The analysis demonstrates the importance of multilateral cooperation for water managers to tackle wastewater pollution along an international border. A differential game is applied empirically with data of abatement costs, environmental damages, trade flows and pollution dynamics. The framework offers a way to compare pollution control when the US and Mexico coordinate efforts and when they act independently. Results show that trade liberalization and cooperation are useful for dealing with transboundary pollution in a shared waterway. In order to investigate further the nature of cooperation along the entire border, an econometric estimation is performed that investigates the factors influencing Mexico and the US to initiate environmental improvement projects. Results show that cooperation depends on whether the project addresses transboundary wastewater pollution. Other types of pollution are not significant, nor are attributes such as how much a project costs. A project's ability to generate revenues to sustain itself significantly disadvantages the project for cooperative approval.

While a large body of the literature on environmental policies has focused on the productivity impacts of regulations, less attention has been given to the link between environmental policies and market competition. In this paper, I develop a tractable model that incorporates variable mark-ups to study how a competitive environment is affected by environmental policies in a market with firm heterogeneity and endogenous abatement technology choice. The findings of this study are consistent with the Porter Hypothesis in the sense that environmental regulations motivate abatement technology adoption and enhance productivity and environmental quality. However, the productivity gain is mainly driven by reallocation of resources across firms rather than the induced abatement technological change. Tougher regulations harm the competitive environment by increasing average prices and market concentration. Social welfare also drops because in the absence of strong competition fewer variates are produced in equilibrium.

This paper analyzes North-South negotiations over climate change abatement. We consider that northern countries have an incentive to negotiate over a transfer to the southern countries in exchange for their abatement efforts rather than reducing their emissions at home. We study the incentives for northern and southern countries to form negotiation-coalitions at each side of the bargaining table and the impact of these negotiation-coalitions on the final outcome. We show that the incentives can be separated into direct efficiency gains, as fixed costs savings, and indirect bargaining power gains. Depending on the relative values of these gains, we determine the equilibrium of the game. We also show that bargaining power gains encourage southern countries to negotiate separately while they encourage northern countries to unite, and that this hinders the formation of the grand coalition.

Located in a high Andean valley, Ecuador's capital city suffers from severe air pollution, emitted by manufacturing plants as well as motor vehicles. Improving air quality would result in diminished respiratory illness, which currently costs Quito's residents several millions of dollars annually in lost earnings and medical expenditures. Technology transfer has succeeded in reducing industrial emissions at a modest cost. But diesel-fueled trucks and buses, which are a major source of various pollutants, have been the primary focus of the local government's strategy for air quality improvement. To date, that strategy has met with some success, although future initiatives will involve higher abatement expenses and therefore will test the commitment of municipal authorities and the citizens they represent to pollution control.

Sustainable use of humid forest resources as a source of fertile land for cultivation requires long periods of fallow and the ability to move the zone of active cultivation from one location to another over time. At the individual field level, shifting cultivation is essentially a resource extraction problem akin to a pulse fishery – a short period of intensive use of the stock of soil fertility followed by a long idle period permitting regeneration. This paper describes a spatiotemporal model of resource extraction adapted to the use of forest resources by shifting cultivators. Theoretically grounded in the spatial and household modelling literature, it is a structural simulation model of household decision-making, and includes a demonstration of the concept with a limited data set from southern Cameroon. Use of a stated preference approach to modelling decision-making identifies individual preferences and spatial path-dependency as important sources of shortened fallows and resource degradation.

Agriculture in Sub-Saharan Africa is regularly threatened by the occurrence of weather shocks. We wonder whether the way farmers respond to shocks can affect land use and induce deforestation. Reviewing the existing literature, we found that this question has only been marginally studied. Drawing from the adaptation and land-use change literatures, we then expose the mechanisms through which weather shocks can push farmers to induce land-use change, or conversely to foster conservation. As farmers cope with shocks, their responses can cause degradations in ecosystems which could, in the long term, encourage deforestation and land-use change. To prepare for the next growing season, or adapt to climate variability and risk in the longer term, farmers also make structural adjustments in their farm and land-use decisions, which may lead to changes in land holding. They also resort to adaptation strategies that can indirectly affect land-use decisions by affecting households’ resources (labor, income).

