic payoffs. The predictions of the model are consistent with, and provide insights into, the particulars of recent disputes.
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