Markus Dertwinkel-Kalt, H. Gerhardt, Gerhard Riener, Frederik Schwerter, Louis Strang
Many intertemporal trade-offs are unbalanced: while the advantages of options are concentrated in a few periods, the disadvantages are dispersed over numerous periods. We provide novel experimental evidence for “concentration bias”, the tendency to overweight advantages that are concentrated in time. Subjects commit to too much overtime work that is dispersed over multiple days in exchange for a bonus that is concentrated in time: concentration bias increases subjects’ willingness to work by 22.4% beyond what standard discounting models could account for. In additional conditions and a complementary experiment involving monetary payments, we study the mechanisms behind concentration bias and demonstrate the robustness of our findings.
{"title":"Concentration Bias in Intertemporal Choice","authors":"Markus Dertwinkel-Kalt, H. Gerhardt, Gerhard Riener, Frederik Schwerter, Louis Strang","doi":"10.1093/restud/rdab043","DOIUrl":"https://doi.org/10.1093/restud/rdab043","url":null,"abstract":"\u0000 Many intertemporal trade-offs are unbalanced: while the advantages of options are concentrated in a few periods, the disadvantages are dispersed over numerous periods. We provide novel experimental evidence for “concentration bias”, the tendency to overweight advantages that are concentrated in time. Subjects commit to too much overtime work that is dispersed over multiple days in exchange for a bonus that is concentrated in time: concentration bias increases subjects’ willingness to work by 22.4% beyond what standard discounting models could account for. In additional conditions and a complementary experiment involving monetary payments, we study the mechanisms behind concentration bias and demonstrate the robustness of our findings.","PeriodicalId":121186,"journal":{"name":"CESifo: Resource & Environment Economics (Topic)","volume":"72 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126163209","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Despite ambitious climate goals and already substantial stocks of developed fossil energy reserves, development of new fossil energy reserves continues to be high. This raises concerns, as it reinforces the fossil industry’s opportunities and incentives to continue extraction, and may necessitate abandonment of developed fossil reserves to meet climate targets. In this paper, we analyze the energy transition, considering fossil exploration and development activities. We provide conditions for when the fossil industry will abandon reserves, and establish that continued exploration of fossil resources is not incompatible with abandoning developed reserves. The first-best implementation of a carbon budget always involves reserve abandonment, and thus exploration that pushes developed reserves in excess of the remaining budget. A quantitative assessment reveals that a volume equal to 9-19% of current oil and gas reserves are optimally abandoned, and that, even under a 1.5oC warming target, positive exploration of new reserves is justified for another decade.
{"title":"Closing Wells; Fossil Exploration and Abandonment in the Energy Transition","authors":"Inge van den Bijgaart, M. Rodríguez","doi":"10.2139/ssrn.3671237","DOIUrl":"https://doi.org/10.2139/ssrn.3671237","url":null,"abstract":"Despite ambitious climate goals and already substantial stocks of developed fossil energy reserves, development of new fossil energy reserves continues to be high. This raises concerns, as it reinforces the fossil industry’s opportunities and incentives to continue extraction, and may necessitate abandonment of developed fossil reserves to meet climate targets. In this paper, we analyze the energy transition, considering fossil exploration and development activities. We provide conditions for when the fossil industry will abandon reserves, and establish that continued exploration of fossil resources is not incompatible with abandoning developed reserves. The first-best implementation of a carbon budget always involves reserve abandonment, and thus exploration that pushes developed reserves in excess of the remaining budget. A quantitative assessment reveals that a volume equal to 9-19% of current oil and gas reserves are optimally abandoned, and that, even under a 1.5oC warming target, positive exploration of new reserves is justified for another decade.","PeriodicalId":121186,"journal":{"name":"CESifo: Resource & Environment Economics (Topic)","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115925732","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We characterize the optimal policy and policy instruments for self-enforcing treaties when countries invest in green technology before they pollute. If the discount factor is too small to support the first best, then both emissions and investments will be larger than in the first best, when technology is expensive. When technology is inexpensive, countries must instead limit or tax green investment in order to make future punishment credible. We also uncover a novel advantage of price regulation over quantity regulation, namely that when regulation is sufficiently flexible to permit firms to react to non-compliance in another country, the temptation to defect is reduced. The model is tractable and allows for multiple extensions.
{"title":"Policies and Instruments for Self-Enforcing Treaties","authors":"Bård Harstad, Francesco Lancia, Alessia Russo","doi":"10.2139/ssrn.3671245","DOIUrl":"https://doi.org/10.2139/ssrn.3671245","url":null,"abstract":"We characterize the optimal policy and policy instruments for self-enforcing treaties when countries invest in green technology before they pollute. If the discount factor is too small to support the first best, then both emissions and investments will be larger than in the first best, when technology is expensive. When technology is inexpensive, countries must instead limit or tax green investment in order to make future punishment credible. We also uncover a novel advantage of price regulation over quantity regulation, namely that when regulation is sufficiently flexible to permit firms to react to non-compliance in another country, the temptation to defect is reduced. The model is tractable and allows for multiple extensions.","PeriodicalId":121186,"journal":{"name":"CESifo: Resource & Environment Economics (Topic)","volume":"12 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133334001","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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.
