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We study agents’ incentives to form horizontal coalitions before a principal offers vertical contracts. When a vertical contract generates negative externalities on other agents, the agents may collude in order to obtain better deals; when one contract benefits other agents, the agents may decentralize, instead. Contractually induced institutional changes always harm the principal and the negative effect can outweigh the direct effects of the contracts, making the contracts counterproductive. The model is tractable and sufficiently flexible to be relevant for applications such as regulation of pollution, payments for forest conservation, and mergers between firms in a supplier–franchisee relationship. (JEL D86, H23, H87, Q58).

This paper examines leadership in relation to supplying a global public good. Both the Kyoto Protocol and the Paris Agreement encourage the developed countries to take a lead in reducing emissions. Does a country benefit from taking a lead? When does leadership improve global welfare? The answer depends on how transparent the leader’s abatement technology is for the followers. When there is no transparency and the leader has to abate to signal the abatement cost, leadership reduces global welfare unless the crowding-out effect is weak. If there is transparency and the follower can benefit from technology spillover effects, leadership reduces global welfare unless the spillover effect is sufficiently large. I find that transparency reduces global welfare unless the spillover effect is sufficiently large and the difference in abatement cost is small. This theory can rationalize the European Union’s stance on climate policy while also explaining the perceived failure of the Kyoto Protocol.

Finland introduced the planet's first carbon tax in 1990 to experiment with, to most economists, the best policy to reverse carbon emissions. I estimate the causal effect of taxing carbon on Finnish emissions using the Synthetic Control Approach (Abadie, 2021). The results suggest that taxing carbon reduces emissions by big margins. Finnish emissions are 16% lower in 1995, 25% lower in 2000, and 30% lower in 2004 than emissions in the counterfactual consistent with carbon taxes whose value increasing by 20 fold in 1990 - 2005. The estimates suggest that the carbon tax's abatement elasticity is about 9%.

I examine a policy-making game among countries that must choose both a policy instrument (e.g., a tax or a quota) and its intensity (i.e., the tax rate or the quota level) to price pollution. When countries price pollution non-cooperatively, they not only set the intensity inefficiently, they are also likely to adopt Pigouvian fees, despite quotas being better from a welfare perspective. Adopting a Pigouvian fee to address a multi-country externality generates a risk externality, and non-cooperatively chosen quotas can generate higher social welfare than maximum social welfare Pigouvian fees can deliver.

Motivated by tropical deforestation, we analyze (i) a novel theory of resource extraction, (ii) the optimal conservation contract, (iii) when the donor prefers contracting with central rather than local governments, and (iv) how the donor’s presence may induce institutional change. Deforestation can be legal or illegal in the model: each district decides how much to protect and how much to extract for sale on a common market. If districts are strong, in that they find protection inexpensive, extraction is sales-driven and districts bene.t if neighbors conserve. If districts are weak, they lose when neighbors conserve since the smaller supply increases the price and the pressure on the resource, and thus also the cost of protection. Consequently, decentralizing authority increases conservation if and only if districts are weak. Contracting with the central authority is socially optimal, but, on the one hand, the donor benefits from contracting with districts if they are weak; on the other hand, districts prefer to decentralize if they are strong. The presence of the donor may lead to a regime change that increases extraction by more than it is reduced by the contract itself.

After the Fukushima disaster in March 2011 safety concerns have escalated and policies towards nuclear power are being reconsidered in several countries. This article presents a study of the effect of nuclear power phase-out on regional electricity prices. We consider 4 scenarios with various levels of ambition to scale down the nuclear industry using a multiple region, multiple sector global general equilibrium model. Non-nuclear power production follows the New Policies scenario of the World Energy Outlook (IEA, 2010). Phase-out in Germany and Switzerland increases electricity prices of OECD-Europe moderately by 2-3 per cent early on to 4-5 per cent by 2035 if transmission capacity within the region is sufficient. If all regions shut down old plants built before 2011, North America, OECD-Europe and Japan face increasing electricity prices in the range of 23-28 per cent in 2035. These price increases illustrate the incentives for further investments in renewable electricity or improved technologies in nuclear power production.

In a congested city with air pollution like Bangkok, there are gains to analyzing and addressing them in coordination. Higher speed, tremendously valuable in itself for firms and households, also reduce the costs of air quality improvements.

