Abstract: Should governments, in discounting the future benefits and costs of public projects, use a discount rate that declines over time? The argument for a declining discount rate is a simple one: if the discount rates that will be applied in the future are persistent, and if the analyst can assign probabilities to these discount rates, this will result in a declining schedule of certainty-equivalent discount rates. A growing empirical literature estimates models of long-term interest rates and uses them to forecast the declining discount rate schedule. I briefly review this literature, focusing on models for the United States. This literature has, however, been criticized for a lack of connection to the theory of project evaluation. In cost-benefit analysis, the net benefits of a project in year t (in consumption units) are to be discounted to the present at the rate at which society would trade consumption in year t for consumption in the present. With simplifying assumptions, this leads to the Ramsey discounting formula. The Ramsey formula results in a declining certainty-equivalent discount rate if the rate of growth in consumption is uncertain and if shocks to consumption are correlated over time. Using the extended Ramsey formula to estimate a numerical schedule of certainty-equivalent discount rates is, however, challenging.

Abstract: In developing countries, consumers can buy many goods either in formal markets or in informal markets and decide where to purchase based on the product's price and anticipated quality. We assume consumers cannot assess quality prior to purchase and cannot, at reasonable cost, identify who produced the good they are considering. Many products (meats, fruits, vegetables, fish, grains) sold both in formal groceries and, less formally, on the street fit this description. We assume that producers can adjust quality at a cost and only firms in the formal sector are subject to government regulation. In the long run, producers migrate to the sector that is more profitable. Using this model, we demonstrate how regulations in the formal sector can lead to a quality gap between formal and informal sector goods. We moreover investigate how changes in regulation affect quality, price, aggregate production, and the number of firms in each sector.

Abstract: Two decades have passed since the Clean Air Act Amendments of 1990 launched a grand experiment in market-based environmental policy: the SO2 cap-and-trade system. That system performed well but created four striking ironies. First, by creating this system to reduce SO2 emissions to curb acid rain, the government did the right thing for the wrong reason. Second, a substantial source of this system’s cost-effectiveness was an unanticipated consequence of earlier railroad deregulation. Third, it is ironic that cap-and-trade has come to be demonized by conservative politicians in recent years, since this market-based, cost-effective policy innovation was initially championed and implemented by Republican administrations. Fourth, court decisions and subsequent regulatory responses have led to the collapse of the SO2 market, demonstrating that what the government gives, the government can take away.

Abstract: This paper reviews the empirical literature on the economic impacts of natural disasters to inform both climate adaptation policy and the estimation of potential climate damages. It covers papers that estimate the short- and long-run economic impacts of weather-related extreme events as well as studies regarding the determinants of the magnitude of those damages (including fatalities). The paper also includes a discussion of risk reduction options and the use of such measures as an adaptation strategy for predicted changes in extreme events with climate change.

Abstract: The environmental remediation required to permanently decommissionmost industrial projects is an expensive and irreversible investment. Real options literature shows that temporarily closing a project and postponing decommissioning has value when economic conditions are uncertain and future reactivation is possible. However, high decommissioning costs create an incentive to “temporarily” close a project, even when there is no intention to reactivate. This paper estimates a dynamic discrete choice model of closure to evaluate the likelihood of reactivation. The model reveals that the option to temporarily close is being widely used to avoid environmental remediation of oil and gas wells in Canada.

Abstract: According to proponents, voluntary agreements (VAs) negotiated with polluters sidestep weak institutions and other barriers to conventional environmental regulation in developing countries. Yet little is known about their effectiveness. We examine VAs in Colombia, a global leader in the use of these policies. We find that the main motive for using VAs has been to build capacity needed for broader environmental regulatory reform. Their additional effect on environmental performance has been questionable. These findings suggest that in developing countries, VAs may be best suited to capacity building, not environmental management per se.

Abstract: According to proponents, voluntary agreements (VAs) negotiated with polluters sidestep weak institutions and other barriers to conventional environmental regulation in developing countries. Yet little is known about their effectiveness. We examine VAs in Colombia, a global leader in the use of these policies. We find that the main motive for using VAs has been to build capacity needed for broader environmental regulatory reform. Their additional effect on environmental performance has been questionable. These findings suggest that in developing

Abstract: A deposit-refund system combines a tax on product consumption with a rebate when the product or its packaging is returned for recycling. Deposit-refunds are used for beverage containers, lead-acid batteries, motor oil, tires, various hazardous materials, electronics, and more. In addition, researchers have shown that the approach can be used to address many other environmental problems beyond waste disposal. By imposing an up-front fee on consumption and subsidizing "green" inputs and mitigation activities, a deposit-refund may be able to efficiently control pollution in much the same way as a Pigovian tax. Theoretical models have shown that alternative waste disposal policies, such as virgin materials taxes, advance disposal fees, recycled content standards, and recycling subsidies are inferior to a deposit-refund. These results have been corroborated in calibrated models of U.S. waste and recycling. And in theoretical models that consider joint environmental problems and product design considerations, the deposit-refund continues to have much to recommend it as a component of an overall socially optimalset of policies. More empirical research into deposit-refund systems is needed, particularly the upstream systems used for many products. In these systems, the processors or collectors of recyclables—rather than consumers—receive the refund. Upstream systems may have lower transaction costs and better environmental outcomes than traditional downstream systems.

