2024.09 A local versus global descriptive social norm: A DCE applied to waste sorting behavior in Phnom Penh, Cambodia

Lucie Point – Pierre-Alexandre Mahieu

Abstract

2024.08 The dynamics of fertility under environmental concerns

Paolo Melindi-Ghidi –Thomas Seegmuller

Abstract

2024.07 Revisiting the resource curse: Does volatility matter?

Yassine Kirat

Abstract

2024.06 Les déterminants des distances domicile-travail : cas des aires urbaines françaises métropolitaines

Romain Gaté – Mohamed Hilal

Abstract

2024.05 Does the the EU-ETS affect the firm’s capital structure? Evidence from French manufacturing firms

Pascale Combes Motel – Aimé Okoko – Sonia Schwartz

Abstract

2024.04 Urban Foodprint and Mitigation Strategies: A Theoretical Analysis

Charles Bee-Leroux – Dorothée Brécard -Frédéric Aprahamian

Abstract

The aim of this paper is to investigate the effect of introducing a local label on consumers’ preferences for sustainable labels. The recent literature shows the interest of firms and consumers for labelling schemes. This success is a proof of the increasing sensitivity of consumers to the sustainable market. The other side of the coin is the proliferation of labels which generates confusion in consumers’ choices and leads to mistrust, reducing the visibility of the quality that labels have to guarantee. Labelling has to be like a milestone that guide consumers in their choices, but the multiplication of labels erases this role. Nevertheless, labelling remains one of the main policy tools for sustainable development, especially in the
agri-food sector, so it is necessary to remain cautious with new labelling project. Using data from a survey of more than 900 seafood consumers in the Region Sud of France, we analyze their preferences between a local label, a health label, an eco-label, and a fair-trade label, using a ranking method. The aim is to understand how the new regional seafood certificate created by the Region Sud might exacerbate consumers’ difficulties in correctly distinguishing between the different labels. Using a rank-ordered model, we show that the “health” label, which remains the preferred label for a large proportion of consumers, is clearly distinguishable from the other three labels. On the other hand, the presence of a local label creates some confusion among consumers with respect to the eco-label and the fair trade label, which it tends to replace. We conclude that the introduction of this new label promoting regional fishing will create more confusion.

Published in Economica (2022), 89, 997–1023.

Christian Gollier – Sébastien Pouget

Abstract
Socially responsible investors constitute an important force in today’s global financial markets. This paper examines conditions under which socially responsible investors induce companies to behave responsibly. We develop an asset pricing model in which some shareholders are active owners, i.e., they engage companies by voting on strategic decisions. Differences of objective among shareholders arise because socially responsible investors value corporate externalities. In our baseline model, we show that a firm may choose a responsible strategy, even if the majority of investors are not responsible. We also demonstrate that such choice of a responsible strategy might be fragile because it might depend on investors’ self-fulfilling beliefs. We then extend our baseline model to analyse the link between divestment and engagement strategies, the case with multiple firms, the role of benefit corporation charters and the impact of a large investor.

WP 2021.14 Limites à la croissance et destruction créatrice dans le cadre d’un modèle à générations de capital

Published in Revue Francophone du Développement Durable (2021), 18, 1-18.

Marc Germain

Abstract
This paper studies the path of a resource-constrained economy in an original vintage capital growth model involving a Schumpeterian process of creative destruction.
The path of the economy is characterized by three successive phases: (i) unsustainable « high » growth; (ii) after a peak, a deep and brutal decline; (iii) slower growth gradually leading to equilibrium. The slowdown and reversal of the economy are due to the continuous rise in the cost of exploiting the resource, which occurs despite technical progress due to the creative destruction process.
This process also has a non-monotonic trajectory, in particular its destruction component behind the economic obsolescence of equipment. The latter evolves in the opposite direction to production, in contradiction with the widespread assumption of a constant capital depreciation rate.

WP 2021.13 How can ports act to reduce underwater noise from shipping? Identifying effective management frameworks

Published in Marine Pollution Bulletin (2022), 174, 113136.

Laura Recuero Virto – Hervé Dumez – Carlos Romero – Denis Bailly

Abstract
Through a survey and interviews with representative stakeholders, this paper aims to find mechanisms to align commercial interests with underwater noise reductions from commercial shipping. While acknowledging the wide variations in ports’ specificities, port actions could support a reduction in underwater noise emissions from commercial shipping through changes in hull, propeller and engine design, and through operational measures associated with reduced speed, change of route and travel in convoy. Though the impact of underwater noise emissions on marine fauna is increasingly shown to be serious and wide-spread, there is uncertainty in the mechanisms, the contexts, and the levels which should lead to action, requiring precautionary management. Vessels owners are already dealing with significant investment and operating costs to comply with fuel, ballast water, NOx and CO2 requirements. To be successful, underwater noise programs must align with these factors.

Ports could propose actions such as discounted port fees and reduced ship waiting times at ports, both depending on underwater noise performance. Cooperation between ports to scale up actions through environmental indexes and classification societies’ notations, and integration with other ports’ actions could help support this. However, few vessels know their underwater noise baseline as there are very few hydrophone stations, and measurement methodologies are not standardized. Costs increase and availability decreases dramatically if the vessel buyer wants to improve the noise profile. Local demands regarding airborne noise close to airports boosted global pressure on the aviation industry to adopt existing quieting technology. This experience of the aviation noise control could inform the underwater noise process. Since 2017, the Vancouver Fraser Port Authority has been implementing a voluntary vessel slowdown trial for commercial vessels in key known foraging areas for southern resident killer whales, which are locally considered an emblematic species.

WP 2021.12 Sectoral, resource and carbon impacts of increased paper and cardboard recycling

Published in  Environmental Modeling & Assessment (2023), 28: 189–200

Etienne Lorang – Antonello Lobianco – Philippe Delacote

Abstract
Recycling is emerging as an alternative to extraction in many industries and one of the corner stones of the circular economy. In this paper, we assess the role of paper and cardboard recycling on the forest sector, both from an economic and carbon perspective. For that purpose, we model this recycling industry within our forest sec- tor model, in order to relate it to other wood products. As the forest sector has an important potential for climate change mitigation, this model allows us to assess the effects on the resource and the carbon balance of the forest sector. We show that these results are strongly linked to the hypothesis of substitution or complementarity between recycled and wood-pulp.

WP 2021.11 Price incentives and unmonitored deforestation: Evidence from Indonesian palm oil mills

Valentin Guye – Sebastian Kraus

Abstract
We create a novel, spatially explicit microeconomic panel of Indonesian palm oil mills, to provide the first estimates of deforestation price elasticities based on observations of the actual prices paid at mill gates. To identify the price elasticity, we spatially model how deforestation in upstream plantations is exposed to downstream, conditionally exogenous, shocks on mill-gate prices. We provide the first evidence that deforestation for smallholder plantations, and illegal deforestation, are price elastic. This implies that a price instrument can disincentivize deforestation where it is most difficult to monitor, and contain leakages from conservation regulations.

WP 2021.10 Technological progress and carbon price formation: an analysis of EU-ETS plants

Marc Baudry – Anouk Faure

Abstract
This study investigates the nature of technological progress in six manufacturing industries covered under the EU-ETS, plus the power sector, and its effect on carbon price formation using marginal abatement cost curves. We adopt a technological frontier framework that we calibrate to input and output data at the plant level from 2013 to 2017, with a directional distance function approach. Our results reveal that most of the time, technological progress resulted in inflating baseline emissions, despite decreasing the carbon intensity of production. In our sample industries, technological progress therefore leads to increase abatement efforts, raising the equilibrium price of carbon.

WP 2021.09 Decomposing weather impacts on crop profits: the role of agrochemical input adjustments

Published in American Journal of Agricultural Economics (2023): 1-31 under the title “Structural Identification of Weather Impacts on Crop Yields: Disentangling Agronomic from Adaptation Effects”

François Bareille – Raja Chakir

Abstract
The costs of climate change borne by agriculture are critically dependent on farmers’ adaptation. In this paper, we investigate how farmers adjust their input mix in response to weather fluctuations during the growing season using individual panel data from Meuse (France) between 2006 and 2012. Specifically, we consider weather and price information to estimate structural models of profit-maximizing farmers with crop-specific yields and input-crop-specific demand functions, conditionally on farm and annual fixed effects. The results show that weather fluctu-ations affect crop yields but that farmers adapt their fertilizer and pesticide applications. We use our estimates to simulate the impacts of a climate change scenario: we show that farmers in Meuse would increase fertilizer applications by 2.60% but reduce pesticide applications by6.92% under an RCP 4.5 scenario in 2050. These adjustments limit the negative direct impacts of climate change on plant growth, though heterogeneously among crops. In total, the added value of the agricultural sector is likely to reduce by 3.02%. Society could benefit from adaptation as the reduction in damage due to agrochemicals’ negative externalities represents twice the market costs borne by the agricultural sector.

WP 2021.08 The impact of income inequality on public environmental expenditure with green consumerism

New version – November 2023

Lesly Cassin – Paolo Melindi-Ghidi – Fabien Prieur

Abstract
This article analyzes the impact of income inequality on environmental policy in the presence of green consumers. We first develop a model with two main ingredients: citizens, with different income capacities, have access to two commodities whose consumption differs in terms of price and environmental impact, and they vote on the environmental policy. In this setting, there exists a unique political equilibrium in which the population is split into two groups, that differ in the type of good, conventional vs. green, they consume. The analysis shows that a change in the level of inequality induces variations in both the size and composition of these two groups of citizens. This in turn determines whether or not more inequality stimulates the public policy. We then conduct an empirical investigation on a panel of European countries over the period 1996-2019. We find the existence of an inverted J-shape relationship between inequality and public environmental spending. This outcome can be explained by the combination of a composition effect, affecting the green group, and a substitution effect between private green consumption and public environmental spending.

WP 2021.07 Tackling Transport-Induced Pollution in Cities: A Case Study in Paris

Marion Leroutier – Philippe Quirion

Abstract
Urban road transport is an important source of local pollution and CO₂ emissions. To tackle these externalities, it is crucial to understand who contributes to emissions today and what are the alternatives to high-emission trips. We estimate individual contributions to transport-induced emissions, by bringing together data from a travel demand survey in the Paris area and emission factor data for local pollutants and CO₂. We document high inequalities in emissions, with the top 20% of emitters contributing 75-85% of emissions on a representative weekday, depending on the pollutant. Top emissions result from a combination of high distances travelled, a high reliance on car and, mainly for local pollutants, a higher emission intensity of cars. We estimate with counterfactual travel times that 53% of current car drives could be shifted to electric bikes or public transport with a limited time increase. This would reduce the emissions from daily mobility by 19-21%, with corresponding annual health and climate benefits of around €245m.

WP 2021.06 The Environmental Unsustainability of Pubic Debt: Non-Renewable Resources, Public Finances Stabilization and Growth

Nicolas Clootens – Francesco Magris

Abstract
This paper introduces a public debt stabilization constraint in an overlapping generation model in which non-renewable resources constitute a necessary input in the production function and belong to agents. It shows that stabilization of public debt at high level (as share of capital) may prevent the existence of a sustainable development path. Public debt thus appears as a threat to sustainable development. It also shows that higher public debt-to-capital ratios (and public expenditures-to-capital ones) are associated with lower growth. Two transmission channels are identified. As usual, public debt crowds out capital accumulation. In addition, public debt tends to increase resource use which reduces the rate of growth. We also analyze the dynamics and we show that the economy is characterized by saddle path stability. Finally, we show that the public debt-to-capital ratio may be calibrated to implement the social planner optimal allocation.

WP 2021.05 Should we fear transition risks? A review of the applied literature

Louis Daumas

Abstract
The transition to a low-carbon economy will entail sweeping transformations of energy and economic systems. To such an extent that a growing literature has been worrying about the effect of such strain on the stability of financial system. This “financial transition risk”’ literature has highlighted that the conjunction of climate policy, technological change and changing consumption patterns may propagate to financial markets. If too brutal or unexpected, such dynamics may result in a “Climate-Minsky’” moment of systemic implications. Yet, recent historical developments have shown that financial markets can prove resilient to shocks onto transition-exposed industries such as fossil fuel producers. Should we thus fear transition risks? To answer this question, I propose a critical review of the relevant applied modelling and econometric literatures. Three sub-fields will be examined: the asset stranding literature, the financial econometrics of the low-carbon transition and the direct assessment of transition risks through prospective models. I will expound some key results of these literatures, and critically assess underlying methodologies.

WP 2021.04 Intragenerational inequality aversion and intergenerational equity

Robert D. Cairns – Stellio Del Campo – Vincent Martinet

Abstract
We study the interplay between intragenerational and intergenerational equity in an economy with two countries producing and consuming from national capital stocks. We characterize the sustainable development path that a social planner would implement to achieve intertemporal egalitarianism. If intergenerational equity is defined with respect to the global consumption of each generation, regardless of its distribution between countries, consumption in the poor country should be set as low as possible to maximize investment and hasten convergence, resulting in important intragenerational inequalities. When social welfare accounts for intragenerational equity, the larger the intragenerational inequality aversion (IIA), the smaller the sacrifice asked of the poor country, but the lower the sustained level of generational welfare. Along the intertemporal welfare-egalitarian path with IIA, consumption in the poor country increases, while it decreases in the rich country, resulting in a global degrowth.

