Fair Allocation of Production Externalities: Recent Results

We survey recent axiomatic results in the theory of cost-sharing. In this litterature, a method computes the individual cost shares assigned to the users of a facility for any profile of demands and any monotonic cost function. We discuss two theories taking radically different views of the asymmetries of the cost function. In the full responsibility theory, each agent is accountable for the part of the costs that can be unambiguously separated and attributed to her own demand. In the partial responsibility theory, the asymmetries of the cost function have no bearing on individual cost shares, only the differences in demand levels matter. We describe several invariance and monotonicity properties that reflect both normative and strategic concerns. We uncover a number of logical trade-offs between our axioms, and derive axiomatic characterizations of a handful of intuitive methods: in the full responsibility approach, the Shapley-Shubik, Aumann-Shapley, and subsidyfree serial methods, and in the partial responsibility approach, the cross-subsidizing serial method and the family of quasi-proportional methods.

Production externalities : cooperative and non-cooperative approaches

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Polluting production – environmentally sound alternatives; A general model of production externalities

With the determination of principal parameters of producing and pollution abatement technologies, this paper quantifies abatement and external costs at the social optimum and analyses the dynamic relationship between technological development and the above-mentioned costs. With the partial analysis of parameters, the paper presents the impacts on the level of pollution and external costs of extensive and intensive environmental protection, market demand change and product fees, and not environmental protection oriented technological development. Parametrical cost calculation makes the drawing up of two useful rules of thumb possible in connection with the rate of government in-terventions. Also, the paradox of technological development aiming at intensive environmental protection will become apparent.

Stationary Markovian Equilibrium in Overlapping Generation Models with Stochastic Nonclassical Production

This paper provides new sufficient conditions for the existence, computation via successive approximations, and stability of Markovian equilibrium decision processes for a large class of OLG models with stochastic nonclassical production. Our notion of stability is existence of stationary Markovian equilibrium. With a nonclassical production, our economies encompass a large class of OLG models with public policy, valued fiat money, production externalities, and Markov shocks to production. Our approach combines aspects of both topological and order theoretic fixed point theory, and provides the basis of globally stable numerical iteration procedures for computing extremal Markovian equilibrium objects. In addition to new theoretical results on existence and computation, we provide some monotone comparative statics results on the space of economies.

Existence and Uniqueness of Equilibrium in Nonoptimal Unbounded Infinite Horizon Economies

In applied work in macroeconomics and finance, nonoptimal infinite horizon economies are often studied in the the state space is unbounded. Important examples of such economies are single vector growth models with production externalities, valued fiat money, monopolistic competition, and/or distortionary government taxation. Although sufficient conditions for existence and uniqueness of Markovian equilibrium are well known for the compact state space case, no similar sufficient conditions exist for unbounded growth. This paper provides such a set of sufficient conditions, and also present a computational algorithm that will prove asymptotically consistent when computing Markovian equilibrium.

The incidence and intensity of employer funded training: Australian evidence on the impact of flexible work

The interaction between the growth of flexible forms of employment and employer funded training is important for understanding labour market performance. In particular, the idea of a trade-off has been advanced to describe potential market failures in the employment of flexible workers. This study finds that evidence of a trade-off is apparent in both the incidence and intensity of employer funded training. Flexible workers receive training that is 50-80% less intense than the workforce average. Casual workers - especially males - suffer more acutely from the trade-off. This suggests that flexible production externalities may seriously reduce human capital formation in the workforce.

A frontier functions approach to optimal scales of sustainable production

This paper translates the concepts of sustainable production to three dimensions of economic, environmental and ecological sustainability to analyze optimal production scales by solving optimizing problems. Economic optimization seeks input-output combinations to maximize profits. Environmental optimization searches for input-output combinations that minimize the polluting effects of materials balance on the surrounding environment. Ecological optimization looks for input-output combinations that minimize the cumulative destruction of the entire ecosystem. Using an aggregate space, the framework illustrates that these optimal scales are often not identical because markets fail to account for all negative externalities. Profit-maximizing firms normally operate at the scales which are larger than optimal scales from the viewpoints of environmental and ecological sustainability; hence policy interventions are favoured. The framework offers a useful tool for efficiency studies and policy implication analysis. The paper provides an empirical investigation using a data set of rice farms in South Korea.

