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| Geoengineering and abatement: a 'flat' relationship under uncertainty (with Massimo Tavoni), 2012. Abstract: The potential of geoengineering as an alternative or complementary option to mitigation and adaptation has received increased interest in recent years. The scientific assessment of geoengineering is driven to a large extent by assumptions about its effectiveness, costs, and impacts, all of which are highly uncertain. This has led to a polarizing debate. This paper evaluates the role of Solar Radiation Management (SRM) on the optimal abatement path, focusing on the uncertainty about the effectiveness of SRM and the interaction with uncertain climate change response. Using standard economic models of dynamic decision theory under uncertainty, we show that abatement is decreasing in the probability of success of SRM, but that this relation is concave and thus that significant abatement reductions are optimal only if SRM is very likely to be effective. The results are confirmed even when considering positive correlation structures between the effectiveness of geoengineering and the magnitude of climate change. Using a stochastic version of an Integrated Assessment Model, the results are found to be robust for a wide range of parameters specification. |
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| Inequality and the Social Cost of Carbon (with David Anthoff), 2011. Abstract: Discounting and Equity Weighting have been discussed widely over recent years in the debate on Climate Change. This paper analyzes both concepts and provides a method to distinguish them in order to allow to separately studying their respective impact for computing the Social Cost of Carbon. We apply our method using the FUND Integrated Assessment Model to compute the SCC and reach three conclusions. First, the impact of equity weights is greatly reduced if we use weights that do not alter the rate of discount. Second, equity-weighted estimates are sensitive to the resolution of the impact estimates and can vary up to the factor two when using country-level data. Third, the assumption of constant damages seems unreasonable in this context and correcting for this assumption, the effect of equity weighting becomes less strong than in previous studies. |
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| Discounting and Intragenerational Equity, 2010, mimeo. Abstract: We study the optimal consumption discount rate taking into account income inequality within a generation between countries. We show that if the dispersion of income decreases over time, the global consumption discount rate should under certain conditions be lower than in the case without inequality. Using actual growth predictions used in the context of climate change we find that the discount rate should be initially around twice as high than without considering inequality, but decreasing over time. Moreover, I show that these results also hold qualitatively when we extend the setting allowing aversion to spatial and intertemporal inequality to differ. In particular, empirical evidence suggests that inequality aversion should be lower than risk aversion and fluctuation aversion. |
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| Durable Consumption Goods and Happiness - a Dynamic Perspective
(with Salmai Qari), 2010. Abstract: We analyze the effect of purchase decisions of durable goods, namely cars, on individual utility measured by subjective overall well-being over time. Using panel data from the UK, we are able to observe individuals' well-being trajectories several years before and after a purchase is made, while controlling for idiosyncratic individual-specific effects. We find significant drops in individuals' happiness after a car purchase. Moreover, this negative effect becomes stronger over time. Our theoretical analysis shows that this result can be explained by a model of consumption of durable goods involving habit formation. Due to unanticipated habit formation, utility derived from consumption of the good depends on past consumption. In more general terms, the empirical results can be interpreted as a further and economically important aspect of projection bias (Loewenstein et al., 2003). |
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| Cooperation and quasi-hyperbolic discounting, (with Jianye Yan and
Xundong Xin), 2011. |
work in progress |
| Uncertainty and Natural Resources - Prudence facing Doomsday, 2009,
Toulouse School of Economics. Abstract: This paper studies the impact of uncertainty including the possibility of zero for the argument of the utility function for issues in environmental economics. The optimal extraction of a non-renewable resource is used as a primer example and we contrast classical results with recent results on decisions under uncertainty, in particular the issue of precautionary savings. Our findings suggest that boundedness of the utility function, in particular the assumption about U(0) gives very different results in the two settings which are frequently considered as equivalent. Using the standard assumption in the environmental and resource economics literature, namely that U(0)=0 , we show that prudence is no longer sufficient to ensure a more conservationist extraction policy than under certainty. Our explanation for this surprising result is that the decision maker only considers the trade off between today's and tomorrow's consumption if he consumes a strictly positive amount tomorrow, that is, if there is no doomsday. This "doomsday anyway effect" thus counteracts the effect of prudence. |
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On the Joint Effects of Resource Taxes and Pollution Permits -
Efficiency and North-South Considerations , 2007, Toulouse
School of Economics, Master's Thesis. Abstract: We look at the interacting effect of national resource taxes and a global permit scheme and its implications for welfare and rent distributions. Using a two country optimal growth model integrating both a non-renewable resource and pollution we characterize the optimal policies and study their implications. First, we analyze the distributional implications of different policies which crucially depend on the interaction of taxes and permits. We then look at the case where nationally different taxes on resource consumption are in place and study the optimal pollution permit system. The results suggest that a global permit trading scheme is not optimal in the presence of highly varying national resource taxes. While an international permit trading system (like the International Emissions Trading (IET) included in the Kyoto protocol) makes perfectly sense for a region with more homogenized taxes like in Europe, it leads to a distortion when it includes countries with very different resource (e.g., fuel) taxes. |
