“The Costs of Environmental Policy Uncertainty: The Case of Air Toxics Standards”
[joint with IO/ARE/EI]
Time: 12:10-1:30pm Pacific
Location: 241 Giannini Hall, UC Berkeley
Meeting ID: 931 2946 6239
Abstract: We study the impact of learning-by-doing and product innovation on the path of technical progress in wind turbine manufacturing. To measure changes in wind turbine cost over time, we leverage a simple but physically realistic model of how observable wind turbine characteristics, like rotor size, relate to power production and manufacturing material needs. We embed this into a model of wind turbine demand, and estimate it using 20 years of global data on wind farm characteristics, including wind speeds, power prices, and the turbines they installed. Our cost estimates negatively correlate both with manufacturer experience, and with measures of manufacturing innovation, like the delivery of newer and larger turbines. These results are consistent with a theory that LBD and innovation explain much of the observed decline in wind turbine prices over the last 20 years.
Time: 12-1:30pm Pacific
University of California, Santa Cruz
“Product Quality Disclosure with Uninformed Sellers”
(Joint with Erica Myers and Steve Puller)
Abstract: This study examines markets in which both buyers and sellers may not fully observe transacted product quality. Using a behavioral model, we illustrate how ignorance can influence sellers’ quality disclosure decisions. Empirically, we leverage a natural policy experiment that encourages homeowners to provide potential buyers with certified measurements of energy efficiency. Using similar nearby homes to form a counterfactual, we find that credible disclosure significantly increases price capitalization of and investments in energy efficiency. Despite very heterogeneous price benefits from disclosure, we show that properties’ relative energy efficiency only weakly predicts disclosure propensities. Connecting our empirical findings to the model, we demonstrate using a computational simulation that a substantial share of homeowners are apparently uninformed about the relative energy efficiency of their own properties. Our findings yield insights about the energy efficiency gap and hold implications for disclosure policies in real estate markets and in other settings.
Resources for the Future
Abstract: Environmental policy with uncertainty is often posed as a choice of price versus quantity instruments. Quantity targets are typically preferred, but paradoxically employ architecture derived from the first-best global framework that applies imperfectly to the partial equilibrium policy setting. In practice, climate policies are incremental and multi-faceted, combining economic and regulatory approaches with limited geographic scope that do not balance global benefits and costs, but nonetheless are envisioned as a noncooperative sequence of actions enabling more efficient and comprehensive global policy. This paper recognizes and evaluates price responsive emissions allowance supply schedules emerging in existing trading programs. We use simulation modeling and laboratory experiments to explore a supply schedule in a regional market. A supply schedule usefully shares the risks and benefits with respect to emissions control costs between economic and environmental interests, preserving the role for technology and energy policies that are expected to lower costs over time. Full Paper
University of California, Berkeley
Abstract: This paper investigates the role of income-driven differences in consumption patterns in explaining and projecting energy demand and CO2 emissions. We develop and estimate a general equilibrium model with non-homothetic preferences across a large set of countries and sectors, and trace embodied energy consumption through intermediate use and trade linkages. Consumption of energy goods is less than proportional to income in rich countries, and more income-elastic in low-income countries. While income effects are weaker for embodied energy, we find a significant negative relationship between income elasticity and CO2 intensity across all goods. These income-driven differences in consumption choices can partially explain the observed inverted-U relationship between income and emissions across countries, the so-called environmental Kuznet curve. Relative to standard models with homothetic preferences, simulations suggest that income growth leads to lower emissions in high-income countries and higher emissions in some low-income countries, with only modest reductions in world emissions on aggregate. Full Paper
Resources for the Future
Abstract: In this paper, I quantify the negative welfare consequences resulting from the misalignment of incentives between principals and agents in the context of a home energy efficiency retrofit program. I show that contractors (agents) working on behalf of an electric utility (the principal) deliberately authorize ineligible upgrades to increase their own compensation. I exploit variation in contract structure to show that larger incentives lead to higher levels of agent misreporting. Using household-level monthly panel data, I find that each ineligible upgrades reduces welfare by $104 and saves half as much electricity as upgrades that follow program guidelines. I extend the principal-agent model to quantify the costs and benefits of the contract structure used in the appliance upgrade program, finding that the existing contract structure reduces program welfare benefits by one fifth. My results provide novel evidence of how agent incentives can reduce the efficacy of public policy, and they are the first to identify and measure how the principal-agent problem can reduce the savings of energy efficiency programs.
University of Illinois at Urbana-Champaign
Abstract: How consumers perceive different aspects of product cost, such as sales tax, shipping and handling charges, and energy operating expenses among others, have important welfare implications for policy. In this paper, we estimate heterogeneous perceptions of energy costs in the U.S. appliance market using a revealed preference approach. We recover a non-parametric distribution and show that while the largest share of consumers correctly perceives energy costs, a significant share undervalues them, and smaller shares either significantly overvalues or does not pay attention to them. These patterns are strikingly similar across income groups. We simulate the welfare effects of policies targeting externalities in the presence of heterogeneous misperceptions and show that standards largely outperform taxes. Standards’ key advantage is that they reduce variance in energy operating, which ameliorates the distortionary effects from potential misperceptions. Full Paper
University of California, Berkeley – Ciriacy-Wantrup Post-Doc
Abstract: I propose a framework to estimate demand and analyze welfare in water markets using transactions data. To infer preferences from observed choices in an existing market, this framework overcomes two key empirical challenges. First, it can recover marginal valuations in the presence of unobserved transaction costs, which lead observed prices to be distributed less widely than true marginal valuations. Second, it can correctly estimate price elasticities in settings where total quantity is fixed and agents may choose to either buy or sell, including water markets and other cap-and-trade systems. I apply this framework to estimate the gains available from an efficient statewide surface water market in California, where conveyance infrastructure is well-developed yet transaction volume remains low. Full Paper
Arizona State University
Abstract: We study whether long-term exposure to air pollution impairs cognition among the US Medicare population. We link fifteen years of administrative records for 7.4 million adults age 65 and older to the Environmental Protection Agency’s air-quality monitoring network to track the evolution of individuals’ health, onset of Alzheimer’s disease and related forms of dementia, financial decisions, and cumulative exposure to fine-particulate air pollution (PM2.5) based on their precise residential locations. We see evidence of Tiebout’s mechanism at work: movers tend to move to less polluted neighborhoods but, among movers, those who are older and those with dementia tend to move to more polluted neighborhoods. We address residential sorting and measurement error in assigning pollution to people by utilizing quasi-random variation in PM2.5 exposures stemming from the EPA’s initial (2005) designation of nonattainment counties for PM2.5. We find robust evidence that a 1 microgram per cubic meter (μg/m3) increase in decadal exposure to PM2.5 (8.5% of the mean) increases the probability of an dementia diagnosis by the end of the decade by 0.5 to 1.2 percentage points (4% to 6%). Our estimates are slightly larger at exposure levels below the EPA’s current regulatory threshold. We also find that higher cumulative exposures to PM2.5 impair financial decision making among those not diagnosed with dementia, where the magnitudes of the effects are 3% to 6% of the negative effect of dementia on decision making. Finally, we find no evidence that exposure to PM2.5 affects the diagnosis rates for morbidities thought to be unrelated to air-pollution and no evidence that pollutants other than PM2.5 impair cognition, providing evidence against confounding.