WP 2021.03 Output-Based Allocation and Output-Based Rebates: A survey

Philippe Quirion

Abstract
Output-based refunding consists in distributing the value of taxes on pollution, or that of tradable emission allowances, to operators of emitting facilities, in proportion of their current production level. It is called output-based rebating in the case of taxes and output-based allocation in the case of tradable emission allowances. This practice is widespread, especially in climate policies, and has important economic consequences. We analyse these consequences, first in a deterministic setting and then accounting for uncertainty. While output-based refunding is detrimental to welfare in a deterministic, closed economy without prior distortions, it also provides some benefits. In particular, it is an efficient way to limit carbon leakage.
Then, we present the implementation of output-based allocation in the European Union, California, China, New-Zealand and Alberta, and discuss whether it should be maintained or phased out in the coming decades.

WP 2021.02 Common pool resource management and risk perceptions

Can Askan Mavi and Nicolas Quérou

Abstract
Motivated by recent discussions about the issue of risk perceptions for climate change related events, we introduce a non-cooperative game setting where agents manage a common pool resource under a potential risk, and agents exhibit different risk perception biases. Focusing on the effect of the polarization level and other population features, we show that the type of bias (overestimation versus underestimation biases) and the resource quality level before and after the occurrence of the shift have first-order importance on the qualitative nature of behavioral adjustments and on the pattern of resource conservation. When there are non-uniform biases within the population, the intra-group structure of the population qualitatively affects the degree of resource conservation. Moreover, unbiased agents may react in non-monotone ways to changes in the polarization level when faced with agents exhibiting different types of bias. The size of the unbiased agents’ sub-population does not qualitatively affect how an increase in the polarization level impacts individual behavioral adjustments, even though it affects the magnitude of this change. Finally, it is shown how perception biases affect the comparison between centralized and decentralized management.

WP 2021.01 Expenditure-elasticity and income elasticity of GHG emissions: a survey of literature on household carbon footprint

Antonin Pottier

Abstract
The relationship between income of households and their carbon emissions is often summed up by a number, the elasticity of the carbon footprint with respect to income. I survey here the cross-sectional studies of household carbon footprints and their estimation of elasticities with respect to income and with respect to expenditures. The distinction between the two elasticities comes from the fact that the saving rate rises with income.
I compile published estimates of elasticities of carbon footprint or energy requirements, and I compute new estimates. This totals around eighty estimates (a third of which are newly computed) for over twenty countries. It shows that, generally, the carbon footprint grows less rapidly than expenditures, and confirms that the incomeelasticity is lower than expenditure-elasticity. Unambiguously, the assumption of an income- elasticity equal to 1 is not supported by the published literature. I discuss the difference between carbon inequality and carbon concentration, the ambiguity in the literature between income-elasticity and expenditures-elasticity. I present the limitations of our knowledge on the income-carbon footprint relationship, from contestable assumption in the methodology as well as measurement errors in household budget surveys. I examine how elasticity can be used in “top-down” assessment of global distribution of carbon footprint.

Published in Economics of Disasters and Climate Change 

Johanna Choumert-Nkolo – Anaïs Lamour – Pascale Phélinas

Abstract
Volcanic hazards pose a potential threat to 8% of the world’s population, yet the economic literature on their short- and long-term consequences on household behavior and economic development is still in its infancy. In this article, we present the state of the literature and highlight knowledge gaps and methodological challenges inherent to the economic analysis of volcanic hazards and disasters. We first present the physical aspects of volcanic activity and describe available physical data. We then examine the concepts related to cost assessment of volcanic disasters. Finally, we discuss key micro and macroeconomic research questions economists should investigate and identify relevant methodological and data challenges. By highlighting research gaps in the “economics of volcanoes”, we provide future avenues of research that will address policy-relevant debates in the context of greater focus on risk mitigation, adaptation, and resilience policies aimed at mitigating natural hazards and disasters.

WP 2020.22 Optimal climate policy when warming rate matters

Nicolas Taconet

Abstract
Studies of the Social Cost of Carbon assume climate change is a stock externality for which damages stem from warming level. However, economic and natural systems are also sensitive to the rate at which warming occurs. In this paper, I study the optimal carbon tax when such a feature is accounted for. Damages caused by warming rates do not aect optimal long-term warming, but they delay the use of the same carbon budget. They also make carbon price less sensitive to discounting assumptions. Numerically, when controlling for the welfare loss from climate change, the more
damages stem from warming rates rather than warming levels, the higher the initial carbon price. This suggests that mitigation strategies that overlook this issue might lead to too rapidly increasing temperature pathways.

WP 2020.21 Behavioral intervention to conserve energy in the workplace

Valeria Fanghella – Giovanna d’Adda – Massimo Tavoni

Abstract
This study investigates the effect of a large-scale behavioral intervention to conserve energy in the workplace, consisting of an energy-saving competition among a bank’s branches. More than 500 branches were involved for a period of one year. Using a difference-in-difference estimation, we find that the competition significantly reduces monthly electricity consumption outside the work schedule (by 7 percent), but that overall energy use does not change significantly (reduction of 2.5 percent). Branch characteristics do not lead to differentiated program response, in stark contrast with the residential sector. In the same setting, we also evaluate a technological intervention automating building energy management. The retrofit leads to significant energy savings (of 18 percent), also concentrated outside the main work schedule. Our results stress the importance of considering contextual characteristics when implementing behavioral programs and show potential overlaps with smart technology investments.

WP 2020.20 Catastrophes, delays, and learning

Matti Liski – François Salanié

Abstract
How to plan for catastrophes that may be under way? In a simple but general model of experimentation, a decision-maker chooses a flow variable contributing to a stock that may trigger a catastrophe at each untried level. Once triggered, the catastrophe itself occurs only after a stochastic delay. Consequently, the rhythm of past experimentations determines the arrival of information. This has strong implications for policies in situations where the planner inherits a history of ex- periments, like climate change and pandemic crisis. The structure encompasses canonical approaches in the literature.

WP 2020.19 Carbon-neutral future with sectorcoupling; relative role of different mitigation options in energy sector

Behrang Shirizadeh

Abstract
Many studies have analyzed the energy mix at national and continental scales, suggesting different low-carbon mixes for future energy systems. While there is abundant literature on the energy mix for different sectors, fewer studies deal with achieving the goal of deep decarbonization using sector-coupling. Moreover, they suffer from limited representation of emerging low-carbon options and incomplete coverage of the main energy sectors. We develop an integrated optimization of dispatch and investment model for the whole energy sector, enabling full sector-coupling and applying this model to the French energy system we study the synergies of sector-coupling among different energy vectors, as well as the role of each low-carbon energy supply technology and the impact of the social cost of carbon in reaching an optimal carbon-neutral or negative CO₂-emitting energy mix of France in 2050. Our results suggest that a social cost of carbon of €200/tCO₂ will achieve carbon-neutrality, and accounting for unfavorable future conditions, €300/tCO₂ can assure this target. In the presence of the social cost of carbon renewables become the main source of the primary energy supply (up to more than 80% of the primary energy supply). Exclusion of nuclear energy from the energy supply side has a minor impact on both emission reduction and cost-optimality. A fully electrified heat sector and a highly gas-dependent transport sector fueled with renewable gas help reaching carbon-neutrality at the lowest cost.

WP 2020.18 Comparing volume and blend renewable energy mandates under a carbon budget

Jean-Pierre Amigues – Ujjayant Chakravorty – Gilles Lafforgue – Michel Moreaux

Abstract
In order to encourage substitution of fossil fuels by cleaner renewables, regulatory agencies have generally chosen between two types of renewable energy standards. They have either mandated a minimum volume of renewable energy as in the case of ethanol in transport fuels, and for electricity in Texas and Iowa. Or they have specified a minimum blend (share) of renewables in the energy supply mix as in California, Michigan and many other states. This paper uses a simple model to compare the dynamic effects of these two policies. We show that a volume mandate leads to a lower energy price, induces a greater subsidy on clean energy and a smaller fossil fuel tax than the blend mandate. The volume mandate also leads to larger cumulative renewable energy use over the time horizon. We illustrate the model with plausible parameter values and show that the two energy mandates lead to large differences in fossil fuel taxes and clean energy subsidies.

WP 2020.17 Carbon Curse in Developed Countries

Published in Energy Economics (2020), 90, 104829.

Mireille Chiroleu-Assouline – Mouez Fodha – Yassine Kirat

Abstract
Among the ten countries with the highest carbon intensity, six are natural resource-rich countries. This suggests the existence of a carbon curse: resource-rich countries would tend to follow more carbon-intensive development paths than resource-poor countries. We investigate this assumption empirically using a panel data method covering 29 countries (OECD and BRIC) and seven sectors over the 1995-2009 period. First, at the macroeconomic level, we find that the relationship between national CO2 emissions per unit of GDP and abundance in natural resources is U-shaped. The carbon curse appears only after the turning point. Second, we measure the impact of resource abundance on sectoral emissions for two groups of countries based on their resource endowments. We show that a country rich in natural resources pollutes relatively more in resource related sectors as well as all other sectors. Our results suggest that the debate on climate change mitigation should rather focus on a comparison of resource-rich countries versus resource-poor countries than the developed-country versus developing-country debate.

WP 2020.16 Emissions Trading with Transaction Cost

Published in Journal of Environmental Economics and Management (2021), 108, 102468.

Marc Baudry – Anouk Faure – Simon Quemin

Abstract
We develop an equilibrium model of emissions permit trading in the presence of fixed and proportional trading costs in which the permit price and firms’ participation in and extent of trading are endogenously determined. We analyze the sensitivity of the equilibrium to changes in the trading costs and firms’ allocations, and characterize situations where the trading costs alternatively depress or raise permit prices relative to frictionless market conditions. We calibrate our model to annual transaction and compliance data in Phase II of the EU ETS (2008-2012) which we consolidate at the firm level. We find that trading costs in the order of 10 k€ per annum plus 1€ per permit traded substantially reduce discrepancies between observations and theoretical predictions for firms’ behavior (e.g. autarkic compliance). Our simulations suggest that ignoring trading costs leads to an underestimation of the price impacts of supply-curbing policies, this difference varying with the incidence on firms.

WP 2020.15 Qui émet du CO2? Panorama critique des inégalités écologiques en France

Antonin Pottier – Emmanuel Combet – Jean-Michel Cayla – Simona de Lauretis – Franck Nadaud

Abstract
This article provides an overview of the inequalities in greenhouse gas (GHG) emissions between French households. It presents in a detailed and critical manner the methodological conventions used to compute “household emissions”, and the related assumptions. The most common principle of attribution, the carbon footprint, which assigns to households the emissions of the products they consume, conveys implicit conceptions of responsibility. It focuses attention on the contributions of individuals, on their choices, and may obscure the role of non-individual actors as well as the collective component of GHG emissions, and neglect the dimensions of responsibility not related to consumption choices.
We estimate the distribution of household carbon footprints based on data from the 2011 French Expenditure Survey. Household emissions tend to increase with income, but they also show a strong variability linked to geographical and technical factors that force to use fossil fuels.
Based on sectoral surveys (ENTD 2008; PHEBUS 2013), we also reconstruct household CO2 emissions linked to housing and transport energy. For transport, emissions are proportional to the distances travelled due to the predominant use of private cars. Urban settlement patterns constraint both the length of daily commuting and access to less carbon-intensive modes of transport. For housing, while house size increases with income and distance from urban centres, the first factor to account for variability of emissions is the heating system. It has little to do with income but more to do with settlement patterns, which constrain access to the various energy carriers.
Finally, we discuss the difficulties, both technical and conceptual, involved in estimating emissions from the super-rich (the top 1 percent).

WP 2020.14 The market for “harmful component-free” products under pressure from the NGOs

Dorothée Brécard – Mireille Chiroleu-Assouline

Abstract
Non-governmental organizations (NGOs) are exerting growing pressure on firms to eliminate product components (such as palm oil) that are harmful to the environment (such as rainforests) or replace such components with NGO-certified sustainable components. Under which conditions does NGO pressure lead firms to eliminate basic components from their products or, alternatively, substitute damaging components with certified sustainable components? What are the ensuing effects on market structure, environmental quality, and social welfare? The paper addresses these issues using a model of two-dimensional vertical product differentiation. It shows that, for an NGO that collects certification fees to accrue its budget and finance its awareness campaign, it may — paradoxically — be optimal to reduce the certified product’s market share and eventually evict it.

WP 2020.13 Carbon Dioxide Emissions and aging: Disentangling behavior from energy efficiency

Published in Annals of Economics and Statistics (2021), 143, 71-103.

Dorothée Charlier – Bérengère Legendre

Abstract
Demographic aging affects Western societies and calls for the adaptation of a number of economic structures, such as pension systems. But this trend requires us to take into account the behavioral changes inherent in aging if we are develop sustainably, specifically concerning resource consumption and carbon dioxide emissions in the context of global warming. The aim of this research is to assess the impact of aging on emissions by disentangling the pure effect of behavioral patterns and the effect of home energy efficiency. Showing that a selection bias arises through the choice of home, we isolate the pure effect of the behavior of older people. We use a discrete-continuous model to address potential endogeneity in a residential energy consumption model due to the choice of home energy characteristics. As a key contribution, we provide evidence that age does have a significant but indirect impact on carbon dioxide emissions, through the choice of dwelling.

WP 2020.12 How Environmental Policies Spread ? A Network Approach to Diffusion in the U.S.

Côme Billard – Anna Creti – Antoine Mandel

Abstract
In this paper, we reconstruct the network of environmental policies diffusion across American states from 1974 to 2018. Our results highlight an inefficient structure, suggesting lags in policy spreading. We identify Minnesota, California and Florida to be the main “facilitators” of the dynamics. Targeting them ensures the maximum likelihood of policy diffusion across the country. We then evaluate the determinants of the inferred network. Our results emphasize the role of contiguity and wealth in policy transmission. We also find sustainable economic systems as well as state’s expected economic losses due to climate change as critical factors of environmental policy flows.

