Three essays in environmental and natural resource economics
Heutel, Garth Aaron
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Environmental regulations that grandfather existing plants by not holding them to the same standards as new plants may have the unintended consequence of retarding new investment. In my first essay, I develop a dynamic model of a plant's optimal scrapping decision, which depends on environmental policy. Using data from electric power plants, I estimate the parameters of the model and assess the impact of the Clean Air Act on emissions and plant productivity. Over the 1990s, grandfathering provisions increased emissions by about 78% and decreased productivity by about 3%. Furthermore, I show that under certain reasonable parameters, given grandfathering, total discounted environmental damages can be reduced by weakening environmental regulations. Regulations that restrict pollution by firms also affect decisions about use of labor and capital. They thus affect relative factor prices and output prices. My second essay studies the general equilibrium impacts of environmental mandates on the wage, the return to capital, and relative output prices. It looks at four types of mandates and for each determines conditions that place more of the burden on labor or on capital. Stricter regulation does not always place less burden on the factor that is a better substitute for pollution. Also, a relative restriction on the amount of pollution per unit output creates an "output-subsidy effect" that affects factor prices in a different way than the traditional output and substitution effects. Public goods are provided by both governments and individuals. In response to an increase in government spending on a public good, individuals may reduce their contributions. This "crowding-out" effect can occur in the opposite direction. If a government sees that private donations to a charity have risen, then it may reduce its public funds to that charity. While the literature focuses on how government spending crowds out individual giving, the purpose of my third essay is to examine crowding out in the opposite direction? I test for crowding out using data on private and public contributions to environmental charities. I find evidence that government grants crowd out private donations, but evidence is mixed on crowding out in the opposite direction.