No abstract

Computing the no-policy equilibrium (business-as-usual) in a representative-agent (RA) model is complicated by the presence of a pollution externality, since simple optimization internalizes the pollution cost. Many researchers use ad-hoc methods, but there is no way to know how reliable these are. A solution is presented in which the RA model is divided into N identical components, each identified with its own sub-agent. Sub-agents play a dynamic game, leading to a Nash equilibrium. For sufficiently large N, this approach keeps most of the pollution cost external, and in the limit it is equivalent to a myopic-firms model, in which the entire cost is external. This approach has the advantage of theoretical consistency, and empirical applications indicate that it is easily implemented. r 2007 Elsevier B.V. All rights reserved. JEL classification: D62; Q5

In this paper we investigate the issue of respondent uncertainty in contingent valuation studies while estimating the willingness to pay for a whale conservation program o¤ the coasts of Newfoundland and Labrador. We use data from a phone survey administered to a sample (N=614) of adult Canadians, proposing a policy consisting of subsidizing and enforcing the use of acoustic devices that would reduce the likelihood that whales become entangled in …shing nets. A follow-up question asked respondents how certain they were about their answer to the main dichotomouschoice question, which allows us to investigate how the treatment of uncertainty a¤ects value measures. A mean willingness to pay of about $81/year per respondent is estimated when accounting for the degree of certainty with which respondents expressed their willingness to pay. We also analyze payment vehicle e¤ects using a split-sample approach whereby some respondents were asked a dichotomous-choice question about a tax contribution while others were asked about a voluntary donation instead.

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Carbon taxes or tradable permit systems to address climate change may induce research and development in energy-related technologies. We construct a single-knowledge-stock model of R&D, growth and climate to assess the importance of this effect. The contribution of induced R&D is shown to be very sensitive to (i) the duplication externality, (ii) the feasibility of dedicated research subsidies to internalize inter-firm knowledge spillovers, (iii) the opportunity cost of R&D, (iv) the initial level of research expenditure, and (v) the elasticity of substitution between energy and other factors of production. In contrast, the direction and scale of the inter-temporal research spillover are of secondary importance. We find strong support for Rezai's (2011) argument that, when the business-as-usual scenario (no policy) is modeled appropriately (all externalities treated as external), sacrifices for early generations associated with optimal climate policy are minor or non-existent. Employing our preferred selections for the parameters, we find that adding an induced R&D component to the model increases the welfare impact of the first-best policy (optimally chosen carbon tax and research subsidies) by an average value of more than 400%, and of the second-best policy (carbon tax alone) by approximately 22%.