WP 2020.11 Promoting discount schemes as a nudge strategy to enhance environmental behaviour

Julie Metta

Abstract
This paper presents the effects of nudging and of direct instruments on the consumer choice for reusable cups instead of disposable cups. The instruments include a financial incentive (discount schemes for consumers bringing their own cup) and communication about the scheme. The required conditions for the shop policy to be effective (i.e. induce a change in consumer behaviour through direct and indirect communication) are also evaluated. An original database was compiled from structured observations over 223 Hong Kong coffee shops, where 522 data points were collected. The research questions are answered using two strategies. First, logistic econometric approaches estimate the effects of the policies on consumer behaviour. Secondly, a qualitative comparative analysis identifies the required conditions for the consumers to use reusable cups. The results show no significant effect of the financial incentive on the targeted consumers but positive and significant effects on the other consumers who switch to in-shop reusable cups instead of disposable cups. Through effective communication about the “environment-friendly” shop policy, coffee shops affect the consumer behaviour towards reusable cups positively. I observe that nudges have higher effects than financial instruments on consumer behavioural change even when the settings account for strong conservative behaviours. The analysis of coffee shop typologies reports that coffee shops targeting a wealthier audience are more likely to achieve policy goals through nudge strategy.

WP 2020.10 Recycling under environmental, climate and resource constraints

Published in Resource and Energy Economics (2022), 67, 101278.

Gilles Lafforgue – Etienne Lorang

Abstract
We study the recycling opportunity of an industrial sector constrained by climate, resource and waste capacities. A final good is produced from virgin and recycled materials, and its consumption releases both waste and GHG emissions. We identify the optimal trajectories of resources use, mainly depending on the emission rates of each resource and on the relative scarcity of their stocks. Recycling is sometimes an opportunity to reduce the impact of consumption on primary resources and waste but can still affect the environment. We characterize the optimal recycling strategy and we show that, in some cases, the time pace of the recycling rate is inverted U-shaped. Last, we discuss the policy implications of our model by identifying and analyzing the set of optimal tax-subsidy schemes.

WP 2020.09 Confronting climate change: Adaptation vs. migration strategies in Small Island Developing States

Lesly Cassin – Paolo Melindi Ghidi – Fabien Prieur

Abstract
This paper examines the optimal adaptation policy of Small Island Developing States (SIDS) to cope with climate change. We build a dynamic optimization problem to incorporate the following ingredients: (i) local production uses labor and natural capital, which is degraded as a result of climate change; (ii) governments have two main policy options: control migration and/or conventional adaptation measures ; (iii) migration decisions drive changes in the population size; (iv) expatriates send remittances back home. We show that the optimal policy depends on the interplay between the two policy instruments that can be either complements or substitutes depending on the individual characteristics and initial conditions. Using a numerical analysis based on the calibration of the model for different SIDS, we identify that only large islands use the two tools from the beginning, while for the smaller countries, there is a substitution between migration and conventional adaption at the initial period.

WP 2020.08 A simple Ricardo‐Malthusian model of population, deforestation and biodiversity loss

Laté Ayao Lawson

Abstract
This paper assesses the interactions between human societies and nature, arguing that population growth and forest resources harvest cause natural habitat conversion, which resolves into biodiversity loss. Relying on profit and utility maximization behaviours, we describe the joint evolution of population, forest and species stock by a dynamic system characterized by a locally stable steady state. Compared to existing studies, we dissociate forest cover from species stock and enlighten the possibility of total extinction of biological species (empty forests). Our analysis supports an impossible peaceful cohabitation, as in presence of human population growth, forest resources and species stock diverge from their carrying capacity. Finally, scenarios analyses associated with high fertility and preference for the resource-based good globally indicate rapid population growth followed by a sudden drop: a collapse.

WP 2020.07 Optimal Environmental Radical Activism

Mireille Chiroleu-Assouline – Ariane Lambert-Mogiliansky

Abstract
We study the problem faced by activists who want to maximize firms’ compliance with high environmental standards. Our focus is on radical activism which relies on non-violent civil disobedience. Disruptive actions and the threat thereof are used to force firms to concede i.e., to engage in self-regulation. We address the optimal use of scarce activist resources in face of incomplete information by looking at a general mechanism, directly adapted from Myerson’s (1981) optimal auction theory. The characterization informs that the least vulnerable and most polluting firms should be targeted with disruptive actions while the others are granted a guarantee not to be targeted in exchange for a concession. This characterization allows studying the determinants of the activist’s strength and how it is affected by repression, a central feature for civil disobedience. We find that optimal radical activism is relatively resilient to repression. In an extension that accounts for asymmetry between firms’abatement cost, we find that the mechanism optimizes the allocation of abatment efforts and creates incentives for innovation. We discuss some other welfare properties of optimal activism.

WP 2020.06 Optimism on Pollution-Driven Disasters and Asset Prices

Shiba Suzuki – Hiroaki Yamagami

Abstract
This study explores how investors’ optimism about the likelihood of pollution-driven disaster occurrence affects asset prices. Environmental pollution resulting from economic activities raises the probability of disaster occurrence. However, the relationship between economic activities, pollution, and disaster occurrence is difficult to ascertain. Thus, investors make decisions based on subjective expectation; specifically, they subjectively evaluate the probability of disaster occurrence to be lower than its objective probability. As demonstrated in this study, the equity premiums under conditions of objective expectation are significantly higher than those under subjective expectation conditions only if a representative agent has high Intertemporal Elasticity of Substitution (IES). This discrepancy in asset returns is related to the propensity of individuals to discount events occurring in the “distant future” as described in existing literature.

WP 2020.05 Does Becoming Richer Lead to a Reduction in Natural Resource Consumption? An Empirical Refutation of the Kuznets Material Curve

Dorothée Charlier – Florian Fizaine

Abstract
During the last three decades, many industrializing countries have experienced economic growth, which concurred with a substantial increase in the use of materials. This fact questions the relationship between the use of biomass, fossil fuels and minerals and economic growth. Using a Material Kuznets Curve framework, this study investigates whether material use spontaneously reaches a maximum for a given level of development and declines thereafter. Using a new indicator, the material footprint (that quantifies all materials extracted to produce a country’s final demand, including materials embodied in imports), we investigate this nexus confronting for the first-time different methodologies in a same empirical study. More especially, we measure the evolution of material footprint (per capita) elasticity to gdp (per capita) in four different ways. As main results, all models lead to a same nature and seem to indicate a strong and permanent link between economic growth/ economic development and raw material consumption. There is no sign of strong decoupling. Improving development and adoption of technologies becomes an emergency.

WP 2020.04 Fuel Poverty and Health: a Panel Data Analysis

Forthcoming in Revue d’Economie Politique.

Romanic Baudu – Dorothée Charlier – Bérangère Legendre

Abstract
Protecting and improving health and mitigation of climate change have a shared agenda. In this paper, we contribute to the literature by assessing the link between fuel poverty and health over a lengthy recent period. Using dynamic probit models, we examine the influence of fuel poverty on health. We control for state dependency of health as we regard health status to be closely related to previous health trajectories. Considering that unobserved heterogeneity might influence health status and fuel poverty simultaneously, we have corrected for the endogeneity bias that could affect our results. We conclude that being fuel-poor increases the risk of bad health by slightly more than a factor of 7 for those whose health is already poor and by 1.82 for those in good health. For policy makers, combatting fuel poverty reduces sources of discomfort which might also severely affect the health of a dwelling’s inhabitants.

WP 2020.03 The effects of migration and pollution on cognitive skills in Caribbean economies: a theoretical analysis

Published in Environment and Development Economics (2020), 25, 657-686.

Lesly Cassin

Abstract
This work analyses the interaction between demographic features and environmental constraints in the Caribbean Small Island Developing States. More specifically, it aims to clarify the impact of migration in the presence of pollution. To do so, an Intergenerational model is developed to reproduce the characteristics of these countries, which are highly dependent on migration gains such as brain gain or remittances. Moreover, production emits pollution that hinders the accumulation of human capital. Two cases emerge from the analysis, in the first an environmental policy is sufficient to correct the externality and in this case migration implies the same mechanisms as in the case without pollution. In the second case, if pollution emissions are high relative to the effectiveness of environmental policy, migration leads to an increase in per capita output and human capital. This only happens if the emigration rate is already high, because it leads to a reduction in demographic pressure on the environment.

WP 2020.02 Individual preferences regarding pesticide-free management of green-spaces: a discret choice experiment with French citizens

Published in Revue Economique (2021), 72, 947-967.

Pauline Laille – Marianne Lefebvre – Masha Maslianskaia-Pautrel

Abstract
To comply with the pesticide ban in effect in French urban green spaces (UGSs), managers have to modify their practices. Understanding citizens’ preferences for UGSs whose characteristics are modified by the pesticide ban is a useful complement to technical research on alternatives to pesticides. We use a discrete choice experiment run online on a representative sample of the French population to analyze preferences towards characteristics of direct interest to the users (visual aspect, recreational opportunities, and information campaigns on pesticide-free UGSs) and less visible characteristics such as fauna abundance, working conditions, or the budget dedicated to the maintenance of such areas. We find that all chosen attributes have a significant impact on respondents’ choice of UGS option. All citizens largely devalue options generating a major budget increase, but preferences towards other attributes are shaped by visit frequency to UGSs. Most users prefer a natural visual aspect to a controlled aspect, but this preference is even greater for frequent visitors. Visit frequency affects in particular preferences towards fauna abundance (valued only by those who frequently visit UGSs) and information campaigns (valued only by those who do not frequently visit UGSs).

WP 2020.01 Technology Contagion in Networks

Published in Climate Policy (2021), 21, 719-744.

Côme Billard

Abstract
We represent a social system as a network of agents and model the process of technology diffusion as a contagion propagating in such a network. By setting the necessary conditions for an agent to switch (ie. to adopt the technology), we address the question of how to maximize the contagion of a technology subject to a Moore’s law (eg. solar modules) in a network of agents. We focus the analysis on the effects of the network structure and technological learning on diffusion. To this end, we study three classes of networks, namely lattice, small-world and random networks. Our numerical results show that both the lattice and the small-world networks facilitate the contagion. These networks exhibit high levels of clustering, and additional contacts increase the probability of contagion through social reinforcement. Conversely, networks exhibiting short path length and a low level of clustering (ie. random networks) guarantee an equivalent speed of diffusion with smaller ranges (ie. variance) in terms of aggregate adoption. Whatever the structure, learning effects are critical for contagion to spread in agents networks.

Pascal Gastineau – Pascal Mossay – Emmanuelle Taugourdeau

Abstract
We propose a spatial framework to study ecological compensation. The policy-maker implements a No Net Loss policy that meets the No Worse-Off principle as well as a location constraint on the offset. This determines both the location and the level of compensation that minimize the total cost of restoration. We describe the additional ecological cost induced by the No Worse-Off principle and how the spatial distribution of individuals, the environment and land costs affect the compensation location. The location constraint is shown to introduce a trade-off between the compensation cost and inequality.

WP 2019.22 On Climate Agreements with Asymmetric Countries: Theory and Experimental Results

Charles F. Mason

Abstract
I model International climate agreements among asymmetric countries, each of whom must select a profile of CO2 emissions over time. Predictions from this model imply larger reductions by “large” countries, but larger proportional reductions by “small” countries. I then analyze experimental data that sheds light on this issue. In contrast to the theoretical predictions, I find that smaller countries do not reduce emissions proportionately to their Nash level, and so the burden falls mostly on larger countries. Moreover, combined emissions are indistinguishable from the one-shot Nash emissions. This pessimistic outcome extends the commonly-found result in the literature that negotiations in similar repeated games (but with symmetric players) generally do not offer much hope for meaningful agreements, unless the effects are modest. One possible explanation for this pattern of results is inequality aversion.

WP 2019.21 Altruistic Foreign Aid and Climate Change Mitigation

Antoine Bommier – Amélie Goerger – Arnaud Goussebaïle – Jean-Philippe Nicolaï

Abstract
This paper emphasizes the value of jointly addressing environmental and development objectives. We consider one altruistic developed country and several heterogeneous developing countries. We demonstrate that the lack of coordination between countries in tackling climate change finds a simple solution if developing countries can expect to receive development aid transfers from the developed country. The timing of the decision is central to the mechanism: development aid transfers should be determined after pollution abatement levels. The main restriction of our result is that it only holds if the developed country is altruistic enough to make positive development aid transfers to developing countries. Nevertheless, even from a purely selfish point of view, it may be profitable for the developed country to be more altruistic, leading to higher welfare for all countries.

WP 2019.20 Hedonic estimation of the green value of residential housing

Catherine Baumont – Masha Maslianskaia-Pautrel – Pierre Voyé

Abstract
Managing the energy demand in the residential sector could be achieved by the promotion of energy efficiency buildings. We assume that households adopting a green behavior are willing to pay a greater price to access to “green” housing. This added value is called the “green value”. This paper studies the impact of the energy efficiency rating of a house, as certified by the Diagnostic de Performance Energétique (DPE), on housing prices. In order to do this, the hedonic price method has been applied to the real estate market – apartments and houses – in the urban area of Dijon from January 2013 to December 2014. The results indicate that the impact of DPE is mostly observed for the least performing classes. This negative impact depends on the type of the market: it is smaller for the apartment market. We also show that proximity to green amenities – outside the cities – has a positive effect only for house market.