Economic instruments such as taxes and tradable permits have been promoted as efficiency improving policies in the transition economies of Central and Eastern Europe and elsewhere. The little noticed potential for a symmetric equity impact from the two instruments in a world without distortions is first discussed. A specific policy option is suggested in which existing environmental taxes in Central and Eastern Europe can be increased without imposing additional financial burdens in industry if appropriate tax credits are provided. Second, conditions in Central and Eastern Europe are identified that reduce the change of efficiency losses in a general equilibrium setting when distortions exist. The trade-off between efficiency and equity in such a setting is found to depend on country-specific parameters and to be reduced if: (1) a cost-effective policy is implemented, (2) environmental assets can be distributed prior to privatization, and (3) government expenditures can decline.

The authors develop a simple analytical framework to study the welfare-maximizing environmental standards when market entry is endogenous and firms can circumvent regulation by bribing corrupt officials. Corruption changes the tradeoff in environmental policy. Corruption leads more polluting firms to enter into the market, which requires tighter environmental regulation. However, corruption also makes trading in some environmental protection for a marginally higher market entry optimal for the government.

This paper assesses how the economics of biodiversity, as a field, has evolved in response to developments in biodiversity science and policy over the life of the journal, Environment and Development Economics. Several main trends in the economics of biodiversity are identified. First, biodiversity change has come to be analyzed largely through its impact on ecosystem services (in the sense of the Millennium Ecosystem Assessment). Second, there has been a growing focus on factors that optimally lead to biodiversity decline, i.e., the benefits to be had from reducing the abundance of pests, predators, pathogens, and competitors. Third, increasing attention is being paid to two global drivers of biodiversity change, climate and global economic integration, and the effect they have on the distribution and abundance of both beneficial and harmful species. Fourth, there has been growing interest in the development of instruments to deal with the transboundary public good aspect of biodiversity, and in particular in the development of payments for ecosystem services. The paper identifies the influence of these trends on attempts to model the role of biodiversity in the production of goods and services.

In many countries, and particularly in the economies in transition in Central and Eastern Europe, public environmental funds play an important role in financing environmental investments. These funds provide subsidized financing through grants and soft loans in response to market failures that limit environmental investors' access to capital markets or poorly account for the benefits of environmental improvements. The principal question explored in the paper is whether environmental funds are too generous or too selective in co-financing environmental projects. The authors conducted a survey of applicants whose applications to Polish environmental funds were rejected following appraisal by the funds in 1994. Applicants were contacted to determine whether they had been able to close the financing 'gap' by the end of 1995 that had resulted from the rejection of their application by the Fund. Survey results indicate that a large majority of respondents have secured substitute gap financing and proceeded with their planned investments, suggesting that the fund's assistance was not essential for these projects to be implemented. Generally, the financing gap had been closed by financing from another environmental fund, from own resources, and less frequently from the same fund (after resubmitting a modified proposal). Only in few instances have proposed projects been abandoned.

We estimate the technical efficiency gains of introducing individual quotas (IQs) in fisheries. Our estimates are based on two samples of vessels, considering a potential self-selection bias and controlling for quality changes in landings induced by the IQ system. The results suggest that the introduction of IQs has an important positive impact on fleet efficiency, and that properly measuring this impact requires controlling for the self-selection bias and quality changes induced by the regulatory shift.

Most resource management studies model the resource in isolation from the rest of the economy of which it is part. In many developing economies, agents participate in multiple activities, creating linkages between resource exploitation and other sectors (e.g., agriculture). In Northern Honduran fishing communities, households allocate effort to fishing according to the opportunity cost of their time, which depends on returns in other activities. We develop a model that demonstrates how market structure impacts fishery exploitation. Agricultural price increases have an ambiguous effect on labor allocated to fishing because they reduce the value of labor in fishing but increase the demand for fish via an income effect. The size and magnitude of impacts depend strongly on the tradability of inputs and outputs in the community economy. The findings point to a need to account for economic linkages and market structure when designing policies to reduce pressure on a natural resource.

This paper examines future energy and emissions scenarios in China generated by the Integrated Assessment Model WITCH. A Business-as-Usual scenario is compared with five scenarios in which greenhouse gases emissions are taxed, at different levels. The elasticity of China's emissions is estimated by pooling observations from all scenarios and comparing them with the elasticity of emissions in OECD countries. China has a higher elasticity than the OECD for a carbon tax lower than US$50 per ton of CO2-eq. For higher taxes, emissions in OECD economies are more elastic than in China. Our best guess indicates that China would need to introduce a tax equal to about US$750 per ton of CO2-eq in 2050 to achieve the Major Economies Forum goal set for mid-century. In our preferred estimates, the discounted cost of following the 2°C trajectory is equal to 5.4 per cent and to 2.7 per cent of GDP in China and the OECD, respectively.