Abstract: Using advances in text analysis, we examine the content and timing of21,493 press releases issued by the U.S. Environmental Protection Agency (EPA) between 1994 and 2009. Press releases announcing enforcement actions or regulatory changes were issued more often on Fridays and before holidays, a time when news has the least impact on media coverage and financial markets. Changing the timing of press releases may increase deterrence through awareness of regulation and market reaction to environmental news. We find no evidence of regulatory capture. We compare text analysis techniques that allow data collection from sources previously too expensive to access.

Abstract: This paper examines positive externalities and complementarities between countries in the use of antiviral pharmaceuticals to mitigate pandemic influenza. It demonstrates the presence of treatment externalities in simple SIR (susceptible-infectious-recovered) models and simulations of a Global Epidemiological Model. In these simulations, the pandemic spreads from city to city through the international airline network and from cities to rural areas through ground transport. While most treatment benefits are private, spillovers suggest that it is in the self-interest of high-income countries to pay for some antiviral treatment in low-income countries. The most cost-effective policy is to donate doses to the country where the outbreak originates; however, donating doses to low-income countries in proportion to their populations may also be cost-effective. These results depend on the transmissibility of the flu strain, its start date, the efficacy of antivirals in reducing transmissibility, and the proportion of infectious people who can be identified and treated.

Abstract: This monograph is written for the numerate nonspecialist, and hopes to serve three purposes. First it gathers mathematical material from diverse but related fields of order statistics, records, extreme value theory, majorization, regular variation and subexponentiality. All of these are relevant for understanding fat tails, but they are not, to our knowledge, brought together in a single source for the target readership. Proofs that give insight are included, but for most fussy calculations the reader is referred to the excellent sources referenced in the text. Multivariate extremes are not treated. This allows us to present material spread over hundreds of pages in specialist texts in twenty pages. Chapter 5 develops new material on heavy tail diagnostics and gives more mathematical detail. Since variances and covariances may not exist for heavy tailed joint distributions, Chapter 6 reviews dependence concepts for certain classes of heavy tailed joint distributions, with a view to regressing heavy tailed variables. Second, it presents a new measure of obesity. The most popular definitions in terms of regular variation and subexponentiality invoke putative properties that hold at infinity, and this complicates any empirical estimate. Each definition captures some but not all of the intuitions associated with tail heaviness. Chapter 5 studies two candidate indices of tail heaviness basedon the tendency of the mean excess plot to collapse as data are aggregated. The probability that the largest value is more than twice the second largest has intuitive appeal but its estimator hasvery poor accuracy. The Obesity index is defined for a positive random variable X as:Ob(X) = P (X1 + X4 > X2 + X3|X1 = X2 = X3 = X4) , Xi independent copies of X. For empirical distributions, obesity is defined by bootstrapping. This index reasonably captures intuitions of tail heaviness. Among its properties, if a > 1 then Ob(X) < Ob(Xa). However, it does not completely mimic the tail index of regularly varying distributions, or the extreme value index. A Weibull distribution with shape 1/4 is more obese than a Pareto distribution with tail index 1, even though this Pareto has infinite mean and the Weibull’s moments are all finite. Chapter 5 explores properties of the Obesity index. Third and most important, we hope to convince the reader that fat tail phenomena pose real problems; they are really out there and they seriously challenge our usual ways of thinking about historical averages, outliers, trends, regression coefficients and confidence bounds among many other things. Data on flood insurance claims, crop loss claims, hospital discharge bills, precipitation and damages and fatalities from natural catastrophes drive this point home. Whilemost fat tailed distributions are ”bad”, research in fat tails is one distribution whose tail will hopefully get fatter.

Abstract: Private sector initiatives certifying that producers of goods and services adhere to defined environmental process standards are increasingly popular worldwide. According to proponents, they can circumvent chronic barriers to effective public sector environmental regulation in developing countries. But eco-certification programs will have limited effects on producers’ environmental performance if, as one would expect, they select for those already meeting certification standards. Rigorous evaluations of the environmental effects of eco-certification in developing countries that control for selection bias are rare. We use plant-level data on more than 80,000 Mexican facilities to determine whether ISO 14001 series certification of environmental management systems boosts regulatory compliance. We use propensity score matching to control for nonrandom selection into the program. We find that plants recently fined by environmental regulators were more likely to be certified, all other things equal, but that certified plants were subsequently fined just as often as similar uncertified plants. These results suggest that in Mexico, the ISO 14001 program attracts dirty plants under pressure from regulators—not just relatively clean ones—but does not have a large, lasting impact on their regulatory compliance.