WP 2019.19 Improving Farm Environmental Performance through Technical Assistance: Empirical Evidence on Pesticide Use

Margaux Lapierre – Alexandre Sauquet – Julie Subervie

Abstract
In 2008, the French government announced an important shift in agricultural policy, calling for halving the use of pesticides in the next ten years. Since then, it has spent 40 million euros a year on implementing the so-called Ecophyto plan. In this paper, we evaluate the success of this program, focusing on its flagship scheme, which has provided technical assistance to 3,000 volunteer pilot farms since 2011. To do so, we use panel data collected from a representative sample of vineyards: the agricultural systems known as the largest users of pesticides. We use a slate of quasi-experimental approaches to estimate the impact of participation in the program on pesticide use and crop yields on enrolled vineyards. We find that participants have achieved reductions in pesticide use that ranges from 8 to 22 percent, thanks to the program. We moreover find that the reduction in the use of chemicals was accompanied by an increase in the use of biocontrol products. Finally, we find that this change of practices resulted in a reduction in yields for a fraction of enrolled farms while others seems to have maintained yields. Although below the expectations of the French government, these results seem rather encouraging, as they suggest that technical assistance alone can be effective in reducing significantly pesticide use in the agricultural sector.

WP 2019.18 Limit pricing, climate policies, and imperfect substitution

Published in Resource and Energy Economics (2019), 58, 101118.

Gerard van der Meijden – Cees Withagen

Abstract
The effects of climate policies are often studied under perfect competition and constant marginal extraction costs. In this paper, we allow for monopolistic fossil fuel supply and more general cost functions, which, in the presence of perfectly substitutable renewables, gives rise to limit-pricing behavior. Four phases of supply may exist in equilibrium: sole supply of fossil fuels below the limit price, sole supply of fossil fuels at the limit price, simultaneous supply of fossil fuels and renewables at the limit price, and sole supply of renewables at the limit price. The consequences of climate policies for initial extraction depend on the initial phase: in case of sole supply of fossil fuels at the limit price, a renewables subsidy increases initial extraction, whereas a carbon tax leaves initial extraction unaffected. With simultaneous supply at the limit price or with sole supply of fossil fuels below the limit price, a renewables subsidy and a carbon tax lower initial extraction. Both policy instruments decrease cumulative extraction. If fossil fuels and renewables are imperfect but good substitutes, the monopolist will exhibit ‘limit-pricing resembling’behavior, by keeping the effective price of fossil close to that of renewables for considerable time.

WP 2019.17 Linking Permit Markets Multilaterally

Forthcoming in Journal of Environmental Economics and Management.

Baran Doda – Simon Quemin – Luca Taschini

Abstract
We formally study the determinants, magnitude and distribution of efficiency gains generated in multilateral linkages between permit markets. We provide two novel decomposition results for these gains, characterize individual preferences over linking groups and show that our results are largely unaltered with strategic domestic emissions cap selection or when banking and borrowing are allowed. Using the Paris Agreement pledges and power sector emissions data of five countries which all use or considered using both emissions trading and linking, we quantify the efficiency gains. We find that the computed gains can be sizable and are split roughly equally between effort and risk sharing.

WP 2019.16 The Social Cost of Carbon and the Ramsey Rule

Cees Withagen

Abstract
The objective of this paper is to critically assess the use of simple rules for the social cost of carbon (SCC) that employ a rudimentary form of the Ramsey Rule. Two interrelated caveats apply. First, if climate change poses a serious problem, it is hard to justify an exogenous constant growth rate of consumption and GDP, as is done in several contributions by prominent scholars. Second, to derive the optimal SCC one needs full knowledge of the entire future, in spite of the use of popular ways to try to get around this. Moreover, it is shown that some simple rules suffer from inconsistencies in their derivation.

WP 2019.15 French Attitudes over Climate Change and Climate Policies

Published in Ecological Economics (2020), 169, 106496.

Thomas Douenne – Adrien Fabre

Abstract
This paper aims to assess the prospects for French climate policies after the Yellow Vest scrisis halted the planned increase in the carbon tax. From a large representative survey, we elicit knowledge, perceptions and values over climate change, we examine opinions relative to carbon taxation, and we assess support for other climate policies. Specific attention is given to the link between perceptions of climate change and attitudes towards policies. The paper also studies in detail the determinants of attitudes in terms of political and socio-demographic variables. Among many results, we find limited knowledge but high concern for climate change. We also document a large rejection of the carbon tax but majority support for stricter norms and green investments, and reveal the rationales behind these preferences. Our study entails policy recommendations, such as an information campaign on climate change. Indeed, we find that climate awareness increases support for climate policies but no evidence for the formation of opinions through partisan cues as in the US, suggesting that better access to science could foster support for climate policies.

WP 2019.14 Energy Conversion Rate Improvements, Pollution Abatement Efforts and Energy Mix: The Transition toward the Green Economy under a Pollution Stock Constraint

Jean-Pierre Amigues – Michel Moreaux

Abstract
To prevent climate change, three options are currently considered: improve the energy conversion efficiency of primary energy sources, develop carbon free alternatives to polluting fossil fuels and abate potential emissions before they are released inside the atmosphere. We study the optimal mix and timing of these three mitigation options in a stylized dynamic model. Useful energy can come from two sources: a non-renewable fossil fuel resource and a carbon free renewable resource. The conversion efficiency rate of fossil energy into useful energy is open to choice but higher conversion rates are also more costly. The economy can abate some fraction of its potential emissions and a higher abatement rate incurs higher costs. The society objective is to maintain below some mandated level, or carbon cap, the atmospheric carbon concentration. In the empirically relevant case where the economy is actually constrained by the cap, at least temporarily, we show that the optimal path is a sequence of four regimes: a ‘pre-ceiling’ regime before the economy is actually constrained by the cap, a ‘ceiling’ regime at the cap, a ‘post-ceiling’ regime below the cap and a final regime of exclusive exploitation of renewable resources. If the abatement option has ever to be used, it should be started before the beginning of the ceiling regime, first at an increasing rate and at a decreasing rate once the cap constraint binds. The efficiency performance from any source steadily improves with the exception of a time phase under the ceiling regime when it is constant. Renewables take progressively a larger share of the energy mix but their exploitation may be delayed significantly. Absolute levels of carbon emissions drop down continuously but follow a non monotonic pattern in per useful energy unit relative terms.

WP 2019.13 Ambitious Emissions Goal as a Strategic Preemption

Hiroaki Yamagami – Ryo Arawatari – Takeo Hori

Abstract
We model a political game where a policymaker pledges a domestic emissions goal in the context of instrument choice between carbon pricing (CP) and a quota approach. We show that, although the policymaker faces an emissions goal proposed from an international environmental agreement, she may pledge a more stringent emissions than the proposed level. We define this stringent goal as an “ambitious emissions goal”. We show that the ambitious emissions goal acts as a strategy for the policymaker that preempts the industry’s lobby in a subsequent stage. We also suppose that, if CP is introduced, a rent-seeking contest for the CP revenue refund is held. Then, if the contest is socially costly enough, CP is no longer an optimal instrument. Finally, we extend the model of one country to that of two symmetric countries. A Nash equilibrium where both countries pledge the ambitious emissions goals remains.

WP 2019.12 2019 FAERE Prize
Carbon Pricing and Power Sector Decarbonisation: Evidence from the UK

Published in Journal of Environmental Economics and Management (2022), 111, 102580.

Marion Leroutier

Abstract
The electricity and heat generation sector represents about 40 % of global greenhouse gas (GHG) emissions in 2016. Policy-makers have implemented a variety of instruments to decarbonise their power sector. This paper examines the UK Carbon Price Floor (CPF), a novel carbon pricing instrument implemented in the United Kingdom in 2013. After describing the potential mechanisms behind the recent UK power sector decarbonisation, I apply the synthetic control method on country-level data to estimate the impact of the CPF on per capita emissions. I discuss the importance of potential confounders and the amount of net electricity imports imputable to the policy. Depending on the specification, the abatement associated with the introduction of the CPF range from 106 to 185 millions tons of equivalent CO2 over the 2013-2017 period. This implies a reduction of between 41% and 49% of total power sector emissions by 2017. Several placebo tests suggest that these estimates capture a causal impact. This paper shows that a carbon levy on high-emitting inputs used for electricity generation can lead to successful decarbonisation.

WP 2019.11 Social Cost of Carbon under stochastic tipping points: when does risk play a role?

Nicolas Taconet – Céline Guivarch – Antonin Pottier

Abstract
Carbon dioxide emissions impose a social cost on economies, owing to the damages they will cause in the future. In particular, emissions increase global temperature that may reach tipping points in the climate or economic system, triggering large economic shocks. Tipping points are uncertain by nature, they induce higher expected damages but also dispersion of possible damages, that is risk. Both dimensions increase the Social Cost of Carbon (SCC). However, the respective contributions of higher expected damages and risk have not been disentangled. We develop a simple method to compare how much expected damages explain the SCC, compared to the risk induced by a stochastic tipping point. We find that expected damages account for more than 90% of the SCC with productivity shocks lower than 10%, the high end of the range of damages commonly assumed in Integrated Assessment Models. It takes both high productivity shock and high risk aversion for risk to have a significant effect. Our results also shed light on the observation that risk aversion plays a modest role in determining the SCC (the “risk aversion puzzle”): they suggest that too low levels of damages considered in previous studies could be responsible for the low influence of risk aversion.

WP 2019.10 Can We Reconcile French People with the Carbon Tax? Disentangling Beliefs from Preferences

Published in American Economic Journal: Economic Policy (2022), 14, 81-110 untitled “Yellow vests, pessimistic beliefs, and carbon tax aversion”.

Thomas Douenne – Adrien Fabre

Abstract
Using a new survey and National households’ survey data, we investigate French perception over carbon taxation. We find that French people largely reject a tax and dividend policy where revenues of the tax would be redistributed uniformly. However, their perception about the properties of the tax are biased: people overestimate the negative impact on their purchasing power, wrongly think the scheme is regressive, and do not perceive it as environmentally effective. Our econometric analysis shows that correcting these three bias would suffice to generate majority acceptance. Yet, we find that people’s beliefs are persistent and their revisions biased towards pessimism, so that only few can be convinced.

WP 2019.09 The economic value of NBS restoration measures and their benefits in a river basin context: A meta-analysis regression

Nabila Arfaoui – Amandine Gnonlonfin

Abstract
The study collects original monetary estimates for Nature Based Solutions (NBS) and benefits, with restoration approach in a basin context. A database of 187 monetary estimates is constructed to perform the first meta-analysis, which will assess how individuals value the NBS restoration measures and their primary and co-benefits. Demonstrating the monetary value of these benefits should improve decision-making in promoting the adoption of NBS and lead to greater protection of ecosystems. We find that individuals value, in particular, global climate regulation, local environmental regulation, recreational activities, and habitat and biodiversity benefits. We find also that NBS measures aimed at floodplains and river streams are more highly valued. The results of this study suggest that the Willingness-to-pay (WTP) is weakly influenced by the methodological variables. We found that primary studies using the contingent valuation method report higher WTP compared to those using choice experiment method. Moreover, the payment modes (local-tax, national-tax, donation and water bill) and econometric estimation methods (parametric, semiparametric and non-parametric) have only a marginal effect. Indeed most of these variables are insignificant with the exception of local-tax, water-bill and parametric variables which are significantly negative. Survey modes (internet, face to face and mix) are never significant. Finally, the coefficients of America and Europe are significantly positive, indicating that the monetary value of river restoration is higher in countries in these areas.

WP 2019.08 Can the environment be an inferior good? A theory with context-dependent substitutability and needs

Marion Dupoux – Vincent Martinet

Abstract
Theoretical models often assume the environment to be a normal good, irrespective of one’s income. However, a priori, nothing prohibits an environmental good from being normal for some individuals and inferior for others. We develop a conceptual framework in which private consumption and an environmental public good act as substitutes or complements for satisfying different needs. Subsequently,the environment can switch between normal and inferior depending on one’s income and environment. If the environment is inferior for some range of in come, then the willingness to pay for environmental preservation becomes non-monotonic, thereby having implications for benefit transfers.

WP 2019.07 The Fossil Energy Interlude: Optimal Building, Maintaining and Scraping a Dedicated Capital, and the Hotelling Rule

Jean-Pierre Amigues – Michel Moreaux – Manh-Hung Nguyen

Abstract
It is well known that the price and consumption paths of most nonrenewable resources, including the fossil primary energies, do not follow the paths predicted by the standard Hotelling rule (Krautkraemer,1998, Gaudet, 2007). We develop a model in which a dedicated capital together with the fossil fuel are both required to produce useful energy. Starting from a state ofthe economy in which the fossil fuel is not yet exploited, we characterize the optimal path of the double transition: The first transition from the initial renewable energy regime to a mixed or full fossil fuel regime and later the second transition from the fossil fuel regime back to a renewable energy regime when the available stock of the fossil fuel becomes more and more rare. We show that, absent any technical progress, the useful energy price must first decrease, next be constant during the phase of maximum expansion of the fossil fuel energy consumption before entering the phase of decreasing use of the fossil energy. Only this third phase of decreasing fossil fuel consumption looks like a standard Hotelling path.

WP 2019.06 Mineral Resources for Renewable Energy: Optimal Timing of Energy Production

Published in Resource and Energy Economics (2020), 59, 101131.

Adrien Fabre – Mouez Fodha – Francesco Ricci

Abstract
The production of energy from renewable sources is much more intensive in minerals than that from fossil resources. The scarcity of certain minerals limits the potential for substituting renewable energy for scarce fossil resources. However, minerals can be recycled, while fossils cannot. We develop an intertemporal model to study the dynamics of the optimal energy mix in the presence of mineral intensive renewable energy and fossil energy. We analyze energy production when both mineral and fossil resources are scarce, but minerals are recyclable. We show that the greater the recycling rate of minerals, the more the energy mix should rely on renewable energy, and the sooner should investment in renewable capacity take place. We confirm these results even in the presence of other better known factors that affect the optimal schedule of resource use: growth in the productivity in the renewable sector, imperfect substitution between the two sources of energy, convex extraction costs for mineral resources and pollution from the use of fossil resources.