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The natural resource curse - an economic policy and political economic
analysis, 2005, Free University Berlin, Master's Thesis. Abstract: The curse of natural resources has been debated widely both amongst academia and practitioners. This paper focuses on the political economy aspects of the matter. We argue that the rents created by resource extraction shape incentives in an economy such that investors are opting for "grabbing" the resource instead of engage in productive investments given its much higher expected pay-offs. We use a simple model to illustrate the impact of institutions, which are pivotal for the magnitude of the curse. We then look at a cross-country dataset using an IV estimator and find some evidence that countries with better institutional setting do indeed experience a less severe resource curse. This can explain e.g., the different experiences of countries like Norway or Canada as compared to e.g. the countries of the Gulf of Guinea. |
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Political Determinants of Currency Crises - Evidence from four Countries,
2004, DIW, Berlin. Abstract: This paper looks at political and institutional factors that affect exchange rate dynamics. While much has been said about the economic fundamentals' role in determining the exchange rate and the occurrence of currency crises, the literature on the political determinants took off only recently. We try to empirically identify the relevant political factors explaining exchange rate policy and the occurrence of currency crises in four large countries (ARG, BRA, MEX, TUR) that experienced speculative attacks. Our results confirm previous findings, such that left governments are less likely to have a pegged regime in place and the political business cycle theory that pegged regimes are more often in place after elections. However, we also find that currency crises occur less often after elections. Additionally, we found a higher number of veto players having a significant impact in that it reduces the probability of a currency crisis while it increases the propensity to peg the currency. These results need further theoretical research to be explained. |
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The Impact of Dollarization on the Productive Sectors in Ecudaor,
2003, ILDIS, Quito (in German). Abstract: Three years after officially introducing the Dollar as official legal tender in 2000, this paper takes a closer look on the impact it had so far on the Ecuadorian economy. While the effect on monetary (and fiscal) discipline can be regarded as influential given the institutional setting the end of the Nineties, the so-called "camisa de fuerza" of dollarization had also severe consequences for the productive export-oriented sectors of the economy. We find that the effect on the real exchange rate caused through the differentials of inflation with respect to the United States affected the price competitiveness in several sectors (within the first two years, the real exchange rate experienced an appreciation of 56 per cent). Besides, the constraint on the capital side through the elimination of domestic currency denominated debt instruments imposed a restriction to financing. We conclude that while institutional matter might ask for the dollarization to be in place in the short run, Ecuador should opt for an own domestic currency once credibility in the institutions can be guaranteed. |
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| Poverty analysis and PMT targeting for Mali, 2012, The World Bank, Washington D.C. Abstract: tba |
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Metrology for the Natural Gas Sector - Triangular approaches for Latin
America, 2006, OAS / PTB Study, Washington D.C. Abstract: This paper looks at the natural gas sector in Latin America and the particular role of measurement for domestic consumption and trade of natural gas. We find that there is a huge demand for metrological services in the field of natural gas measurement in the region. In particular, trade flows and the measurement at the points of transfers are pivotal for a transparent and just distribution of the resource rent. Additionally, this paper argues that the payment of energy resources in general based on reliable measurement of both quantity and quality are important factors in order to improve market-based pricing schemes for small enterprises and households. Furthermore, we argue that a regional approach of supporting the existing infrastructure in the region would provide additional benefits over traditional bilateral development co-operation. The very nature of natural gas make it an ideal subject for this recent approach on the development agenda. |
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Social and Environmental Responsibility in India - Assessing the Global
Compact's Role, (with T.Chahoud, I.Kubina, D.Kolb,
G.Repinski, C.Schläger), 2007, DIE Study No. 26, Bonn, ISBN:
978-3-88985-336-3. Abstract: Based on a field study carried out among Indian enterprises, this paper aims at assessing the role of the UN Global Compact and CSR in general in today's India's corporate world. We find that the traditional philanthropic approach of CSR is still widespread even for foreign companies. In particular, the Global Compact is being interpreted towards this "classical" CSR definition. Nevertheless, the more holistic and strategic notion of CSR being advocated on the international level is becoming more important as international initiatives like the UNGC and particular CSR standards are gaining relevance. In addition, we identify the major challenges for a further deepening of CSR practices, namely the business case. Our results suggest that the dissemination of best practices and other tools of mutual learning processes could significantly improve CSR in India. This should be an anchor point for international and other organizations to focus cooperation on. |
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