Periodic Reporting for period 4 - CONSERVATION (The Economics and Politics of Conservation)
Reporting period: 2021-02-01 to 2021-11-30
As long as humans have exploited natural resources, they must have valued the benefits of not extracting. Still, there are few papers in environmental economics discussing the supply-side of the equations. The objectives of this project was to focus on environmental economics and political economics. In particular (from section 3 in the DoA), specific goals were:
I Develop a theory of conservation, including the economics and the political economics of it.
II Combine the theory of extraction and conservation with the theory of emission and technology investments in a coherent and dynamic game-theoretical framework.
III Investigate in depth the case for a supply-side environmental policy.
IV Develop knowledge on how a supply-side environmental policy can best be designed to complement or substitute for policies regulating emissions.
V Analyse the political economy of emission policies, extraction policies, and of international treaties, to develop our understanding of what types of treaties that will be politically feasible or effective.
VI Improve our understanding for how to design conservation contracts (aimed at reducing deforestation).
I Develop a theory of conservation, including the economics and the political economics of it.
II Combine the theory of extraction and conservation with the theory of emission and technology investments in a coherent and dynamic game-theoretical framework.
III Investigate in depth the case for a supply-side environmental policy.
IV Develop knowledge on how a supply-side environmental policy can best be designed to complement or substitute for policies regulating emissions.
V Analyse the political economy of emission policies, extraction policies, and of international treaties, to develop our understanding of what types of treaties that will be politically feasible or effective.
VI Improve our understanding for how to design conservation contracts (aimed at reducing deforestation).
The paper “Political Economy of Weak Treaties”, published in JPE, 2020, shows that even when strong treaties are possible, policy makers may benefit from weak treaties since that enables them to differentiate themselves from the political challenger in the next election. This paper can explain why democratic countries have not yet succeeded in solving major problems such as the climate change problem.
The paper “Compliance Technology and Self-enforcing Agreements”, published in JEEA, January, 2019, derives the best self-enforcing climate agreement when there is no world government who can force participating countries to comply. We show why substantial investments in green technology /renewable energy might be necessary to make future compliance with the treaty credible. Credibility is important to motivate other countries to comply with their promises. The research findings can both explain and motivate policies intended to encourage investments in new/green technologies, beyond the traditional arguments favoring such policies.
The paper “Technology and Time Inconsistency”, published in JPE, 2020, shows why such technologies are especially important in settings with time inconsistency, i.e. if policy makers wish to implement sustainable policies in the future, but not when the future finally arrives. To commit to sustainable policies in the future, it might thus be necessary to invest in technologies today, which motivate future policy makers to take advantage of this technology and implement sustainable policies with less emissions, for example.
In the paper “Conservation Contracts and Political Regimes”, published in ReStud, 2017, Torben Mideksa and I derives a novel model of resource extraction and conservation where we emphasize the importance of the political system and the political regime. For example, we show how decentralization may lead to more or less deforestation, depending on whether deforestation is illegal or motivated by the districts’ need for revenues. The result can explain puzzling empirical evidence, and they uncover how conservation contracts should be designed. This paper has been nominated for the prestigious Kempe Award. (The PI received this award for another paper in 2013.)
The project “Pledge-and-review bargaining” develops a new bargaining game motivated by the Paris climate change agreement. The model and the results can rationalize several key differences between the Paris agreement and the Kyoto Protocol of 1997, and it can explain the development from Kyoto to Paris. This paper has been presented at a large number of universities in 2018 and 2019.
In 2019, I split the project into two separate papers, and both of these two have now been invited to revision in very good journals.
A new project on “Informing Markets vs. Regulators” is in progress with Georgy Egorov, Northwestern University. This project is still in progress, and thus incomplete.
Based on the above-mentioned paper with Mideksa, we have also written a paper entitled “Contracts and Induced Institutional Change.” This paper shows that conservation contracts from a Northern country can lead to institutional change in a Southern country (f.ex. decentralization, or centralization) and this can lead to negative effects on conservation efforts. We show that in some cases, the negative effects can even outweigh the positive effects of the conservation contract itself. This paper is conditional accepted at the Journal of Law, Economics, and Organization.
In 2020, I wrote a paper entitled “The conservation multiplier.” This paper shows how one government’s decision to conserve or exploit a resource depends on what it believes future governments can do, and I study how lobbyists, and donors, can take advantage of this dynamic linkage. The paper has already been invited for revision at JPE, one of the top four journals in economics.
Based on the above-mentioned paper with Lancia and Russo, we have a follow-up working paper entitled “Policies and Instruments for Self-enforcing agreements.” This studies how climate policy instruments, such as taxes, or quotas, can be compared and selected when the problem is that some countries may be tempted to defect, instead of complying, with the promises that they have made. This was published in Journal of Environmental Economics and Management, January 2022.
A new working paper is entitled “Trade and Trees.” This studies how trade agreements can be designed so as to motivate forest conservation, instead of forest logging, as traditional trade agreements have a tendency to do. I have presented this paper at Yale, the IMF, and a large number of other universities and conferences.