WP 2019.05 Disaster risks, disaster strikes and economic growth: the role of preferences

Thomas Douenne

Abstract
This paper studies the role of preferences on the link between disasters and growth. An endogenous growth model with disasters is presented in which one can derive closed-form solutions with non-expected utility. The model distinguishes disaster risks and disaster strikes and highlights the numerous mechanisms through which they may affect growth. It is shown that separating aversion to risk from the elasticity of inter-temporal substitution bears critical qualitative implications that enable to better understand these mechanisms. In a calibration of the model, it is shown that for standard parameter values, the additional restriction imposed by the time-additive expected utility can also lead to substantial quantitative bias regarding optimal risk-mitigation policies and growth. The paper thus calls for a wider use of non-expected utility in the modeling of disasters, in particular with respect to environmental disasters and climate change.

WP 2019.04 Incentives, Pro-social Preferences and Discrimination

Raphaël Soubeyran

Abstract
In this paper, I study how a principal can provide incentives, at minimal cost, to a group of agents who have pro-social preferences in order to induce successful coordination in the presence of network externalities. I show that agents’ pro-social preferences – specifically a preference for the sum of the agents payoffs and for the minimum payoff – lead to a decrease in the implementation cost for the principal, a decrease in the payoff of each agent, and an increase in discrimination. The model can be applied in various contexts and it delivers policy implications for designing policies that support the adoption of new technologies, for motivating a group of workers, or for inducing successful coordination of NGOs.

WP 2019.03 Prediction is difficult, even when it’s about the past: a hindcast experiment using Res-IRF, an integrated energy-economy model

Forthcoming in Energy Economics.

David Glotin – Cyril Bourgeois – Louis-Gaëtan Giraudet – Philippe Quirion

Abstract
Model-based projections of energy demand are hardly ever confronted with observations. This shortfall threatens the credibility policy-makers might attach to integrated energy-economy models. One reason for it is the lack of historical data against which to calibrate models, a prerequisite for attempting to replicate past trends. In this paper, we (i) assemble piecemeal historical data to reconstruct the energy performance of the residential building stock of 1984 in France; (ii) calibrate Res-IRF, a bottom-up model of residential energy demand in France, against these data and run it to 2012. In a preliminary simulation that only considers the data that were known at the beginning of the simulated period, we find that the model accurately predicts energy consumption per m² aggregated over all dwelling types, with a Mean Absolute Percentage Error below 1.5% and 85% of the variance explained. These figures reach 0.5% and 96% when we consider the best-fit of 1,920 scenarios covering the uncertainty surrounding the parameters of the initial year. Energy demand is unevenly well replicated across fuels, which reveals some limitations in the ability of the model to capture politically-driven trends such as the expansion of the natural-gas distribution network. The overall results however build confidence in the general accuracy of the Res-IRF model. We discuss the directions for data collection which would ease comparison between simulations and observations in future hindcast experiments.

WP 2019.02 Bargaining with Intertemporal Maximin Payoffs

Vincent Martinet – Pedro Gajardo – Michel De Lara

Abstract
We frame sustainability problems as bargaining problems among stakeholders who have to agree on a common development path. For infinite alternatives, the set of feasible payoffs is unknown, limiting the possibility to apply classical bargaining theory and mechanisms.
We define a framework accounting for the economic environment, which specifies how the set of alternatives and payoff structure underlie the set of feasible payoffs and disagreement point.
A mechanism satisfying the axioms of Independence of Non-Efficient Alternatives and Independence of Redundant Alternatives can be applied to a reduced set of alternatives producing all Pareto-efficient outcomes of the initial problem, and produces the same outcome. We exhibit monotonicity conditions under which such a subset of alternatives is computable.
We apply our framework to dynamic sustainability problems. We characterize a “satisficing” decision rule achieving any Pareto-efficient outcome. This rule is renegotiation-proof and generates a time-consistent path under the axiom of Individual Rationality.

WP 2019.01 The Rise of NGO Activism

Julien Daubanes – Jean-Charles Rochet

Published in American Economic Journal – Economic Policy (2019), 11, 183-212.

Abstract
Activist non-governmental organizations (NGOs) increasingly oppose firms’ practices. We suggest this might be related to the vulnerability of public regulation to corporate influence. We examine a potentially-harmful industrial project subject to regulatory approval. Under industry influence, the regulator may approve the project even though it is harmful. However, an NGO may oppose it. We characterize the circumstances under which NGO opposition occurs and under which it is socially beneficial. Our theory explains the role that NGOs have assumed in the last decades, and has implications for the social legitimacy of activism and the appropriate degree of transparency of industrial activities.

Aurélien Saussay – Misato Sato

Abstract
This paper analyzes the role of energy prices in firms’ investment location decisions in the manufacturing sector. Building on the application of discrete choice theory to the firm location problem, we specify a conditional logit model linking bilateral foreign direct investment (FDI activity to relative energy prices. We then empirically test this link using a global dataset of M&A deals in the manufacturing sector covering 41 countries between 1995 and 2014, using econometric techniques adapted from the estimation of gravity models. The results suggest that upon deciding to invest, firms are attracted to regions that have lower energy prices. However, counterfactual simulations reveal that unilateral implementation of a $50/tCO2 carbon tax by various coalitions of countries is expected to have limited negative impact on the attractiveness of economies to foreign industrial investments. Hence, our results support the pollution haven effect, but find the magnitude is limited and could be addressed with targeted measures in the most energy intensive sectors.

WP 2018.20 Time Rebound Effect in Households’ Energy Use: Theory and Evidence

Kenichi Mizobuchi – Hiroaki Yamagami

Abstract
Time-saving (time-efficient) goods and services are increasingly developed and diffused. Such goods and services increase the disposable time for households, and the time saved may be allocated to other activities consuming energy/electricity. The present study sets a simple theoretical model and shows a mechanism, called the time rebound effect, with which time-saving goods increase energy consumption through household behaviors. Furthermore, we reveal empirical evidence for this model by conducting a Japanese household survey. In particular, our analysis shows that the time rebound effect occurs on using the dishwasher, clothes dryer, or a net ordering/delivery service. However, its impact is very small: the extra electricity usage is about 1.4% of the daily usage at most.

WP 2018.19 Emissions Trading with Rolling Horizons
(new version)

Simon Quemin – Raphaël Trotignon

Abstract
We build a model of competitive emissions trading under uncertainty with supply-side control. Firms can use rolling planning horizons to deal with uncertainty and can also exhibit bounded responsiveness to the control. We tailor the model to the EU ETS, calibrate it to 2008-2017 market developments and find that a rolling horizon is able to reconcile the banking dynamics with discount rates implied from futures’ yield curves. We evaluate the 2018 market reform, decompose the impacts of its main features and quantify how they hinge on the firms’ horizon and responsiveness. We highlight important implications for policy design and evaluation.

WP 2018.18 Marchés internationaux de droits à polluer et taxes locales sur les biens polluants

Forthcoming in L’Actualité économique – Revue d’analyse économique.

Julien Daubanes – Pierre Lasserre

Abstract
The interest of international markets for pollution rights lies in their potential to achieve a pollution reduction objective in an efficient manner. Unfortunately, the tendency of participating countries to tax polluting goods locally undermines this potential. We propose a model to examine the interest of countries participating in a market for rights to pollute in taxing the good that generates pollution. In particular, this interest depends on the initial distribution of rights among participating countries. We show how rights should be allocated to the different participating countries in order to ensure market efficiency. These optimal allocations require that a sufficiently large fraction of rights be distributed free of charge rather than auctioned.

WP 2018.17 Tax Exemptions of Ethical Products Revisited

Dina Kassab

Abstract
Corporate social responsibility (CSR) activities, being viewed as the corporate’s provision of a public good, enable tax exemptions in many economies. This paper examines whether these tax exemptions are justified, given the nature of interdependence between the public good provided by the firm and that provided through the government, and the form in which the exemptions – or taxes – are best imposed. In our theoretical analysis, we model a profit-maximizing firm, in a monopoly setup, in the presence of a continuum of consumers with heterogeneous preferences towards the CSR content of the private good they purchase. Consumption of the ethical product is further assumed to confer a reputational gain that increases as the pool of consumers purchasing the good narrows. The analysis suggests that tax exemptions ought to be accorded to CSR activities when private and public investments are perfect substitutes, and an ad valorem subsidy is welfare superior to a specific one. However, when the firm’s CSR investment complements the government’s provision, the firm’s product should be subject to taxes when there is a sufficiently large marginal willingness to pay for such activities. An ad valorem tax serves as a purely corrective device to balance the relative shares of the firm and the government in the public good provision whilst a specific tax redistributes surplus form the firm to consumers while increasing total welfare in the process. Conditions for optimality of each tax instrument are discussed.

WP 2018.16 Foreign Demand and Greenhouse Gas Emissions: Empirical Evidence with Implications for Leakage

Geoffrey Barrows – Hélène Ollivier

Abstract
With asymmetric climate policies, regulation in one country can be undercut by emissions growth in another. Previous research finds evidence that regulation erodes the competitiveness of domestic firms and leads to higher imports, but increased imports need not imply increased emissions if domestic sales are jointly determined with export sales or if emission intensity of manufacturing adjusts endogenously to foreign demand. In this paper, we estimate for the first time how production and emissions of manufacturing firms in one country respond to foreign demand shocks in trading partner markets. Using a panel of large Indian manufacturers and an instrumental variable strategy, we find that foreign demand growth leads to higher exports, domestic sales, production, and CO2 emissions, and slightly lower emission intensity. The results imply that a representative exporter facing the average observed foreign demand growth over the period 1995-2011 would have increased CO2 emissions by 1.39% annually as a result of foreign demand growth, which translates into 6.69% total increase in CO2 emissions from Indian manufacturing over the period. Breaking down emission intensity reduction into component channels, we find some evidence of product-mix effects, but fail to reject the null of no change in technology. Back of the envelope calculations indicate that environmental regulation that doubles energy prices world-wide (except in India) would only increase CO2 emissions from India by 1.5%. Thus, while leakage fears are legitimate, the magnitude appears fairly small in the context of India.

WP 2018.15 The Role of Individual Preferences in Explaining the Energy Performance Gap

Salomé Bakaloglou – Dorothée Charlier

Abstract
The aim of this research is to understand the role of socio-economic characteristics and individual preferences to explain the energy performance gap in the residential sector. The gap reflects the difference between theoretical energy consumption of home assessed by engineering models and real energy consumption. Using the ratio of the two consumptions as a measure of the gap, we perform a quantile regression to tease out the effects of preferences on the entire distribution of the energy performance gap spectrum instead of focusing on the conditional average. As a result, this research provides an original contribution: depending on the sense of the gap, our findings suggest that some significant drivers are individual preferences for comfort over economy, explaining until 12% of the gap variability, and poverty. In such a context, some warnings to public authorities are provided regarding the issues of rebound effect and household welfare.

WP 2018.14 A dynamic model of recycling with endogenous technological breakthrough

Forthcoming in Resource and Energy Economics.

Gilles Lafforgue – Luc Rouge

Abstract
We develop a growth model in which the use of a non-renewable resource yields waste. Recycling waste produces materials of poor quality. These materials can be reused for production only once a dedicated R&D activity has made their quality reach an exogenous minimum threshold. The economy then switches to a fully recycling regime. We refer to this switch as the technological breakthrough. We analyze the optimal trajectories of the economy and present the Ramsey Keynes and Hotelling conditions in this context. We characterize the determinants of the date of the breakthrough, which is endogenous, as well as the discontinuity in the variables’ paths that is induced by this breakthrough. We show, in particular, that the availability of a recycling technology leads to a more intense exploitation of the resource and possibly to lower levels of consumption before the breakthrough.

WP 2018.13 How shifting investment towards low-carbon sectors impacts employment: three determinants under scrutiny

Published in Energy Economics (2018), 75, 464-483.

Quentin Perrier – Philippe Quirion

Abstract
The threat of climate change requires redirecting investment towards low-carbon sectors, and this shift generates heated debates about its impact on employment. Many studies exist, most of
which use CGE or Input-Output (IO) models. However, the economic mechanisms at play remain unclear. This paper disentangles the channels of job creation and studies to what extent the results of simpler IO models diverge from CGE results. Using stylized models, we show that a shift in investment creates jobs in IO if it promotes sectors with a higher share of labour in value added, lower wages or a lower import rate. In CGE, the first two channels also yield job creation, but there is no positive impact of targeting low-imports sectors – unless these do not export.
Then we undertake a numerical analysis of two policies: the installation of solar panels and weatherization in France. Both policies have a positive effect on employment, in both models, due to the high share of labour and low wages in these sectors. IO results provide a good approximation of CGE results for solar (-14% to +34%) and are slightly higher for weatherization (+22% to +87%).
Our findings challenge the idea that renewables boost employment by reducing imports, but they also suggest that a double dividend can be achieved by encouraging low-carbon labour-intensive sectors.

WP 2018.12 Competitive Advantage in the Renewable Energy Industry: Evidence from a Gravity Model

Published in Renewable energy (2018), 131, 472-481.

