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| • “Law and State Power: The Institutional Roots of the powerful state,” Journal of Economic Behavior and Organization (2008), 71(3): 704-717 , with Metin Cosgel and Thomas Miceli. Abstract:The ruler’s power varied greatly in Islamic history over time and space. We explain these variations with a political economy approach to public finance, identifying factors affecting economic power and its constraints. An influential interest group capable of affecting the ruler’s power was the legal community (‘ulamā’). This community could increase the ruler’s ability to extract a surplus from the citizenry by conferring legitimacy, thereby lowering the cost of tax-collection. It could also limit power through legal constraints on taxation. We show how changes in legitimacy and legal constraints affected the economic power of rulers in representative episodes of Islamic history and identify general trends and dynamic processes underlying the relationship between the state and the legal community. Abstract: Recently, some industries have collectively agreed not to produce models of a product that do not meet an energy efficiency (and hence an environmental) standard. An example is the European Voluntary Agreement on Washing Machines. This paper presents a simple model that can be used to examine a voluntary collective agreement of this type. We show that, even when no firms would benefit from producing less of the polluting model unilaterally, a collective agreement to limit or even eliminate production of the polluting model can actually increase profits for all firms in the industry. However, not all agreements of this type are profitable. Whether an agreement is profitable or not will depend on two effects: a strategic effect and a restriction effect. Which effect dominates will depend on a number of factors, including (i) the stringency of the agreement (i.e., the reductions that it requires), (ii) the relative performance of the greener product, (iii) the size of the industry, and (iv) the number of firms within the industry that commit and adhere to the agreement. This last factor highlights the importance of enforcement for the emergence of voluntary agreements. We use our theoretical results to provide a possible explanation for a recent move by the European appliance manufacturers association to abandon the use of voluntary approaches of this type and call for mandatory energy efficiency standards instead. • “Eliminating Polluting Products: Voluntary vs. Regulatory Approaches?” 2010. Abstract: The purpose of this paper is to investigate the contexts under which product based voluntary agreements (VAs) are likely to be successful. I focus on VAs that seek to substitute production towards energy efficient models. I outline two important factors. The first is a technological property of the product line: whether firms can achieve improved environmental performance only by sacrificing overall product quality (quality efficiency tradeoff). The second is the type of the constraint imposed by the VA: a quota on the polluting model or a VA based on an average efficiency standard. I show that VAs are more likely to be successful for products where there is no quality efficiency tradeoff than for products where there is such a tradeoff. I also show that quantity based VAs are more likely to emerge than VAs imposing an average efficiency standard. The findings provide an explanation for why the CECED appliances VAs have been successful in achieving the targets they set, while the ACEA agreement on automobiles emissions failed.
• “Emissions Control and the Regulation of Product Markets: The Case of Automobiles,” 2009, with Kathleen Segerson.
Abstract: The paper investigates alternative policies to regulate emissions from polluting product markets, specifically considering the case of the automobiles market. The two policies we consider are: a quota that limits the quantity produced of the polluting model and a more flexible average efficiency standard that requires a minimum energy efficiency across all models produced by a firm, similar to the US Corporate Average Fuel Economy (CAFE) standards. We use a duopoly model of vertical differentiation where firms produce both an economy (i.e., low polluting) version and a luxury (i.e., high polluting) version of a given product. We show that while a quota can raise firm profit over a certain range, CAFE always reduces firm profit relative to the pre-regulation. We also show that while the quota reduces emissions, it is possible that emissions increase under CAFE. The optimal policy choice will depend on the magnitude of unit damages. We show that when unit damages are sufficiently high, the quota policy is more efficient than the average efficiency standard. This suggests that instead of tightening CAFE to limit damages from emissions, policy makers can shift to a quota policy which is both welfare enhancing and more profitable for firms. • “Gasoline Taxes and CAFE Standards: Substitutes or Complements for Controlling Automobile Emissions,” 2009, with Kathleen Segerson. Abstract: Most economists believe that a higher gasoline tax is needed to curb automobile emissions. In contrast there appears to be considerable disagreement about whether there is a need to complement a pricing policy with some form of efficiency standard similar to the CAFE standards. This paper seeks to shed some light on this debate. Using a simple product line model of the automobile industry with heterogeneous consumer demand, we ask whether an efficient allocation can be achieved through a gasoline tax alone, a CAFE standard alone, or a combination of the two. Our results imply if the automobiles industry is imperfectly competitive then efficiency cannot be achieved with a gasoline tax alone. Alternatively, we show that, if miles driven is inelastic, an efficient allocation can be achieved even under imperfect competition by coupling a smaller gasoline tax with a CAFE standard. This provides an efficiency rationale for the recommendation of Agras and Chapman (1999), and for the opinion of the experts in the GAO study (2008) who felt that, even with a carbon pricing system in place, efficiency standards are important. If miles driven responds significantly to the price of gasoline, then combining a CAFE standard with a gasoline tax is no longer enough to ensure an efficient allocation. However, a gasoline tax alone is still not sufficient, and there might still be a strong economic rationale for a combined approach. • "General Equilibrium Urban Analysis of Big Box Entry," Working paper 2010, with Mark Stater and Michael Visser. Abstract: This paper develops a model of the general equilibrium effects of the entry of a big box retailer into a monocentric linear city. In our model, the big box, which has monopoly power, has a productive efficiency advantage over its rival competitive firms, which are located in the Central Business District (CBD). Consumers receive a higher marginal utility from consuming CBD goods than big box goods, but workers suffer a higher marginal disutility from working at the big box than in the CBD. We find that, in equilibrium, the big box charges lower prices and pays lower wages than the downtown firms as long as the utility advantage of downtown goods is sufficiently large compared to the utility disadvantage of working at the big box. While the entry of the big box retailer into the urban economy reduces the prices, wages, and profits of downtown retailers, it actually increases aggregate social welfare as long as there are communications externalities that act as a “pulling force” drawing the big box toward the CBD. If this pulling force is sufficiently strong in relation to the travel cost, then the big box’s privately optimal location is closer to downtown than the socially optimal location, which may justify zoning policies that keep big boxes away from downtown. Finally, big box entry also reduces the long run equilibrium number of CBD firms, which supports the conventional wisdom that big box development shrinks downtown retail cores. • “The Design of Voluntary environmental Programs: Competition and incentives to participate,” Working paper 2009. Abstract: While Voluntary Agreements (VAs) have been used as a tool to reduce environmental damages, incentives to participate have been a serious concern. In many cases participation in VAs has been limited despite benefits offered to firms in terms of improved image, tax incentives or preemption of future regulation. I consider product related VAs where potential participants produce a differentiated product: a green and a brown version of a given product. The VA promotes the green market by setting a target level of production of the green model that exceeds the free market level. The paper analyzes how the VA can be designed to create incentives for firms to participate and discourage free riding. When the target is small enough I show that full participation in the VA is a Nash equilibrium. However, a larger target results in less than full participation or no participation at all. Thus, there is a tradeoff between the stringency of the target and the level of participation that can be achieved in equilibrium. The paper describes the conditions under which the VA improves social welfare and how the target should be set to achieve the socially optimal level of participation. | |
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