Working Papers


Note: My non-academic writings related to economics can be be found on my troublemaking page. You might also be interested in downloading my CV (.pdf).

Technical note: Unless otherwise noted, these documents are PDF versions of LaTeX files; if formulas come out all messed up, you may need a free upgrade of your Acrobat Reader software, or you may need to just email me to request a hard copy. (Side note for LaTeXers: the source code corresponding to paper.pdf can generally be downloading as paper.tex; you may also need the bibliography file enviro.bib.)

Environmental Economics

Impacts of Climate Change on Washington's Economy

January 2007

I was the project economist for this state-commissioned report, which was organized by the Climate Leadership Initiative; press reports include stories in the Seattle P-I (which also ran this editorial), the Seattle Times (which also ran this editorial), and NPR's Day to Day.

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My PhD Dissertation: The Effects of Environmental
Policy on Technological Change in Pollution Control

(April 2003)

Note: Many of the working papers below come from my dissertation, and I'd recommend starting with them. But if you're interested in reading the dissertation, the abstract follows. And if you really want the nitty gritty, you can download a self-extracting file containing the LaTeX source code for this document.

An extensive literature (e.g., Downing and White, Milliman and Prince) examines the role of environmental policy in encouraging (or discouraging) innovation in pollution control. This dissertation critiques this literature, identifies important shortcomings, and develops alternative approaches that facilitate the analysis of a wider range of policy instruments (such as limitations on emissions per unit output) and potential innovations (such as production process innovations). These alternative approaches are used to (1) show that economic instruments do not always provide stronger incentives for innovation than command-and-control policies, and (2) generalize previous analyses by considering innovations in production processes in addition to innovations in end-of-pipe abatement technologies.

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Free-Market Incentives for Innovation:
A Closer Look at the Case of Pollution Control

Original version April 2002, this version June 2004

Dynamic considerations are often advanced as an important reason to prefer free markets to command-and-control policies. This paper takes a closer look at the theoretical support for this claim in the area of pollution control, where economic instruments such as Pigovian taxes are argued to provide stronger incentives for innovation than direct controls. Counter to established theory, we find that commonly used forms of direct control---such as limits on emissions per unit output---can provide greater incentives for innovation than Pigovian taxes. After providing a numerical example of this result, we discuss general conditions under which dynamic considerations do favor economic instruments for environmental protection.

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Limitations in the Standard Approach
to Innovation in Pollution Control

(Original version November 2001)

The literature on innovation in pollution control (e.g., Downing and White 1986, Milliman and Prince 1989) equates innovation with a reduction in marginal abatement costs. This paper provides counter-examples and suggests a more general approach.

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A General Approach to Firm Incentives for
Technological Change in Pollution Control

(Original version January 2002, this version October 2002)

Milliman and Prince (JEEM 1989) examine technological change in pollution control by studying firm incentives relating to innovation, diffusion, and optimal agency response. They limit their analysis to innovations that lower marginal abatement costs, and conclude that emissions taxes and auctioned permits provide the strongest incentives for the entire process of technological change. This paper uses an algebraic approach to determine whether Milliman and Prince's conclusions generalize to a more general model of innovation, e.g., one that includes production process innovations. We find that economic instruments continue to provide the strongest incentive for innovation alone, but that emissions taxes and auctioned permits may in fact provide the weakest incentive for the entire process of technological change.

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Paradigms and the Porter Hypothesis

(Original version February 2002, this version January 2004)

In a 1995 Journal of Economic Perspectives debate on the Porter Hypothesis---the idea that tougher environmental standards can make companies more innovative and, ultimately, more profitable---Porter and van der Linde argue that economists are locked into a "static mindset that environmentalism is inevitably costly." This paper analyzes the response from Palmer, Oates, and Portney to show that Porter and van der Linde are, to a large extent, correct. We further argue that Palmer et al. provide strong (albeit anecdotal) evidence supporting the ideas in Thomas Kuhn's Structure of Scientific Revolutions, and discuss the importance of Kuhn's ideas for economics in general and the Porter Hypothesis in particular.

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Does Technological Innovation Really Reduce
Marginal Abatement Costs? Some Theory,
Algebraic Evidence, and Policy Implications

with Myunghun Lee and Karl Seeley; January 2004

The existing literature models an innovation in pollution control as a reduction in marginal abatement costs. We show that this assumption is inappropriate for production process innovations such as fuel switching. Algebraically, we examine the effects of different types of innovation on marginal abatement cost curves, showing that some desirable innovations actually increase marginal abatement costs. Empirically, we estimate marginal abatement costs for sulfur dioxide by measuring the output distance function for the Korean electric power industry. The regression results confirm that production process innovations do raise marginal abatement cost. One policy implication: economic instruments do not always provide stronger incentives for innovation than command-and-control policies.

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The Double Dividend and Other Applications of
"Normalization" as a Benchmark for Environmental Policy

June 2004

Although the ultimate goal of environmental policy is to improve social welfare, a useful benchmark is the "normalization" of environmental goods, i.e., policies that result in parity between environmental goods and "normal" goods. This paper applies the normalization benchmark to the areas of the double dividend hypothesis, asymmetric information, dynamic optimality, and regulation of monopoly. One result is a more appropriate description of the contentious double dividend hypothesis. This description, which supports the original claims of double dividend proponents, compares a world with an environmental good with an otherwise identical world containing a similar but "normal" good.

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Economics Education

Some Microeconomic Principles for the Twentieth Century

Original version October 2002, this version September 2003

This paper evaluates four "economic principles" that traditionally receive a great deal of attention in introductory courses: scarcity, economic profit, opportunity cost, and margins. It concludes that most if not all discussions of margins should be postponed until intermediate level (and preferably calculus-based) courses. The first three concepts add no value to economic theory at any level and should be abandoned.

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Quantum Microeconomics

This is an introductory and intermediate level open-source microeconomics textbook. It is available free for download, and contributions are encouraged and welcomed.

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Other Papers

Shipping the Good Apples Out: A New Perspective

(Original version September 2001, this version August 2003)

An alternative explanation is provided for the Alchian and Allen substitution theorem, which posits that a per unit tax or shipping fee applied to similar goods will increase the relative consumption of the higher quality good. The usual explanation is that consumers substitute out of "bad apples" and into "good apples." This paper generalizes the Alchian and Allen result in an n-good world, providing an alternative explanation that is more cogent in situations where the two goods (for example $500 and $5 wines) are not close substitutes.

This paper was published in Economic Inquiry 42: 534-36 (July 2004). You may want to read a longer version of the paper that contains more background.

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An Aggregate Measure for Benefit-Cost Analysis

with Richard Zerbe and Aaron Finkle; June 2004

The Kaldor-Hicks (KH) criterion has long been the standard for benefit-cost analyses, but it has also been widely criticized as ignoring equity and, arguably, moral sentiments in general. We suggest the use of an aggregate measure (AM) instead of KH. AM simply adds to the traditional KH criterion the requirement that all goods for which there is a willingness to pay or accept count as economic goods. This addition, however, runs up against objections to counting moral sentiments in general and non-paternalistic altruism in particular. We show these concerns are unwarranted and suggest that the AM criterion is superior to KH because it provides better information.

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