Onno Kuik – Frédéric Branger – Philippe Quirion

Abstract
Pioneering domestic environmental regulation may foster the creation of new eco-industries. These industries could benefit from a competitive advantage in the global market place. This article examines empirical evidence of the impact of domestic renewable energy policies on the export performance of renewable energy products (wind and solar PV). We use a gravity model of international trade with a balanced dataset of 49 (for wind) and 40 (for PV) countries covering the period 1995-2013. The stringency of renewable energy policies are proxied by installed capacities. Our econometric model shows evidence of competitive advantage positively correlated with domestic renewable energy policies, sustained in the wind industry but brief in the solar PV industry. We suggest that the reason for the dynamic difference lies in the underlying technologies involved in the two industries.

WP 2018.11 From residential energy demand to fuel poverty : income-induced non-linearities in the reactions of households to energy price fluctuations

Forthcoming in Canadian Journal of Economics.

Dorothée Charlier – Sondès Kahouli

Abstract
In this paper, we propose a panel threshold regression (PTR) model to empirically test the sensitivity of French households to energy price fluctuations – as measured by the elasticity of residential heating energy prices – and to analyze the overlap between their income and fuel poverty profiles. The PTR model allows to test for the non-linear effect of income on the reactions of households to fluctuations in energy prices. Thus, it can identify specific regimes differing by their level of estimated price elasticities. Each regime represents an elasticity-homogeneous group of households. The number of these regimes is determined based on an endogenously PTR-fixed income threshold. Thereafter, we analyze the composition of the regimes (i.e. groups) to locate the dominant proportion of fuel-poor households and analyse their monetary poverty characteristics.
Results show that, depending on the income level, we can identify two groups of households that react differently to residential energy price fluctuations and that fuel-poor households belong mostly to the group of households with the highest elasticity. By extension, results also show that income poverty does not necessarily mean fuel poverty.
In terms of public policy, we suggest focusing on income heterogeneity by considering different groups of households separately when defining energy efficiency measures. We also suggest paying particular attention to targeting fuel-poor households by examining the overlap between fuel and income poverty.

WP 2018.10 2018 FAERE Prize (ex aequo)
The vertical and horizontal distributive effects of energy taxes: A case study of a French policy

Thomas Douenne

Abstract
This paper proposes a micro-simulation assessment of the distributional impacts of the French carbon tax. It shows that the policy is regressive, but could be made progressive by redistributing the revenue through a flat-recycling. However, it would still generate large horizontal distributive effects and harm an important share of low-income households. The determinants of the tax incidence are characterized precisely, and alternative targeted transfers are simulated on this basis. The paper shows that given the importance of unobserved heterogeneity in the determinants of energy consumption, horizontal distributive effects are much more difficult to tackle than vertical ones.

WP 2018.09 The supply of non-renewable resources

Published in Canadian Journal of Economics (2019), 52(3), 1084-1111.

Julien Daubanes – Pierre Lasserre

Abstract
There exists no formal treatment of non-renewable resource (NRR) supply, systematically deriving quantity as function of price. We establish instantaneous restricted (fixed reserves) and unrestricted NRR supply functions. The supply of a NRR at any date and location depends not only on the local contemporary price of the resource but also on prices at all other dates and locations. Besides the usual law of supply, which characterizes the own-price effect, cross-price effects have their own law. They can be decomposed into a substitution effect and a stock compensation effect. We show that the substitution effect always dominates: A price increaseat some point in space and time causes NRR supply to decrease at all other points.
Our new—although orthodox—setting takes into account not only NRR supply limitations, but also the heterogeneity of NRR deposits, and the endogeneity of their development and opening. Our analysis extends to NRRs the partial-equilibrium analysis of demand and supply policies. Thereby, it provides a generalization of results about policy-induced changes on NRR markets.

WP 2018.08 Open space preservation in an urbanization context

Camille Régnier

Abstract
The objective of this paper is to address the question of open space preservation in an urbanization context. We study the possibility of preserving two different types of open spaces, large open spaces at cities’ outskirt and small intra-urban open spaces. Thus we contribute to the debate of land sharing versus land sparing in a urban context. We analyze these questions by way of a theoretical microeconomics framework taking into account both households’ preferences for open space and regulator’s interest for the preservation of ecosystem services. We compare land use patterns at private equilibrium and when the social planner maximizes social welfare.

WP 2018.07 Energy efficiency as a credence good : A review of informational barriers to building energy savings

Forthcoming in Energy Economics.

Louis-Gaëtan Giraudet

Abstract
Information problems have early been suspected to be the main barrier to energy-efficiency investment. I review the vast yet piecemeal research that has been carried out since. Focusing on energy efficiency in buildings, I organize the review around the concept of credence good: just like that of auto repairs or taxi rides, the quality of energy-efficiency measures is never fully revealed to the buyer; as a result, it is subject to multiple information asymmetries. My first contribution is to distinguish symmetric-information problems from information asymmetries. The former arise when information is either incomplete or imperfect, but equally shared by contracting parties; as non-market failures, these can be addressed by technological progress and insurance markets. My second contribution is to give structure to the information asymmetries associated with energy efficiency by disentangling screening, signalling, moral hazard and price discrimination within a variety of contractual relationships involving buyers and sellers, owners and renters, and borrowers and lenders. I find evidence of information asymmetries to be compelling in landlord-tenant relationships, unclear in real estate markets, and scarce in retrofit contracting and financing. I conclude by discussing the intricacies between informational and behavioural problems in energy-efficiency decisions.

WP 2018.06 Economic growth determinants in countries with blue carbon: Natural capital as a limiting factor?

Laura Recuero Virto – Denis Couvet

Abstract
In this paper, we explore the determinants of economic growth in countries with blue carbon, i.e. countries with open access to the sea and high mangrove mitigation potential, to explore the effects of potential anthropogenic pressures on these coastal ecosystems. For this purpose, we build a data set with 23 countries with blue carbon across different regions in the world for the period 1960-2009. We estimate the augmented Solow model including new growth theories, under a Bayesian moving average methodology that accounts for uncertainty. We find evidence that the neoclassical theory (the initial income and the investment in physical capital variables) as well as the demography, the macroeconomic policy and the natural capital theories are the robust determinants of economic growth in countries with blue carbon. In contrast, the investment in physical capital variable, and the macroeconomic policy and the natural capital theories are not relevant when using a worldwide sample of countries. Our contribution is twofold. Firstly, natural capital exploitation, together with the high fertility rates in countries with blue carbon, highlight the potential anthropogenic pressures that coastal areas with blue carbon can be subject to such as land conversion for agriculture or aquaculture, farming run-offs, over-exploitation of blue carbon resources, urbanization, uncontrolled sewage and public works which, in turn, can degrade blue carbon ecosystems. Given these findings, we highlight the role of central governments to provide incentives for the protection of these nature-based solutions at the level of local policy makers and communities, and of international financial institutions to provide financial support for such initiatives in the developing countries that are represented in our data set. Secondly, our results on the role of natural capital on economic growth is largely consistent with the findings in the empirical literature on the economic growth determinants in developing countries. Indeed, compared to an average country the value of national natural capital per capita is reduced by more than half and there is evidence in the empirical literature that this is limiting factor for economic growth. In addition, there is also empirical evidence that a too strong economic dependence on national natural capital, almost two times higher than in an average country in our case, has a negative impact on economic growth.

WP 2018.05 Energy Consumption in the French Residential Sector: How Much do Individual Preferences Matter?

A paraître dans The Energy Journal.

Salomé Bakaloglou – Dorothée Charlier

Abstract
The aim of this research is to understand the weight of preference heterogeneity in explaining energy consumption in French homes. Using a discrete-continuous model and the conditional mixed-process estimator (CMP) allows us to tackle two potential endogeneities in residential energy consumption: energy prices and the choice of equipment. As a major contribution, we provide evidence that preferences for comfort over energy savings do have significant direct and indirect impacts on energy consumption, especially for high-income households. Preferring comfort over economy or one additional degree of heating implies an average energy overconsumption of 10% and 7.8% respectively, up to 36% for high-income households. Our results strengthen the belief that household heterogeneity is a substantial factor in explaining energy consumption and could have meaningful implications for the design of public policy tools aimed at reducing energy consumption in the residential sector.

WP 2018.04 Tarification incitative et gestion des déchets ménagers : études du comportement des collectivités locales françaises

Amandine Gnonlonfin – Yusuf Kocoglu

Abstract
Although the evidence of the incentive-based pricing effectiveness to reduce the production of Municipal Solid Waste (MSW) and to increase the recycling, its adoption in France has been barely developed over the two last decades. This paper analyses the determinants of incentivebased pricing adoption by French local governments. We investigate the effect of the MSW management cost on the decision of the local government in two ways. First we estimate the effect of the variation of the MSW management total cost on the probability to observe an incentive-based pricing and second, we estimate the effect of the incentive-based pricing on the MSW management total cost. Results highlight that the decision of the local government is subjected to the cost-benefit analysis and the decision of neighboring local governments. Further, results show that the French regulation has skewed the cost-benefit analysis of local government and consequently has slow down incentive-based pricing adoption.

WP 2018.03 The determinants of economic growth in countries with high marine biodiversity: Effects of potential anthropogenic pressures on the marine environment

Laura Recuero Virto – Denis Couvet – Frédéric Ducarme

Abstract
In this paper, we explore the economic growth determinants in 74 countries with high marine biodiversity for the period 1960-2009 through methodologies that take into account theory and specification uncertainty and the presence of multiple growth regimes. We find, firstly, that neoclassical (income), demography, macroeconomic policy, natural capital, fractionalisation and institutions theories are robust determinants of economic growth in these coastal countries. These results suggest that a country’s capacity to deal with marine biodiversity is associated with factors that impact economic growth. Secondly, in contrast with worldwide data sets, macroeconomic policies and natural capital are additional robust determinants of economic growth. There is strong historical evidence on the role of macroeconomic policies and non-renewable natural resources in trade flows and economic growth in coastal countries. Both factors, together with demography, highlight the pressures that coastal areas can be subject to such as construction and public works, population growth and urbanisation which, in turn, may degrade marine biodiversity. In fact, compared to other countries, coastal countries with high marine biodiversity have higher fertility rates, higher international trade exchanges, greater government consumption and lower institutional endowments. Thirdly, we find that education plays an important role in these countries. The rate of economic convergence increases with the level of education. Moreover, education and investment in physical capital have a significant and positive impact on economic growth in countries with very high levels of marine biodiversity. All together, our results suggest that diversifying away from natural capital wealth by investing in education and, more generally, in intangible capital can enhance economic growth, particularly in countries with very high levels of marine biodiversity. In turn, this structural change can contribute to remove pressure from marine biodiversity hotspots, mainly through lower fertility rates as education increases and lower dependence on natural capital exports via coastal areas.

WP 2018.02 Do Entrepreneurship Policies Work? Evidence from 460 Start-Up Program Competitions Across the Globe

Geoffrey Barrows

Abstract
Many organizations around the world implement programs designed to encourage entrepreneurship, including grant prize awards, accelerator programs, incubators, etc. The goal of these programs is to supply entrepreneurs with early-stage support and visibility to help develop ideas and attract capital; but, if capital markets are efficient, good business ideas should find funding anyways. In this paper, I present evidence from the first global-scale, quasi-experimental study of whether entrepreneurship programs improve outcomes for start-up firms. I employ a regression discontinuity design to test whether winners of start-up program competitions perform better ex-post than losers, where the threshold rank for winning the competition provides exogenous variation in program participation. With 460 competitions across 113 countries and over 20,000 competing firms, I find that winning a competitions increases the probability of firm survival by 64%, the total amount of follow-on financing by $260,000 USD, and total employment by 47%, as well as other web-based metrics of firm success. Impacts are driven by medium-size prize competitions, and are precisely estimated both in countries where the costs of starting a business are low and where these costs are high. These results suggest that capital market frictions indeed prohibit start-up growth in many parts of the world.

WP 2018.01 Unequal vulnerability to climate change and the transmission of adverse effects through international trade

Karine Constant – Marion Davin

Abstract
In this paper, we consider the unequal distribution of climate change damages in the world
and we examine how the underlying costs can spread from a vulnerable to a non-vulnerable country through international trade. To focus on such indirect effects, we treat this topic in a North-South trade overlapping generations model in which the South is vulnerable to the damages entailed by global pollution while the North is not. We show that the impact of climate change in the South can be a source of welfare loss for northern consumers, in both the short and the long run. In the long run, an increase in the South’s vulnerability can reduce the welfare in the North economy even in the case in which it improves its terms of trade. In the short run, the South’s vulnerability can also represent a source of intergenerational inequity in the North. Therefore, we emphasize the strong economic incentives for non-vulnerable -and a fortiori less-vulnerable – economies to reduce the climate change damages on – more – vulnerable countries.

Forthcoming in Environmental and Resource Economics (2018).

Simon Quemin – Christian de Perthuis

Abstract
Linkages between Emissions Trading Systems are deemed an important element of the future climate policy landscape. They are, however, difficult to agree and remain few and far between. Temporary restrictions on permit trading have potential to facilitate and gradually approach unrestricted, full linkage. We compare the relative merits of several link restrictions in this respect, namely quantitative restrictions, border permit taxes, exchange and discount rates, and unilateral linkage. To this end, we develop a simple model to have a unifying, comparative framework which, in conjunction with lessons from real-world experiences, serves a basis for a broader, policy-oriented discussion.

WP 2017.30 Why is price useless to signal environmental quality ?

Alexandre Volle

Abstract
In a context where the credibility of green certification is questioned the present paper investigates the role of price as a possible substitute channel of communication as it has been largely developed since Milgrom and Roberts (1986). In this article, the purpose is to examine the pricing behavior of a green firm competing against a brown firm where the polluting good is sold in a perfectly competitive market. Due to the competitive fringe on the low-quality side, the distortion of the price required to signal a green product is too great to face any demand. As a result pooling price equilibria emerge as the most plausible situations as long as the brown firm can mimic the pricing behavior of the green firm. A green producer is thus constrained to practice uninformative prices which can lead to the lemon outcome (Akerlof, 1970).

