Three essays on environmental economics

In Chapter I, a two capital stock adjustment cost model is used to find the effects on productive capital investment of environmental regulation, which forces firms to invest in pollution control equipment. The empirical results show that, for most industries during the 1970’s and 1980’s, abatement investment stimulates productive investment. This suggests economies of scope between the two types of capital. The result is surprising in light of general equilibrium effects, as well as the naïve view of adjustment costs, that would cause investment in abatement equipment to have an unambiguously negative effect on investment in productive capital. The results have implications beyond the scope of this paper. Finding economies of scope in other investment pairs will have strong implications when it comes to government policy regarding the control of the composition of total investment. Not all forest amenities are derived from rotation length. Chapter II extends current forestry economics literature by allowing firms to optimize both over rotation time and harvest density. I use a two-part tax instrument, a “clear-cut” tax combined with a lump sum licensing fee, to correct for market inefficiency. The sign and magnitude of the taxes depends upon the externality. In general, the licensing fee can optimally take the form of either a tax or a subsidy. A stylized numerical model shows a case where a clearcut tax can be used with a licensing subsidy to correct for market inefficiency. In Chapter III risk assessment and risk management aspects of an environmental health problem are fused. Damages from fetal Bisphenol-A exposure are quantified using risk assessment methods. The variability and uncertainty are tracked throughout the entire model. The final distribution reflects variation in exposure, uncertainty and variability in dose response, and in the estimates of the economic costs of the outcomes. The methodology can be extended to the assessment of other harmful environmental chemicals. The expected damages from future cancers due to fetal BPA exposure are surprisingly small. However, the estimated distribution is not narrow. This model demonstrates the type of regulatory benefits analysis on which policy regulating environmental chemicals should be based.