The Agglomeration Bonus (AB) is a mechanism to induce adjacent landowners to spatially coordinate their land use for the delivery of ecosystem services from farmland. This paper uses laboratory experiments to explore the performance of the AB in achieving the socially optimal land management configuration in a local network environment where the information available to subjects varies. The AB poses a coordination problem between two Nash equilibria: a Pareto dominant and a risk dominant equilibrium. The experiments indicate that if subjects are informed about both their direct and indirect neighbors' actions, they are more likely to coordinate on the Pareto dominant equilibrium relative to the case where subjects have information about their direct neighbors' action only. However, the extra information can only delay -and not prevent -the transition to the socially inferior risk dominant Nash equilibrium. In the long run, the AB mechanism may only be partially effective in enhancing delivery of ecosystem services on farming landscapes featuring local networks.JEL classification: C72, C73, C91, C92, Q24, Q57
This note tests for the efficient market hypothesis (EMH) in the market for CO2 emission allowances in Phase I and Phase II of the European Union Emissions Trading Scheme (EU ETS). As usually is the case in emerging and non-competitive markets such as the EU ETS, trading often not occurs on a frequent basis. This has adverse implications for both the gains from permit trade as well as biases the EMH tests. Variance ratio tests are employed to adjust for the thin trading effect. The results indicate that Phase I -the trial and learning period-was inefficient, whereas the first period under Phase II shows signs of restoring market efficiency.JEL classification: C14, G14, Q50
Agricultural producer participation and spatial coordination of land use decisions are key components for enhancing the effective delivery of ecosystem services from private land. However, inducing participation in Payment for Ecosystem Services schemes for coordinating land management choices is challenging from a policy design perspective owing to transaction costs associated with participation. This paper employs a laboratory experiment to investigate the impact of such costs on participation and land use in the context of an Agglomeration Bonus (AB) scheme. The AB creates a coordination game with multiple Nash equilibria related to alternative spatially-coordinated land use patterns. The experiment varies transaction costs between two levels (high and low), which affects the risks and payoffs of coordinating on the different equilibria. Additionally, an option to communicate is implemented between neighboring producers arranged on a local network to facilitate spatial coordination. Results indicate a significant difference in participation and performance under high and low transaction costs, with lower uptake and performance when transaction costs are high. These effects are, however, impacted by transaction costs faced in the past. Communication improves both AB participation rates and performance with the effect being greater for participants facing high transaction costs.
This paper studies patenting decisions by firms in relation to the negotiation and signing of the Helsinki and Oslo protocol as part of the Convention on Long-Range Transboundary Air Pollution.We use a uniquely constructed patent dataset on SO 2 abatement technologies filed in 15 signatory and non-signatory countries in the period 1970-1997. The data distinguish between so-called 'mother' patents, or original inventions, and 'family' patents, which represent the sam einvention but are patents filed in foreign countries. Our analysis suggests that not only local environmental regulations matter for patenting decisions. International environmental agreements provide incentives for additional inventive activity in and the diffusion of knowledge towards signatory countries by reducing investmentun certainty for inventing firms
A weak version of the Porter hypothesis claims that strict environmental policy provides positive innovation incentives, hence triggering improved competitiveness and securing environmental quality. In a comparative way, this paper empirically tests this hypothesis across countries by linking environmental stringency to innovation-proxied by patents-in the field of SO 2 abatement over the period 1970-2000. Three different models of environmental stringency are examined. Two of these models do not reveal a positive significant effect on innovation as a result of increased stringency. In the theoretically preferred model, however, a positive relationship between environmental stringency and innovation is obtained.
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