{"title":"The Social Cost of Carbon and the Ramsey Rule","authors":"C. Withagen","doi":"10.2139/ssrn.3338687","DOIUrl":"https://doi.org/10.2139/ssrn.3338687","url":null,"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.","PeriodicalId":121186,"journal":{"name":"CESifo: Resource & Environment Economics (Topic)","volume":"257 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116230804","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines the impact of Knightian uncertainty upon optimal climate policy through the prism of a continuous-time real option modelling framework. We analytically determine optimal intertemporal climate policies under ambiguity. Additionally, numerical simulations are provided to illustrate the properties of the model. The results indicate that increasing Knightian uncertainty accelerates climate policy, i.e. policymakers become more reluctant to postpone the timing of climate policies into the future.
{"title":"Dark Clouds or Silver Linings? Knightian Uncertainty and Climate Change","authors":"Yu-Fu Chen, M. Funke, N. Glanemann","doi":"10.2139/ssrn.1891835","DOIUrl":"https://doi.org/10.2139/ssrn.1891835","url":null,"abstract":"This paper examines the impact of Knightian uncertainty upon optimal climate policy through the prism of a continuous-time real option modelling framework. We analytically determine optimal intertemporal climate policies under ambiguity. Additionally, numerical simulations are provided to illustrate the properties of the model. The results indicate that increasing Knightian uncertainty accelerates climate policy, i.e. policymakers become more reluctant to postpone the timing of climate policies into the future.","PeriodicalId":121186,"journal":{"name":"CESifo: Resource & Environment Economics (Topic)","volume":"48 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-07-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123405636","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The aim of this paper is to examine the impact of inequalities and economic convergence on the efficient discount rate, in the absence of any risk-sharing scheme. We consider an economy in which the initial consumption level and the distribution of consumption growth are heterogeneous. The benchmark case is when inequalities are permanent and relative risk aversion is constant. The discount rate is not affected by inequalities in that case. We first relax the assumption on risk aversion, and we derive conditions under which permanent inequalities reduce the discount rate. If relative prudence is larger than unity, an increase in economic convergence always raises the efficient discount rate. In a realistic calibration exercise, we show that the effect of economic convergence is to triple the discount rate, from less 2% to more than 6%.
{"title":"Discounting, Inequalities and Economic Convergence","authors":"C. Gollier","doi":"10.2139/ssrn.1719022","DOIUrl":"https://doi.org/10.2139/ssrn.1719022","url":null,"abstract":"The aim of this paper is to examine the impact of inequalities and economic convergence on the efficient discount rate, in the absence of any risk-sharing scheme. We consider an economy in which the initial consumption level and the distribution of consumption growth are heterogeneous. The benchmark case is when inequalities are permanent and relative risk aversion is constant. The discount rate is not affected by inequalities in that case. We first relax the assumption on risk aversion, and we derive conditions under which permanent inequalities reduce the discount rate. If relative prudence is larger than unity, an increase in economic convergence always raises the efficient discount rate. In a realistic calibration exercise, we show that the effect of economic convergence is to triple the discount rate, from less 2% to more than 6%.","PeriodicalId":121186,"journal":{"name":"CESifo: Resource & Environment Economics (Topic)","volume":"187 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-11-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121900436","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Suppose that a group of agents having divergent expectations can share risks efficiently. We examine how this group should behave collectively to manage these risks. We show that the beliefs of the representative agent is in general a function of the group.s wealth level, or equivalently, that the representative agent has a state-dependent utility function. We define the individual degree of pessimism as an index measuring probability differences across states. We show that the degree of pessimism of the representative agent is the mean of the individual ones weighted by their index of absolute risk tolerance. From this central result, we show how increasing disagreement on the state probability affects the state probability of the representative agent. We show that the divergence of opinions about the probability of occurence of a boom may help solving the equity premium puzzle.
{"title":"Collective Risk-Taking Decisions with Heterogeneous Beliefs","authors":"C. Gollier","doi":"10.2139/ssrn.396321","DOIUrl":"https://doi.org/10.2139/ssrn.396321","url":null,"abstract":"Suppose that a group of agents having divergent expectations can share risks efficiently. We examine how this group should behave collectively to manage these risks. We show that the beliefs of the representative agent is in general a function of the group.s wealth level, or equivalently, that the representative agent has a state-dependent utility function. We define the individual degree of pessimism as an index measuring probability differences across states. We show that the degree of pessimism of the representative agent is the mean of the individual ones weighted by their index of absolute risk tolerance. From this central result, we show how increasing disagreement on the state probability affects the state probability of the representative agent. We show that the divergence of opinions about the probability of occurence of a boom may help solving the equity premium puzzle.","PeriodicalId":121186,"journal":{"name":"CESifo: Resource & Environment Economics (Topic)","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127168401","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyses US sea level data using long memory and fractional integration methods. All series appear to exhibit orders of integration in the range (0, 1), which implies long-range dependence; further, significant positive time trends are found in the case of 29 stations located on the East Coast and the Gulf of Mexico, and negative ones in the case 4 stations on the North West Coast, but none for the remaining 8 on the West Coast. The highest degree of persistence is found for the West Coast and the lowest for the East Coast.