With Jacopo Bizzotto, I have also written the working paper entitled “The choice of certified in endogenous markets.” This paper shows that firms have different incentives for investing in their capacity to reduce emission, or improve their environmental performance, depending on whether there is a product certifier that is controlled by a government, the industry association, or an NGO. We have submitted this paper to a good journal.
The paper “Compliance Technology and Self-enforcing Agreements”, published in JEEA, January, 2019, derives the best self-enforcing climate agreement when there is no world government who can force participating countries to comply. We show why substantial investments in green technology /renewable energy might be necessary to make future compliance with the treaty credible. Credibility is important to motivate other countries to comply with their promises. The research findings can both explain and motivate policies intended to encourage investments in new/green technologies, beyond the traditional arguments favoring such policies.
The paper “Technology and Time Inconsistency”, published in JPE, 2020, shows why such technologies are especially important in settings with time inconsistency, i.e. if policy makers wish to implement sustainable policies in the future, but not when the future finally arrives. To commit to sustainable policies in the future, it might thus be necessary to invest in technologies today, which motivate future policy makers to take advantage of this technology and implement sustainable policies with less emissions, for example.
In the paper “Conservation Contracts and Political Regimes”, published in ReStud, 2017, Torben Mideksa and I derives a novel model of resource extraction and conservation where we emphasize the importance of the political system and the political regime. For example, we show how decentralization may lead to more or less deforestation, depending on whether deforestation is illegal or motivated by the districts’ need for revenues. The result can explain puzzling empirical evidence, and they uncover how conservation contracts should be designed. This paper has been nominated for the prestigious Kempe Award. (The PI received this award for another paper in 2013.)
The project “Pledge-and-review bargaining” develops a new bargaining game motivated by the Paris climate change agreement. The model and the results can rationalize several key differences between the Paris agreement and the Kyoto Protocol of 1997, and it can explain the development from Kyoto to Paris. This paper has been presented at a large number of universities in 2018 and 2019.
In 2019, I split the project into two separate papers, and both of these two have now been invited to revision in very good journals.
A new project on “Informing Markets vs. Regulators” is in progress with Georgy Egorov, Northwestern University. This project is still in progress, and thus incomplete.
Based on the above-mentioned paper with Mideksa, we have also written a paper entitled “Contracts and Induced Institutional Change.” This paper shows that conservation contracts from a Northern country can lead to institutional change in a Southern country (f.ex. decentralization, or centralization) and this can lead to negative effects on conservation efforts. We show that in some cases, the negative effects can even outweigh the positive effects of the conservation contract itself. This paper is conditional accepted at the Journal of Law, Economics, and Organization.
In 2020, I wrote a paper entitled “The conservation multiplier.” This paper shows how one government’s decision to conserve or exploit a resource depends on what it believes future governments can do, and I study how lobbyists, and donors, can take advantage of this dynamic linkage. The paper has already been invited for revision at JPE, one of the top four journals in economics.
Based on the above-mentioned paper with Lancia and Russo, we have a follow-up working paper entitled “Policies and Instruments for Self-enforcing agreements.” This studies how climate policy instruments, such as taxes, or quotas, can be compared and selected when the problem is that some countries may be tempted to defect, instead of complying, with the promises that they have made. This was published in Journal of Environmental Economics and Management, January 2022.
A new working paper is entitled “Trade and Trees.” This studies how trade agreements can be designed so as to motivate forest conservation, instead of forest logging, as traditional trade agreements have a tendency to do. I have presented this paper at Yale, the IMF, and a large number of other universities and conferences.
With Jacopo Bizzotto, I have also written the working paper entitled “The choice of certified in endogenous markets.” This paper shows that firms have different incentives for investing in their capacity to reduce emission, or improve their environmental performance, depending on whether there is a product certifier that is controlled by a government, the industry association, or an NGO. We have submitted this paper to a good journal.
The project has developed economic theory and methods in new directions which can be used for various applications, including the application to environmental economics and conservation.
For example:
* I have showed how political economy models can be combined with models of resource extraction, to illustrate how political forces interact and that these forces can both contribute to more exploitation, but also that conservation contracts can take advantage of them to motivate more conservation.
* I have developed a dynamic game with bargaining to compare the Kyoto Protocol to the Paris agreement. This model allows countries to pollute and to invest in new technology, and it explains several of the differences between the two agreements.
* I have showed how international trade models can be combined with models of resource extraction, to illustrate how the gains from trade interact with exploitation, and that these gains can both contribute to more exploitation, but also that conservation can be motivated by the right type of trade agreement.
For example:
* I have showed how political economy models can be combined with models of resource extraction, to illustrate how political forces interact and that these forces can both contribute to more exploitation, but also that conservation contracts can take advantage of them to motivate more conservation.
* I have developed a dynamic game with bargaining to compare the Kyoto Protocol to the Paris agreement. This model allows countries to pollute and to invest in new technology, and it explains several of the differences between the two agreements.
* I have showed how international trade models can be combined with models of resource extraction, to illustrate how the gains from trade interact with exploitation, and that these gains can both contribute to more exploitation, but also that conservation can be motivated by the right type of trade agreement.