WP 2017.29 A cost-benefit approach for prioritizing invasive species

Published in Ecological Economics (2018), 146, 607-620.

Pierre Courtois – Charles Figuières – Chloé Mulier – Joakim Weill

Abstract
Biological invasions entail massive biodiversity losses and tremendous economic impacts that justify significant management efforts. Because the funds available to control biological invasions are limited, there is a need to identify priority species. This paper first reviews current invasive species prioritization methods and explicitly highlights their pitfalls. We then construct a cost-benefit optimization framework that incorporates species utility, ecological value, distinctiveness, and species interactions. This framework offers the theoretical foundations of a simple method for the management of multiple invasive species under a limited budget. We provide an algorithm to operationalize this framework and render explicit the assumptions required to satisfy the management objective.

WP 2017.28 Stacking up the Ladder: A Panel Data Analysis of Tanzanian Household Energy Choices

Published in World Development (2018), 115, 222-235.

Johanna Choumert – Pascale Combes Motel – Leonard Le Roux

Abstract
Energy-use statistics in Tanzania reflect the country’s low level of industrialization and development. In 2016, only 16.9% of rural and 65.3% of urban inhabitants in mainland Tanzania were connected to some form of electricity. We use a nationally representative three-wave panel dataset (2008-2013) to contribute to the literature on household energy use decisions in Tanzania in the context of the stacking and energy ladder hypotheses. We firstly adopt a panel multinomial-logit approach to model the determinants of household cooking- and lighting-fuel choices. Secondly, we focus explicitly on energy stacking behaviour, proposing various ways of measuring what is inferred when stacking behaviour is thought of in the context of the energy transition and presenting household level correlates of energy stacking behaviour. Thirdly, since fuel uses have gender-differentiated impacts, we investigate women’s bargaining power in the decision-making process of household fuel choices. We find that whilst higher household incomes are strongly associated with a transition towards the adoption of more modern fuels, especially lighting fuels, this transition takes place in a context of significant fuel stacking. In Tanzania, government policy has been aimed mostly at connecting households to the electric grid.
However, the public health, environmental and social benefits of access to modern energy sources are likely to be diminished in a context of significant fuel stacking. Lastly, we present evidence that the educational attainment of women in the household is an important aspect of householdfuel choices.

WP 2017.27 Recycling of a Primary Resource and Market Power: The Alcoa Case

Bocar Samba Ba

Abstract
The purpose of this paper is threefold. First, it investigates the influence of the prospect of recycling on the per-period market power of an extractor, which can be associated with Alcoa when the recycling sector it faces is competitive. Second, it analyzes whether or not the extractor’s first period market power is affected when it is capacity constrained. Third, it explores whether the structure of the recycling sector affects the extractor’s per-period market power or not. Toward these ends, we study a two-period Cournot framework where the extractor produces aluminum over two consecutive periods. In the second period, it engages in competition with a recycling sector that can be competitive or not. Our results run as follows. (1) When the recycling sector is not competitive, recycling does not affect the extractor’s first period market power but increases its second period market power. (2) When the recycling sector is competitive, the extractor’s second period market power increases with the recycled output but becomes lower (compared to the non-competitive case), while its first period market power can be lower or higher (compared to the non-competitive case). Then, it can increase or decrease with the recycled output. (3) In either case, the extractor’s first period market power further increases when the primary resource constraint is binding. (4) We also show that the extractor’s market power can increase or decrease over time.

WP 2017.26 Polarisation of Eco-Labelling Strategies

Vera Danilina

Abstract
This research investigates two main types of voluntary eco-labels – multiple-criteria-based programmes (ISO Type I) and self-declared environmental claims (ISO Type II) – both of which are simultaneously introduced due to the environmental concerns of consumers. The model illustrates the polarisation of eco-labels when the least productive firms tend to avoid green strategies, and the most efficient firms are incentivized to greenwash. The choice of middle-productive firms is determined by the stringency of the environmental programmes and the eco-sensitivity of consumer demand. The paper also indicates the increase of promotion activity and the decrease of application and licence fees of the Type I programme as the most efficient policy tools to narrow greenwashing market segments.

WP 2017.25 Intergenerational equity under catastrophic climate change

Aurélie Méjean – Antonin Pottier – Stéphane Zuber – Marc Fleurbaey

Abstract
Climate change raises the issue of intergenerational equity. As climate change threatens irreversible and dangerous impacts, possibly leading to extinction, the most relevant trade-off may not be between present and future consumption, but between present consumption and the mere existence of future generations. To investigate this trade-off, we build an integrated assessment model that explicitly accounts for the risk of extinction of future generations. We compare different climate policies, which change the probability of catastrophic outcomes yielding an early extinction, within the class of variable population utilitarian social welfare functions. We show that the risk of extinction is the main driver of the preferred policy over climate damages. We analyze the role of inequality aversion and population ethics. Usually a preference for large populations and a low inequality aversion favour the most ambitious climate policy, although there are cases where the effect of inequality aversion is reversed.

WP 2017.24 Does the Expansion of Biofuels Encroach on the Forest?

Published in Journal of Forest Economics (2018), 33, 75-82.

Derya Keles – Johanna Choumert – Pascale Combes Motel – Eric Kere

Abstract
In this article, we explore the role of biofuel production on deforestation in developing and emerging countries. Since the 2000s biofuel production has been rapidly developing to address issues of economic development, energy poverty and reduction of greenhouse gas (GHG) emissions. However, the sustainability of biofuels is being challenged in recent research, particularly at the environmental level, due to their impact on deforestation and the GHG emissions they can generate as a result of land use changes. In order to isolate the impact of bioethanol and biodiesel production among classic determinants of deforestation, we use a fixed effects panel model on biofuel production in 112 developing and emerging countries between 2001 and 2012. We find a positive relationship between bioethanol production and deforestation in these countries, among which we highlight the specificity of Upper-Middle-Income Countries (UMICs). An acceleration of incentives for the production of biofuels, linked to a desire to strengthen energy security from 2006 onwards, enables us to highlight higher marginal impacts for the production of bioethanol in the case of developing countries and UMICs. However, these results are not significant before 2006 for developing countries, and biodiesel production appears to have an impact on deforestation before 2006 on both subsamples. These last two results seem surprising and could be related to the role of biofuel production technologies and the crop yields used in their production.

WP 2017.23 Voluntary agreements as correlated equilibria of a subscription game

Anne-Sarah Chiambretto

Abstract
We develop a n-player subscription game, modified so as to represent firms’ incentives to participate to an environmental Voluntary Agreement (VA). Specifically, the latter is assumed to be preemptive, i.e. to occur under the threat of a mandatory regulation. We suggest the use of a correlation device to strengthen firms’ participation decisions, formalized by the concept of correlated equilibrium (CE). The multiple pure and mixed Nash equilibria (NE) of the game without the correlation device are characterized. It is shown that the unique symmetric mixed NE can be implemented by using the correlation device. Furthermore, we find that such a device not only solves the problem raised by multiplicity of NE, but also ensures that a higher expected aggregate payoff is reached for any given level of threat, t. We thus provide a comparative efficiency analysis and study the impact of the threat stringency. Our general results are illustrated in a specified example of pollution abatement model.

WP 2017.22 Logging Concessions, Certification & Protected Areas in the Peruvian Amazon: forest impacts from combinations of development rights & land-use restrictions

Jimena Rico – Stephanie Panlasigui – Colby J. Loucks – Jennifer Swenson – Alexander Pfaff

Abstract
Economic activities (agriculture, logging, mining) drive tropical forest loss, so balancing development and conservation involves tradeoffs – as well as synergies. Conservation policies, such as protected areas (PAs), may save more forest when they include some development rights (Pfaff et al. 2014). There is less evidence about when development policies, such as logging concessions, include some conservation restrictions. The right to log creates an incentive for private firms to defend their forest assets, although firms could raise or reduce forest loss depending upon their capacities to defend, their motivations to log and public oversight. Reduced loss may be rewarded through voluntary certification or third-party oversight of logging practices, whose impact we hypothesize depends upon firms’ logging motivations and their capacities to restrict loss. To shed empirical light, we examine forest impacts from rights and restrictions within the Peruvian Amazon during 2000-2013, removing biases using location and year effects. Compared to control forests outside of concessions and PAs, we find PAs reduce tree-cover loss − while those PAs that include development rights save more forest than strict PAs, for each region. Logging concessions reduce forest loss in Madre de Dios, yet they increase loss in Ucayali. Certification has an impact – 1% reduction in 2000-2013 forest loss − only in Madre de Dios, consistent with higher certification impacts if private firms choose to restrict loss.

WP 2017.21   2017 FAERE Prize
Beyond perfect substitutability in public good games: heterogeneous structures of preferences

Marion Dupoux

Abstract
The literature on public good games is very focused on the additive separability of the values of the private and the public goods. Yet, the additive structure underlies a perfect
substitutability relationship between private and public goods, which is a strong assumption. This paper studies the effect of payoff/preference structures on contributions to the
public good within a voluntary contributions experiment in both homogeneous and heterogeneous groups. Within the structure of substitutability, I find that subjects free-ride more often when they interact with subjects of the other type (complementarity) for whom it is optimal to contribute. Introducing such a heterogeneity may provide a method for the identification of free-riders. Nonetheless, an advantageous inequality aversion emerges as well. This means that under perfect substitutability, subjects tend to dislike earning too much compared to their group member whose payoffs underlie complementarity, a more constraining structure.

WP 2017.20 Institutional determinants of protest responses in stated preference studies

Victor Champonnois

Abstract
In stated preference surveys, institutional context is often found to be an important determinant of protest responses. However, the very same institutional context does not change within one survey, enabling no strong conclusion about its effect on the protest behavior. Moreover, although the importance of the institutional context on the choice of a payment vehicle has been suspected, no study is specifically devoted to the way their interaction affects the protest rate. This paper tries to fill these gaps by relying on meta-data on stated preference studies for environmental goods along with institutional variables at the country level. Results show that institutional variables are significant determinants of the protest rates, but there is no significant evidence to suggest that the choice of a payment vehicle affects differently the probability of protesting depending on the institutional context.

WP 2017.19 Do climatic events influence internal migration ? Evidence from Mexico

Vincente Ruiz

Abstract
A growing body of evidence suggests that changes in both environmental quality and climatic patterns influence population movements. In this paper, I provide evidence-based analysis on the effects of climatic factors on internal migration in Mexico. In particular, I focus my analysis on the role of droughts and abundant rainfall. My results show that, in addition to socio-economic conditions and violence, both natural phenomena act as push factors for internal migration in the country.

WP 2017.18 Combining Rights and Welfarism: a new approach to intertemporal evaluation of social alternatives

Published in Social Choice and Welfare (2018), 50(1), 35-54.

Ngo Van Long – Vincent Martinet

Abstract
We propose a new criterion reflecting both the concern for rights and the concern for welfare in the evaluation of economic development paths. The concern for rights is captured by a pre-ordering over combinations of thresholds corresponding to floors or ceilings on various quantitative indicators. The resulting constraints on actions and on levels of state variables are interpreted as minimal rights to be guaranteed to all generations, for intergenerational equity purposes. The level of these rights are endogenously chosen, accounting for the « cost in terms of welfare” of granting them. Such a criterion could embody the idea of sustainable development. We provide an axiomatization of such a criterion and characterize the tension between rights and welfare in a general economic framework. We apply the criterion to the standard Dasgupta-Heal-Solow model of resource extraction and capital accumulation. We show that if the weight given to rights in the criterion is sufficiently high, the optimal solution is on the threshold possibility frontier. The development path is then « driven” by the rights. In particular, if a minimal consumption is considered as a right, constant consumption can be optimal even with a positive utility discount rate. In this case, the shadow value of the right plays an important role in the determination of the rate of discount to be applied to social investment projects.

WP 2017.17 The importance of considering optimal government policy when social norms matter for the private provision of public goods

Guy Meunier – Ingmar Schumacher

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.

WP 2017.16 A simple method to study local bifurcations of three and four-dimensional systems : characterizations and economic applications

Published in Mathematical Social Sciences (2019), 97, 38-50.

Stefano Bosi – David Desmarchelier

Abstract
We provide necessary and sufficient conditions to detect local bifurcations of three and four-dimensional dynamical systems in continuous time. We characterize not only the bifurcations of codimension one but also those of codimension two. The added value of this methodology rests on its generality and tractability. To illustrate the simplicity of our approach, we provide two analytical applications of dimension three and four to environmental economics, complemented with numerical simulations.

WP 2017.15 The impact of renewable versus non-renewable natural capital on economic growth

Laura Recuero Virto – Denis Couvet

Abstract
This paper examines whether natural capital is a robust determinant of economic growth, distinguishing the contribution of direct and indirect effects in renewable and non-renewable natural capital. Our hypothesis is that renewable natural capital may have a rather indirect but more important impact on economic growth than non-renewable natural capital, particularly through human well-being. In contrast, non-renewable natural capital can be a source of immediate financial wealth, but can have adverse social and environmental effects. To test this hypothesis we use a data set on 83 countries for the period 1960-2009 to compare the relevance of proximate and fundamental theories to explain economic growth. We find some evidence of an indirect negative impact of renewable natural capital in wealth on economic growth through through human well-being and, more precisely, population growth rates and fertility. This is particularly the case for countries with higher levels of human development. In contrast, the share of non-renewable natural capital in wealth has a direct positive impact on economic growth in countries with lower income inequality and higher institutional quality. This finding reflects the effect of capital accumulation in the domestic economy, as capacity constrainst are relaxed. Finally, countries with higher income per capita, higher human development and higher institutional quality have a higher share of higher renewable natural capital per capita, although they also have a lower share of lower renewable natural capital in wealth. Such result emphasises that renewable natural capital is very necessary for people (per capita), hence isa primary concern for empowered countries, although such capital contributes less to wealth, and economic growth, in these countries. Our results question the way ‘wealth’ and economic growth are defined in economics when the effect of natural capital is examined.