{"title":"US Sea Level Data: Time Trends and Persistence","authors":"G. Caporale, L. Gil‐Alana, L. Sauci","doi":"10.2139/ssrn.3598759","DOIUrl":"https://doi.org/10.2139/ssrn.3598759","url":null,"abstract":"This paper analyses US sea level data using long memory and fractional integration methods. All series appear to exhibit orders of integration in the range (0, 1), which implies long-range dependence; further, significant positive time trends are found in the case of 29 stations located on the East Coast and the Gulf of Mexico, and negative ones in the case 4 stations on the North West Coast, but none for the remaining 8 on the West Coast. The highest degree of persistence is found for the West Coast and the lowest for the East Coast.","PeriodicalId":121186,"journal":{"name":"CESifo: Resource & Environment Economics (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129403273","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper develops a pseudo-panel approach to examine household electricity demand behaviour through the household life cycle and its response to income variations to help strengthen the energy policy-making process. Our empirical methodology is based on three rich independent microdata surveys (the National Housing Surveys), which are representative of the French housing sector. The resulted sample covers the 2006-2016 period. Using within estimations, this paper finds striking evidence that the income elasticity of French residential electricity demand is 0.22, averaged over our four cohorts of generations. In light of other works, our estimate stands in the lower range. The empirical results also show that residential electricity consumption follows an inverted U-shaped distribution as a function of the age of the household's head. Most notably, it appears that households at the mid-point of their life cycle are relatively the largest consumers of electricity. This outcome has important implications for policy-making. Any public policy aimed at reducing household energy consumption should consider this differentiation in consumption according to the position of households over the life cycle, and therefore target as priority households at the highest level of consumption.
{"title":"A Life-Cycle Analysis of French Household Electricity Demand","authors":"Fateh Bélaïd, C. Rault, Camille Massié","doi":"10.2139/ssrn.3767686","DOIUrl":"https://doi.org/10.2139/ssrn.3767686","url":null,"abstract":"This paper develops a pseudo-panel approach to examine household electricity demand behaviour through the household life cycle and its response to income variations to help strengthen the energy policy-making process. Our empirical methodology is based on three rich independent microdata surveys (the National Housing Surveys), which are representative of the French housing sector. The resulted sample covers the 2006-2016 period. Using within estimations, this paper finds striking evidence that the income elasticity of French residential electricity demand is 0.22, averaged over our four cohorts of generations. In light of other works, our estimate stands in the lower range. The empirical results also show that residential electricity consumption follows an inverted U-shaped distribution as a function of the age of the household's head. Most notably, it appears that households at the mid-point of their life cycle are relatively the largest consumers of electricity. This outcome has important implications for policy-making. Any public policy aimed at reducing household energy consumption should consider this differentiation in consumption according to the position of households over the life cycle, and therefore target as priority households at the highest level of consumption.","PeriodicalId":121186,"journal":{"name":"CESifo: Resource & Environment Economics (Topic)","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128626087","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) is the international agreement that regulates international trade in wildlife to prevent its decline. Little is known about the effectiveness of its trade restrictions and bans. Combining the largest available panel database on wildlife population sizes of vertebrates with the history of species’ inclusion into CITES, we find that populations increase by 20% after their species’ inclusion into CITES. This effect is driven by populations in countries with thorough enforcement. Outright trade bans increase wildlife, but restrictions that incentivize sustainable use have more immediate positive effects.
{"title":"Wildlife Trade Policy and the Decline of Wildlife","authors":"Benedikt Heid, Laura Márquez-Ramos","doi":"10.2139/ssrn.3748958","DOIUrl":"https://doi.org/10.2139/ssrn.3748958","url":null,"abstract":"The Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) is the international agreement that regulates international trade in wildlife to prevent its decline. Little is known about the effectiveness of its trade restrictions and bans. Combining the largest available panel database on wildlife population sizes of vertebrates with the history of species’ inclusion into CITES, we find that populations increase by 20% after their species’ inclusion into CITES. This effect is driven by populations in countries with thorough enforcement. Outright trade bans increase wildlife, but restrictions that incentivize sustainable use have more immediate positive effects.","PeriodicalId":121186,"journal":{"name":"CESifo: Resource & Environment Economics (Topic)","volume":"59 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133729191","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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