Conference Agenda

This paper characterizes how the combination of top-down (regulatory) and bottom-up (voluntary) approaches to curbing externalities can affect welfare when both are imperfect. On the one hand, private provision of many public goods is quite common but likely far short of efficient. On the other hand, there is reason to doubt that existing price and quantity instruments are calibrated optimally. Given the coexistence of these contrasting approaches, under what conditions does allowing private provision of public goods on top of regulatory instruments improve welfare? The traditional comparison of top-down price and quantity instruments assumes no voluntary reductions in externality-generating behaviors, but recent research demonstrates that such voluntary reductions change the characterization of efficient regulatory prices and quantities. We build on this framework and characterize the welfare implications of various combinations of price instruments, quantity instruments, and voluntary provision. We find that allowing private parties to pursue voluntary reductions increases welfare except in the presence of a relatively stringent Pigouvian tax.

In this paper, I analyze private contributions to a public good using a model of moral motivations (Brekke et al., 2003). Individuals find their ideal contribution through a Kantian equilibrium (Roemer, 2019), where individuals apply a more personal moral logic. In contrast to Brekke et al. (2003), the approach allows for analysis of heterogeneous populations. Policy analysis show that tax subsidies increase intrinsic motivation whereas public provision partially crowds it out. A government can completely crowd out intrinsic motivation leading to zero private contributions. I derive a formula for an optimal linear tax subsidy where how it can affect the individual intrinsic motivation is taken into account. A novelty is that the government considers the welfare effects of making individuals feel they have to contribute more.

We build a dynamic model in which home owners decide when to switch to carbon-neutral heating. Agents differ with regard to carbon intensity and abatement costs, the latter being non-observable, private information. The heating-related investment model is nested in an overlapping generations Mirrlesian optimal taxation model with heterogeneous home ownership and labor productivity. We develop a compensation mechanism which guarantees a weak Pareto-improvement and averts potentially severe welfare losses due to horizontal heterogeneity when climate policy passes the cost-benefit test. The mechanism includes carbon pricing with category-based transfers, uniform ad-valorem subsidies on investments financed by public debt and an income tax adjustment proportional to mitigation benefits to service debt. We show that exact compensation of homeowners' dynamic abatement costs requires only minimal information: the interest rate and the fossil fuel price path. By means of exact compensation, our model utilizes the income-tax system to redistribute heterogeneous transformation costs between households according to any number of normative considerations without efficiency losses. We numerically illustrate subsidy rates and income tax adjustments for Germany.

Although consumers often care about the environmental quality of the goods they consume, consumers’ limited attention impairs their perception of environmental quality. Environmental awards and labels make environmental quality salient and thus draw consumers’ attention to the environmental quality of the goods. We analyze how environmental awards and labels affect firms’ investments in environmental quality and social welfare. In addition, we analyze whether a social planner with the objective to maximize social welfare should implement an environmental award or an environmental label. We show that, with an award, both firms invest in environmental quality, whereas, with a label, only one firm invests in environmental quality. Under both policies, investments in environmental quality depend on the salience that awards and labels generate. Whether the social planner should implement an award or a label depends on that salience and the marginal damage caused by emissions.