There is a debate among policy analysts about whether fuel taxes alone are the most effective policy to reduce fuel use by motorists, or whether to also use mandatory standards for fuel efficiency. A problem with a policy mandating fuel economy standards is the"rebound effect,"whereby owners with more efficient vehicles increase vehicle usage. If an important part of negative externalities from transport are associated with vehicle kilometers (accidents, congestion, road wear) rather than fuel consumption, the rebound effect increases negative externalities. Taxes and standards should be mutually supportive because fuel taxes often meet political resistance. Over time, fuel efficiency standards can reduce political resistance to fuel taxes. Thus, by raising fuel efficiency standards now, politicians may be able to pursue higher fuel tax paths in the future. Another argument in support of fuel efficiency standards and similar policies is that standards to a greater extent than taxes can be announced in advance and still be credible and change the behavior of inventors, firms, and other agents in society. A further argument is that standards can be used with greater force and commitment through international coordination.

A previous result by Kemnitz (2001) based on AK type endogenous growth model implied that the gains from immigration depends up on the percapita possession of capital stock by immigrant relative to that of the natives’. However, such a framework ignores the incentive labor creates for innovation and productivity. By using framework of horizontal innovation of Romer (1991), it is shown that immigration entails Pareto improvement even when immigrants posses no physical capital in contrast to the result in the literature.

This paper investigates the impact of skilled immigrants on the welfare the host natives. By employing the idea of induced technical change, and the skilled wage premium, this paper tries to link skilled immigration with observed rise in college enrolment, rise in skilled wages, and further acceleration of skilled wage premium. Through creation of demand for skill complimenting capital goods, skilled immigration raise the incentive for skill directed technical change which fuel up skilled wage in North, international wage differential, and the incentive for human capital formation. The results of the model are consistent with broad empirical regularities observed for three decades or more.

Summary This paper analyzes the conditions for eradication of diseases in a static and dynamic framework. In static framework, it investigates whether it is possible to eradicate diseases. There has been controversy in the public health research as to the possibility of eradication of diseases. Although epidemiologists have always felt that eradication of disease possible, there has been suspect among economists. A representative view of the suspect has been reported in the Hand Book of Health economics as “…although the introduction of a vaccine usually produces a sharp drop in the occurrence of a disease, the eradication of vaccine preventable diseases predicted by many at the time of these inventions has not been achieved except for smallpox. Of the roughly forty vaccines on the market, only the smallpox vaccine has eradicated its target disease. Diseases … persist, despite explicit governmental efforts to eradicate them, and recent attempts to develop a vaccine against HIV or AIDS raise important questions about the causes behind these difficulties…” Revisiting the economics behind possibility of disease eradication in static framework, it seems that given the necessary economic incentives are fulfilled, in contrast to some of the recent literature; the results imply that it is possible to eradicate diseases, at least those whose dynamics follows Susceptible-Infective- Recovery, SIR framework. Individuals choose the level of vaccination that ensures eradication if the full cost of the vaccine that accrue to the individual is subsidized. By expanding the framework to dynamic analysis, in the SIR models of infectious diseases, it tries to see whether there is biological limitation to eradication of infectious diseases. The canonical model of human disease dynamics imply that given certain critical level of vaccination is satisfied, it is possible to eradicate diseases. Given biological conditions are met and economic incentives are satisfied, unlike the suspect of some economists, it is possible to eradicate diseases. Knowing that it is possible to eradicate infectious diseases, the social planner may resort to various public health policies including doing nothing, controlling, eliminating, eradicating or extinctions of diseases. But in order to make the choice of policies simpler, this paper considers two policies, namely doing nothing versus eradication, and considers them in their extreme version in light of economic benefits. It compares whether eradicating as fast as possible is preferable to doing nothing. The ultimate comparison involves choosing between the discounted cost of infection if the disease is left uninterrupted by deliberate policy measures and the discounted cost eradicating the disease as fast as possible. In relation to economic optimality, it has been shown that, in the limiting case where the ratio of terminal to initial infection approaches zero, eradicating as fast as possible is preferred to doing nothing when the discounted cost of infection of the fraction of initial population infected is greater than the unit cost of vaccination. Depending on the parametric values, some diseases could be candidate for eradication and others may not be. Especially it seems that the cost benefit rule looks more sensitive to the ratio of the maximum fraction of infected people in which the disease can’t expand to the equilibrium fraction of infected people if the disease is left uninterrupted. The cost benefit rule suggests fewer diseases to be eradicated as the ratio of terminal rate of infection to initial rate of infection approaches zero. In this regard the paper is in center view of epidemiologists that suggest eradication of most diseases and suspicious economists that suggest diverting our attention fully from eradication. Finally, there has been some effort committed to see whether the current global action to eradicate polio is economically preferable. The results that follow from the cost benefit rule suggest that eradicating polio even using oral live-attenuated polio vaccine [OPV] is not optimal in both rich and poor countries.