Research

This paper presents a method for estimating treatment effects of local climate shocks when regions trade with each other. Because trade creates spillovers, comparing the change in outcomes of regions with different exposure to shocks leads to biased estimates. We model these between-region spillovers using standard assumptions from international trade theory, and develop a model-consistent strategy for estimating key parameters and deriving counterfactuals. We use our estimation strategy to revisit the literature on the impact of climate change on gross output. We find that accounting for trade spillovers yields substantially larger climate damage projections.

We propose a new method for estimating the treatment effects of incomplete regulations, with an application to the EU Emissions Trading System.

We examine how moderate air pollution reduces economic activity using French firm-level data.

We develop a production function estimator for firms competing in multiple destination markets.

This study examines the causal impacts of the Clean Development Mechanism (CDM) on the environmental performance of Indian manufacturing firms, as measured by their energy use, carbon dioxide (CO2) emissions, and intensities of CO2 emissions per sales and per energy use. The impacts of CDM projects are estimated using either two-way fixed-effect regressions or an estimator built for an event study with staggered treatment (Sun and Abraham, 2021) combined with a sample of ever-treated firms only or a sample comparing treated to never-treated control firms using semi-parametric matching. We found that CDM projects significantly increased firms’ CO2 emissions and energy use after treatment, but had no effect on CO2 emission intensity per sales and only a small negative effect on the CO2 content of energy use (only for the matched sample). These results reveal that CDM projects led to a positive scale effect (increased sales) after investments were made, and that these investments triggered a limited emission-reducing technique effect (decreased CO2 intensity).

Over the past few decades, wealthy countries have relied increasingly on imports from developing countries, prompting concerns regarding the environmental effects of trade. Increased import demand in wealthy countries certainly increases export flows from developing countries, but emissions need not scale 1 for 1 with exports if domestic sales or emission intensity adjust endogenously to foreign demand. In this paper, we exploit detailed product-line information on production and emissions for Indian manufacturing firms to estimate how firms adjust their production decisions in response to demand shocks in trading partner markets. Using a shift-share instrument, we find that foreign demand growth increased growth in CO2 emissions at the firm level via output growth (scale effect), but that endogenous reductions in emission intensity mitigated roughly 40% of this effect. With output denominated in physical units, both effects are estimated net of price adjustments. We further document that the scale effect owes to increased growth in both export sales and domestic sales, and that firm-product emission intensity fell when expressed per physical unit of output.

How do voters’ behavioural biases affect political outcomes? We study this question in a model of Downsian electoral competition in which candidates have private information about the benefits of policies, and voters may infer candidates’ information from their electoral platforms. If voters are Bayesian, candidates anti-pander – they choose platforms that are more extreme than is justified by their private beliefs. However, anti-pandering is ameliorated if voters’ inferences are subject to confirmation bias. Voter confirmation bias causes elections to aggregate candidates’ information better, and all observers, whether biased or Bayesian, would like the voters in our model to exhibit more confirmation bias than they do themselves.

We explore the contribution of product mix in determining firm and aggregate emission intensity. First, using detailed firm-product emission intensity data from India, we find that more efficient firms are less emission intensive, and that products with the largest sales tend to be cleaner than other products within the firm. We also find that emission intensity in India dropped significantly between 1990-2010 through reallocations across firms, while product mix played a counteracting role in increasing firm emission intensity. Next, we develop a multi-product multi-factor model with heterogeneous firms, variable markups, and monopolistic competition in which each product has a specific emission intensity. We find that pro-competitive market developments lead to an improvement in the aggregate emission intensity – through reallocations across firms – even though firms can become dirtier or cleaner through product mix. This theoretical result fits particularly well the empirical facts.

Experts and the general public often perceive environmental problems differently. Moreover, regulatory responses to environmental issues often do not coincide with consensus expert recommendations. These two facts are mutually consistent. In this paper, we review recent theoretical and empirical work on individual inference, social learning, and the supply of information by the media and identify the potential for biased beliefs to arise. We then examine the interaction between beliefs and politics.

This paper analyzes the environmental impacts of trade among two regions, North and South, that suffer heterogeneous damages from both local pollution (e.g., air and water pollution) and global pollution (e.g., climate change), which are generated by a dirty sector. As comparative advantages depend on both the differences in income and in environmental sensitivity across regions, North or South may have the comparative advantage in the dirty sector. Whatever the region with this comparative advantage, I find that the worldwide level of global pollution can either increase or decrease with trade. Additionally, I find that local and global emissions evolve symmetrically in each region with trade. Hence, one region cannot free ride on the global externality problem while protecting its local environment.

An incumbent political party, who cares only about voters’ welfare, faces future political competition from a similarly well-intentioned party whose beliefs about the consequences of a long-run public policy are different from its own. We show that when the incumbent can endogenously influence whether learning occurs (active learning), future political competition gives her an incentive to distort her policy choices so as to reduce uncertainty and disagreement in the future. This incentive pushes all incumbents’ policies in the same direction.

This paper assesses the long term impacts of an international transfer called the Reduced Emissions from Deforestation and Degradation (REDD) mechanism, which aims at preserving tropical forests. The recipient economy faces a dilemma between economic growth and deforestation. The paper shows that the REDD mechanism has a non-monotonic effect on steady state welfares: Welfare increases with the transfer for low transfer schemes while it decreases with the transfer for high transfer schemes. The open-loop symmetric Nash equilibrium in a dynamic deforestation game predicts that redistributing the transfer among a finite number of producers is less efficient in reducing deforestation than in the social optimum.

We analyze the impacts of bioenergy trade on greenhouse gas emissions using a two-good, three-factor model. Bioenergy is an agricultural good used as a substitute for fossil fuels in industry. Governments tax domestic pollution without international coordination. We assume that Northern countries have higher labor productivity than Southern ones, and that agriculture is less pollution intensive than industry (after taxation). We show that whereas Southern countries impose a lower tax rate than Northern ones, they do not necessary have a competitive advantage in industry, and that compared to autarky, trade liberalization either increases or decreases worldwide emissions depending on regional comparative advantages.