Optimal Taxation and Indeterminacy in the Uzawa-Lucas Model with Sector-specific Externalities

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Environmental pricing of externalities from different sources of electricity generation in Chile

The rapid increase in electricity demand in Chile means a choice must be made between major investments in renewable or non-renewable sources for additional production. Current projects to develop large dams for hydropower in Chilean Patagonia impose an environmental price by damaging the natural environment. On the other hand, the increased use of fossil fuels entails an environmental price in terms of air pollution and greenhouse gas emissions contributing to climate change. This paper studies the debate on future electricity supply in Chile by investigating the preferences of households for a variety of different sources of electricity generation such as fossil fuels, large hydropower in Chilean Patagonia and other renewable energy sources. Using Double Bounded Dichotomous Choice Contingent Valuation, a novel advanced disclosure method and internal consistency test are used to elicit the willingness to pay for less environmentally damaging sources. Policy results suggest a strong preference for renewable energy sources with higher environmental prices imposed by consumers on electricity generated from fossil fuels than from large dams in Chilean Patagonia. Policy results further suggest the possibility of introducing incentives for renewable energy developments that would be supported by consumers through green tariffs or environmental premiums. Methodological findings suggest that advanced disclosure learning overcomes the problem of internal inconsistency in SB-DB estimates.

Quantifying the effect of buffer zones, crop areas and spatial aggregation on the externalities of genetically modified crops at landscape level

The development of genetically modified (GM) crops has led the European Union (EU) to put forward the concept of 'coexistence' to give fanners the freedom to plant both conventional and GM varieties. Should a premium for non-GM varieties emerge in the market, 'contamination' by GM pollen would generate a negative externality to conventional growers. It is therefore important to assess the effect of different 'policy variables'on the magnitude of the externality to identify suitable policies to manage coexistence. In this paper, taking GM herbicide tolerant oilseed rape as a model crop, we start from the model developed in Ceddia et al. [Ceddia, M.G., Bartlett, M., Perrings, C., 2007. Landscape gene flow, coexistence and threshold effect: the case of genetically modified herbicide tolerant oilseed rape (Brassica napus). Ecol. Modell. 205, pp. 169-180] use a Monte Carlo experiment to generate data and then estimate the effect of the number of GM and conventional fields, width of buffer areas and the degree of spatial aggregation (i.e. the 'policy variables') on the magnitude of the externality at the landscape level. To represent realistic conditions in agricultural production, we assume that detection of GM material in conventional produce might occur at the field level (no grain mixing occurs) or at the silos level (where grain mixing from different fields in the landscape occurs). In the former case, the magnitude of the externality will depend on the number of conventional fields with average transgenic presence above a certain threshold. In the latter case, the magnitude of the externality will depend on whether the average transgenic presence across all conventional fields exceeds the threshold. In order to quantify the effect of the relevant' policy variables', we compute the marginal effects and the elasticities. Our results show that when relying on marginal effects to assess the impact of the different 'policy variables', spatial aggregation is far more important when transgenic material is detected at field level, corroborating previous research. However, when elasticity is used, the effectiveness of spatial aggregation in reducing the externality is almost identical whether detection occurs at field level or at silos level. Our results show also that the area planted with GM is the most important 'policy variable' in affecting the externality to conventional growers and that buffer areas on conventional fields are more effective than those on GM fields. The implications of the results for the coexistence policies in the EU are discussed. (C) 2008 Elsevier B.V. All rights reserved.

On the regulation of spatial externalities: coexistence between GM and conventional crops in the EU and the 'newcomer principle'

Pollen-mediated gene flow is one of the main concerns associated with the introduction of genetically modified (GM) crops. Should a premium for non-GM varieties emerge on the market, ‘contamination’ by GM pollen would generate a revenue loss for growers of non-GM varieties. This paper analyses the problem of pollen-mediated gene flow as a particular type of production externality. The model, although simple, provides useful insights into coexistence policies. Following on from this and taking GM herbicide-tolerant oilseed rape (Brassica napus) as a model crop, a Monte Carlo simulation is used to generate data and then estimate the effect of several important policy variables (including width of buffer zones and spatial aggregation) on the magnitude of the externality associated with pollen-mediated gene flow.

Testing the externalities hypothesis of endogenous growth using cointegration

The initial endogenous growth models emphasized the importance of externaI effects in explaining sustainable growth across time. Empirically, this hypothesis can be confirmed if the coefficient of physical capital per hour is unity in the aggregate production function. Although cross-section results concur with theory, previous estimates using time series data rejected this hypothesis, showing a small coefficient far from unity. It seems that the problem lies not with the theory but with the techniques employed, which are unable to capture low frequency movements in high frequency data. This paper uses cointegration - a technique designed to capture the existence of long-run relationships in multivariate time series - to test the externalities hypothesis of endogenous growth. The results confirm the theory' and conform to previous cross-section estimates. We show that there is long-run proportionality between output per hour and a measure of capital per hour. U sing this result, we confmn the hypothesis that the implied Solow residual can be explained by government expenditures on infra-structure, which suggests a supply side role for government affecting productivity and a decrease on the extent that the Solow residual explains the variation of output.