Three essays in economics of the environment

Subhra Bhattacharjee

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: The dissertation titled ``Three essays in economics of the environment" consists of two empirical essays and one theoretical essay. The first essay has two objectives. First, it offers a method to estimate a Kuhn-Tucker model allowing for correlation in preferences over time. The method is implemented to present the first set of estimates of a Kuhn-Tucker model with a large choice set using a four-year panel data set for close to 1200 households. Second, it uses the results to examine the stability of preferences over time. It is shown for the dataset used(drawn from the Iowa Lakes Project) and a simple specification of the Kuhn-Tucker model, preferences are not stable over time. This has implications for policy evaluation. If preferences are not stable over time, cost benefit analysis of policy relying on a single year of data may be misleading.The second essay seeks to examine if the source of the regression error in a highly non-linear Kuhn-Tucker model of recreation demand makes a material difference to welfare measures from hypothetical changes in one or more site quality attributes. Using compensating and equivalent variation computed with two different interpretations of the error term, it concludes that the source of the error does make a difference to the welfare estimates calculated.The third essay introduces green consumerism in an otherwise-standard neoclassical growth model and uses it to study the pollution-growth nexus. Green behavior is modeled by assuming that private agents derive a warm glow from incurringcostly, pollution-mitigating expenditures whose effect on pollution is not internalized. Pollution reduces the attractiveness of old-age consumption by reducing the marginal utility from old-age consumption. It is shown that, relative to the competitive outcome, the planner allocates less to both young and old-age consumption, but uses these freed-up resources to finance more pollution-mitigation expenses. The result is lower pollution and lower capital than what the market would have chosen.

Date: 2010-01-01
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