Conventional wisdom amongst environmentalists holds that the cutting of tropical forest for livestock production is not only bad business but also bad for the environment. In particular, it is thought that conversion to pasture leads to a rise in the sedimentation of waterways and reservoirs, an increase in flooding and loss of dry season water supply. Using the case of the Rio Chiquito watershed (which drains into Lake Arenal, Costa Rica), the paper questions this conventional wisdom. The paper demonstrates that both livestock production and the associated downstream hydrological impacts represent important values to the local economy; values that significantly outweigh expected returns from options for reforestation or forest regeneration. Given that non-hydrological externalities associated with livestock production are expected to be of minimal importance in the watershed, there is little reason – as is often proposed – to foster large-scale reforestation of the watershed or to purchase land for protection. Instead efforts should focus on how to maximize the complementary returns from livestock and the support to hydroelectric power provided by water production.

This paper describes the Fiscal Environmental Integration Model (FEIM) and its use to examine the merits of introducing a set of air pollutant emission taxes and stringent abatement requirements based on best commonly available control technology. These environmental protection strategies are examined both independently and in combination. In addition, Hungary has very high VAT, employment, and income tax rates and therefore might receive more than the usual advantage from using environmental tax revenues to reduce other taxes. We therefore also examine the economic and environmental implications of different uses of the revenues generated by the air pollutant emission taxes. FEIM is a CGE model of the Hungarian economy that includes sectoral air pollution control costs functions and execution options that allow examination of the key policy choices involved. We developed and ran a baseline and seven scenarios with FEIM. The scenarios centered on introduction of environmental load fees (ELF) on emissions of SO2, NOx, and particulates and emission abatement requirements (EAR) for these pollutants.

Environment and economy interact. Most economists and economic policy makers have tended to neglect this interaction as 'external' to mainstream market economics. The question is whether environmental externalities have reached a level where they overwhelm optimality and efficiency in resource allocation. Sustainability in growth and development has been advanced as a criterion for dealing with the social costs of environmental impacts. The article examines how this criterion can be operationalized for assessing the significance of environmental concerns in economic analysis and policy. Indicators of economic and ecological sustainability are defined and compiled for selected countries. Based on these indicators, operational paradigms of 'eco-nomics' and 'sustainable development' are advanced.

This paper investigates whether inherited colonial legacies influence deforestation rates in 60 former colonized developing countries. It is hypothesized that differences in deforestation among countries can be attributed to their colonial legacies shaping the current impact of the institutional background on deforestation. Overall, the author finds that institutions defined as the extent of democracy, the quality of property rights and the quality of government functioning (e.g., corruption), have a differential impact on deforestation rates according to colonial legacies as defined by the identity of the colonizer. More precisely, it is found that: (1) in countries characterized by ‘bad’ governance, former French colonies deforest relatively less than former British and Spanish colonies; whereas (2) in countries characterized by ‘good’ governance, the result is reversed. These results are robust when geography features are controlled for since the process of colonization was not random and depended on initial geographic and climatic conditions.

This paper provides an overview of recent research on the interconnections between environmental and trade policies. It describes how the assumptions of these models can be important to the conclusions derived on the gains from coordination. The Harrison–Rutherford–Wooton CGE model of the European Union is used to illustrate the importance of these issues. This model was extended to include three air pollutants and their health effects as non-separable influences on household preferences in each region described by the model. The results suggest that the conventional assumption of separability in preferences between marketed and non-marketed goods is central to conclusions about the importance of coordination of these policies.

This paper adopts soil scientific models of soil productivity and degradation in Tanzania into an intertemporal optimisation framework. The farmers choose labour input, capital investment and fertiliser input to maximise soil wealth, i.e., the present value of soil rent. First we focus exclusively on soil mining, considering the nutrient stocks as determinants of land productivity. Next, we focus on soil erosion, and include rooting depth as determinant of land productivity. We compute the soil wealth under the assumption that the opportunity cost of labour is equal to current wages, or alternatively equal to zero. Our estimates suggest that the potential gains from change in agricultural management are considerable. Moreover, the shadow price on root depth and hence the returns to land conservation investments are highly sensitive to our labour market assumptions. We also find that the value of the eroded soil amounts to 12–17 per cent of the value of Hicksian income, and the savings required to maintain consumption amounts to 13–29 per cent of the contribution to GDP.