WP 2017.14 Can a hazardous event be another source of poverty traps ?

Can Askan Mavi

Résumé
This paper aims to present a new explanation for poverty traps, by the presence of hazardous event probability. We show that adaptation and mitigation policies have different effects on the occurrence of poverty traps : the former could cause a poverty trap while the latter could save from the trap since it decreases the abrupt event probability. As a result, we present a new trade-off between adaptation and mitigation policy other than the usual dynamic trade-off highlighted in many studies (Zemel (2015), Tsur and Zemel (2015)), which is crucial for developing countries. Our simulation results show that a trapped economy adopts an aggressive exploitation policy with higher abrupt event risk while the economy at high equilibrium becomes more precautionary. We also show that when the economy faces a higher risk, the social planner gives more weight to adaptation than to mitigation activity.

WP 2017.13 Does the literature support a high willingness to pay for green label buildings? An answer with treatment of publication bias

Published in Revue d’économie politique (2018), 128(5), 1013-1046.

Florian Fizaine – Pierre Voye – Catherine Baumont

Abstract
Increasing attention is being paid to the building sector due to its importance in the climate change debate. In recent years, a growing literature on the price premium paid by consumers to access more efficient and sustainable buildings has emerged as a common topic in hedonic model estimations. In this paper, we aim to provide a summary of this literature by conducting a meta-analysis of more than 50 studies from around the world. In this way, based on a random effects models and weighted OLS robust clustering estimations, we offer an average estimation of the price premium accepted by economic agents (in terms of sale prices) in order to enjoy energy efficient and sustainable buildings. This supports the argument that investing in building refurbishment is worthwhile and economically relevant. However, our data seem to show a major publication bias. Correcting for this bias leads us to halve the original estimation (from 8% to 4%). In addition, we analyze the sources of result dispersion by performing a meta-regression using different moderators (type of publication, sample analysis period, econometric method, etc.). We also carry out different statistical tests and use alternative selection criteria in order to check whether our estimations are robust. Finally, we make recommendations for future hedonic studies as well as for upcoming meta-analyses of the green building premium.

WP 2017.12 Spatial Analysis of Emissions in Sweden

Published in Energy Economics (2017), 168, 383-394.

George Marbuah – Franklin Amuakwa-Mensah

Abstract
This paper contributes to an emerging literature on the environmental Kuznets curve (EKC) relationship between pollution and income at the local level by analyzing emissions of carbon dioxide (CO2), sulfur dioxide (SO2), nitrogen oxides (NOX), carbon monoxide (CO), particulate matter (PM2.5 and PM10) and total suspended particulate (TSP). We conduct several spatial statistical and econometric tests to account for spatial dependence between 290 Swedish municipalities on the selected emissions. Results highlight evidence that the pollution and income relationship is significantly characterized by spatial interaction effects. That is, municipality per capita emissions are strongly influenced by emissions trajectories in neighbouring municipalities. Implications of our findings on policy are discussed.

WP 2017.11 Towards a less vulnerable and more sustainable development : heritage tourism in island economies

Natalia Zugravu-Soilita – Vincent Geronimi – Christine Le Gargasson – Jessy Tsang King Sang

Abstract
For many small island economies, international tourism is an essential source of growth. However, considering the sustainability of their development path, it is not necessarily possible nor desirable for all of them. We consider the existence of nonlinear relationships between specialization in tourism, vulnerability and sustainability. By using panel regression analysis, we
show that international tourism reduces vulnerability and increases sustainability—captured by the genuine savings—only for intermediate tourism specialization levels. Alternatively, vulnerability increases and sustainability decreases when tourism specialization levels are below [above] certain thresholds, found to be twice less [higher] (or even insignificant) for island economies compared to other countries in the world. We assume that the level of differentiation (through the mobilization of natural and/or cultural heritage) of tourist services should moderate the effect of specializing in tourism on vulnerability and sustainability. Empirical results show that heritage-based tourism is one of the most sustainable strategies for the islands highly relying on tourism activities. Alternative tourism strategies are discussed based on our empirical results and illustrative case studies.

WP 2017.10 Assessing the sustainability of optimal pollution paths in a world with inertia

Published in Environmental Modeling and Assessment (2018), https://doi.org/10.1007/s10666-018-9612-8.

Marc Léandri – Mabel Tidball

Abstract
Most formal optimal pollution control models assume a constant natural assimilative capacity, despite the biophysical evidence on feedback effects that can degrade this environmental function, as it is the case with the reduction of ocean carbon sinks in the context of climate change. The few models that do consider this degradation establish a bijective relation between the pollution stock and the assimilative capacity, thus ignoring the inertia mechanism at stake. Indeed the level of assimilative capacity is not solely determined by the current pollution stock but by the history of this stock and by the time the ecosystem remains above the degradation threshold. We propose an inertia assessment tool that tests the sustainability of any benchmark optimal pollution path when the inertia of the assimilative capacity degradation process is taken into account. Our simulations show a strong sensitivity to both the inertia degradation speed and the discount rate.

WP 2017.09 Smart Grids and Renewable Electricity Generation by Households

Prudence Dato – Tunç Durmaz – Aude Pommeret

Abstract
The aim of the study is to analyze investments in intermittent renewable energy and energy storage by a household (HH). The novelty of our model accrues from the flexi-bility it assigns to a HH in feeding (purchasing) electricity to (from) the grid or storing energy from renewable energy installations. We study the consequences of demand-side management for a HH by accounting for three levels of equipment in smart grids. The first level refers to the possibility of feeding electricity to the grid, which can be achieved relatively simply by net metering. The second level concerns the installation of smart meters. The third level relates to energy storage. We analyze decisions concerning photovoltaic system and energy storage investments, and the consequences of energy storage and smart meters for electricity consumption and purchases of electricity from the grid. Additionally, we study the desirability of a smart meter installation and the implications of curtailment measures for avoiding congestion. Our results indicate that dynamic tariffs, which should encourage HHs to use the power system efficiently and, thus, to save energy, can lead to more reliance on the grid. Thus, the dynamic tariff structure needs to be carefully planned.

WP 2017.08 Can Land Fragmentation Reduce the Exposure of Rural Households to Weather Variability?

Published in Ecological Economics (2018), 154, 42-51.

Stefanija Veljanoska

Abstract
Climate change continuously affects African farmers that operate in rain-fed environments. Coping with weather risk through credit and insurance markets is almost inexistent as these markets are imperfect in the African economies. Even though land fragmentation is often considered as a barrier to agricultural productivity, this article aims at analyzing whether land fragmentation, as an insurance alternative, is able to reduce farmers’ exposure to weather variability. In order to address this research question, I use the Living Standards Measurement Study-Integrated Surveys on Agriculture (LSMS-ISA) data on Uganda. After dealing with the endogeneity of land fragmentation, I find that higher land fragmentation decreases the loss of crop yield when households experience rain deviations. Therefore, policy makers should be cautious with land consolidation programs.

WP 2017.07 Environmental Policy and Human Capital Inequality: A Matter of Life and Death

Published in Journal of Environmental Economics and Management (2018), https://doi.org/10.1016/j.jeem.2018.04.009.

Karine Constant

Abstract
This paper analyzes the economic implications of an environmental policy when we account for the life expectancy of heterogeneous agents. In a framework in which everyone suffers from pollution but health status also depends on individual human capital, we find that the economy may be stuck in a trap in which inequality rises steadily, especially when the initial pollution intensity of production is too high. We emphasize that such inequality is in the long run costly for the economy in terms of health and growth. Therefore, we study whether a tax on pollution associated with an investment in pollution abatement can be used to address this situation. We show that a stricter environmental policy may allow the economy to escape from the inequality trap while enhancing the long-term growth rate when the initial inequality in human capital is not too large.

WP 2017.06 Intertemporal Abatement Decisions under Ambiguity Aversion in a Cap and Trade

Simon Quemin

Abstract
We study intertemporal abatement decisions by an ambiguity averse firm covered under a cap and trade. Ambiguity aversion is introduced to account for the prevalence of regulatory uncertainty in existing cap-and-trade schemes. Ambiguity bears on both the future permit price and the firm’s demand for permits. Ambiguity aversion drives equilibrium choices away from intertemporal efficiency and induces two effects: a pessimistic distortion of beliefs that overemphasises ‘detrimental’ outcomes and a shift in the effective discount factor. Permit allocation is non neutral and the firm’s intertemporal abatement decisions do not solely depend on expected future permit prices, but also on its own expected future market position. In particular, pessimism leads the expected net short (resp. long) firm to overabate (resp. underabate) early on relative to intertemporal efficiency. We show that there is a general incentive for early overabatement and that it is more pronounced under auctioning that under free allocation.

WP 2017.05 Investment in Energy Efficiency, Adoption of Renewable Energy and Household Behaviour: Evidence from OECD countries

Revised version 01.2018
Published in The Energy Journal (2018), 39(3), 213-245.

Prudence Dato

Abstract
There are possible synergies between the decision to invest in energy efficiency measures and to adopt renewable energy, in the sense that the former reduces energy demand so that the latter can further cut future greenhouse gas (GHG) emissions, and which has great potential in the residential sector. Much work has been done in the residential sector on demand for clean energy and on investment in energy efficiency, but to our knowledge there is no specific study that investigates the relationship between the two. This paper fills a gap in the literature, and first shows theoretically that there are relationships of substitution or complementarity between the two decisions depending on the threshold of the cross effect related to the environmental motivation of the consumer. Second, the paper empirically shows that the two decisions are positively interrelated due to unobserved characteristics that determine both decisions. Third, the paper provides differential impact of energy poverty, split incentive problem, dwelling characteristics, commitment and trust on the two decisions. Finally, the paper investigates household characteristics that significantly affect the joint adoption of energy efficient and renewable energy technologies. This contribution can serve to define incentive policies to advance the energy transition.

WP 2017.04 The Biofuel-Development Nexus: A Meta-Analysis

Published in Ecological Economics (2018), 147, 230-242.

Johanna Choumert – Pascale Combes Motel – Charlain Guegang

Abstract
Although the production of biofuels has expended in recent years, the literature on its impact on growth and development finds contradictory findings. This paper presents a meta-analysis of computable general equilibrium studies published between 2006 and 2014. Using 26 studies, we shed light on why results differ. We investigate factors such as the type of biofuels, the geographic area and the characteristics of models. Our results indicate that the outcomes of CGE simulations are sensitive to models parameters. They also suggest a divide between developed / emerging countries versus Sub-Saharan African countries.

WP 2017.03 Sustainability of an economy relying on two reproducible assets

Robert D. Cairns – Stellio Del Campo – Vincent Martinet

Abstract
Evaluating the sustainability of a society requires a system of shadow or accounting values derived from the sustainability objective. As a first step toward the derivation of such shadow values for a maximin objective, this paper studies an economy composed of two reproducible assets, each producing one of two consumption goods. The effect of the substitutability between goods in utility is studied by postulating, in turn, neoclassical diminishing marginal substitutability, perfect substitutability and perfect complementarity. The degree of substitutability has strong effects on the maximin solution, affecting the regularity or non-regularity of the program, and on the accounting values. This has important consequences for the computation of genuine savings and the sustainability prospects of future generations.

WP 2017.02 Natural cycles and pollution

Published in Mathematical Social Sciences (2018), 96, 10-20.

Stefano Bosi – David Desmarchelier

Abstract
In this paper, we study a competitive Ramsey model where a pollution externality, coming from production, impairs a renewable resource which affects the consumption demand. A proportional tax, levied on the production level, is introduced to finance public depollution expenditures.
In the long run, two steady states may coexist, the one with a low resource level, the other with a high level. Interestingly, a higher green tax rate lowers the resource level of the low steady state, giving rise to a Green Paradox (Sinn, 2008). Moreover, the green tax may be welfare-improving at the high steady state but never at the low one. Therefore, at the latter, it is optimal to reduce the green tax rate as much as possible. Conversely, the optimal tax rate is positive when the economy experiences the high steady state. This rate is unique.
In the short run, the two steady states may collide and disappear through a saddle-node bifurcation. Since consumption and natural resources are substitutable goods, a limit cycle may arise around the high stationary state. To the contrary, this kind of cycles never occur around the low steady state whatever the resource effect on consumption demand. Finally, focusing on the class of bifurcations of codimension two, we find a Bogdanov-Takens bifurcation.

WP 2017.01 Exploitation and Recycling of Rare Earths

Bocar Samba Ba – Raphaël Soubeyran

Abstract
We study the exploitation of recyclable exhaustible resources such as rare earths and Phosphorus. We use a standard Hotelling model of resource exploitation that includes a primary sector and a recycling sector. We show that, when the primary sector is competitive, the price of the recyclable resource increases through time. This result stands in contrast to durable resources, for which the optimal price path is either decreasing or U-shaped. We then show a new reason why the price of an exhaustible resource may decrease: when the primary sector is monopolistic, the primary producer has incentives to delay its production activities in order to delay recycling. As a consequence, the price path of the recyclable resource may be U-shaped. We also show that a technological improvement in the recycling sector increases the price in the short term but decreases it later.