This paper explores a few cooperative aspects of investments in uncertain, real options. By hypothesis some production commitments, factors, or quotas are transferable. Cases in point include energy supply, emission of pollutants, and harvest of renewable resources. Of particular interest are technologies or projects that provide anti-correlated returns. Any such project stabilizes the aggregate proceeds. Therefore, given widespread risk aversion, a project of this sort merits a bonus. The setting is formalized as a two-stage, stochastic, production game. Absent economies of scale, such games are quite tractable in analysis, computation, and realization. A core imputation comes in terms of shadow prices that equilibrate competitive, endogenous markets. Such prices emerge as optimal dual solutions to coordinated production programs, featuring pooled commitments, or resources. Alternatively, the prices could result from repeated exchange.

This paper investigates the links between growth in gross domestic product (GDP) and sulfur dioxide emissions by disaggregating income growth into long-term growth (the trend of GDP over time) and short-term growth (income fluctuations around the trend). Results indicate a substantial fixed component of sulfur dioxide emissions. Once income fluctuations are controlled for, the effect of changes in the scale of the economy over time can be distinguished from the effects of the changing composition of output and the state of technological development. Results indicate that at low levels of income, the composition and technology effects are associated with an increase in emissions; for high levels of income, the composition and technology effects are associated with a leveling off of emissions.

This essay offers a limited study of income sustainability for one oil-exporting country: Iraq. The nature of the study motivates a discussion of some theoretical issues concerning levels of non-renewable resource depletion and re-investment as well as related questions about the substitutability of man-made and natural capital and critical natural capital. The results of the study, which decomposes oil revenues into consumption and capital portions, suggest that the re-investment in physical capital offset the depletion of natural assets arising from oil extraction in the period under consideration. Because of the lack of data, a complete study of the capital balance is not feasible. Consequently the findings are tentative.

We investigate the role that economic instruments can play in promoting economic sustainability and the preservation of biodiversity in agroforestry management in coffee production. Most of the world's coffee producers live in poverty and manage agro-ecosystems in regions that are culturally and biologically among the most diverse on the globe. Despite the relatively recent finding that bees may augment pollination and boost coffee crop yields, the short-term revenues from intense monoculture drive land-use decisions that destroy the forest strips serving as habitats for pollinating insects. Our study investigates whether farmers specialize in environmentally detrimental (sun-grown) or sustainable (shade-grown) farming, or both practices coexist. We calibrate an empirical model to characterize the equilibria and investigate the ecological and economic impacts of three alternative policy instruments: conservation fees, price premiums, and minimum wages.

Climate change is increasing the intensity of extreme weather events. Mexico is particularly prone to suffer at least two different types of these events: droughts and hurricanes. This paper focuses on the effects of an extended drought on the Mexican economy. Through a computable general equilibrium model, we simulate the impact of a drought that affects primarily agriculture, livestock, forestry, and hydropower generation. We look at the effects on the overall economy. We then simulate the effects of several adaptation strategies in (chiefly) the agricultural, forestry, and power sectors, and we arrive at some tentative yet significant conclusions. We find that the effects of such an event vary substantially by sector with moderate to severe overall impacts. Furthermore, we find that adaptation policies can only effect modest changes to the economic losses to be suffered.

Solid fuel burning in households is a leading health risk for people in developing countries. Several studies of indoor air pollution from solid fuels have analyzed the problem at the village and household level, but to design effective policies it is important to understand the large-scale socioeconomic drivers of household air pollution (HAP). Using county-level data covering all of China, we examine relationships between socioeconomic variables and ambient concentrations of PM and SO2 resulting from household energy use. Applying both non-parametric and parametric techniques, we find that income and education are robust determinants of HAP; structural characteristics affect the HAP turning points; and the poorest counties bear a disproportionate amount of total pollution, especially urban counties and counties located in the coastal provinces.

This paper discusses the validity of the Environmental Kuznets Curve (EKC) hypothesis for the case of China's industrial SO2 emissions: both its reduced form and structural model are considered. The EKC curve for China's per capita industrial SO2 emissions predicts the turning point at 10,000 yuan (3,085 US$, Purchasing Power Parity (PPP)). However, given China's fast population expansion, the decreasing trend in per capita emissions may well not be enough to bring about an immediate reduction in terms of total industrial SO2 emissions and emissions density. Using the structural EKC model makes it possible to reveal how various factors contribute to the industrial SO2 emissions density – namely, the three commonly known structural determinants and the marginal impact of international trade. International trade proves to have a two-fold impact: a significantly negative direct one and an indirect one that is dependent on the current capital–labour abundance ratio and on the income level of each province.

Optimal pollution control is an important challenge for sustainable development with three distinct cases. First, the situation where nature's assimilative capacity is completely destroyed involves normative problems that require further research. Second, environmental restoration with initial pollution above the steady-state stock requires an economy to initially allocate a relatively high share of its resources to cleaning-up activities. In return, this generally results in an intertemporally efficient development path that is both environmentally and economically sustainable. Third, optimal trajectories in situations with initial stocks of pollution below the long-term optimum generally imply an increase in pollution and a decline of optimal consumption. In this case, the investment of the environmental rents accruing from nature's assimilative capacity into man-made capital is required in analogy to the famous Hartwick rule to maintain a constant flow of instantaneous welfare. This would facilitate growth in consumption sufficient to compensate for the rising disutility of pollution.

A differential game model is developed to compare incentives for wastewater pollution abatement of upstream and downstream countries under cooperative and noncooperative strategies. The Tijuana River is the empirical setting of water flow from south (Mexico) to north (US) where pollution stock accumulates. Asymmetry between the upstream and downstream countries for costs, damages, and emissions influences incentives to abate pollution. Cost minimization is achieved as the US can finance pollution abatement in Mexico. Game sharing rules (Shapley value, Chander–Tulkens rule, Helsinki rule, egalitarian rule) are analyzed. Financial transfers from two North American Free Trade Agreement (NAFTA) institutions are examined. In most cases of cooperation, transfer payments are positive from downstream to upstream for reductions in flow and stock of pollution. Transfer size varies according to the rule and sensitivity analysis of changes in abatement costs and damages. The two institutions follow a variation of the Helsinki rule.

Maize originated in Mexico, where it is typically grown in association with other crops in the milpa system. This ancient mode of production is practiced today in ways that vary by cultural context and agro-environment. We use a choice experiment to estimate farmers' valuation of three components of agrobiodiversity (crop species richness, maize variety richness, and maize landraces) in the milpa system, and examine their interest in cultivating genetically modified (GM) maize. We apply a latent class model to data collected from 382 farm households in the states of Jalisco, Oaxaca, and Michoacán to analyze the heterogeneity of farmer preferences. We identify the characteristics of farmers who are most likely to continue growing maize landraces, as well as those least likely to accept GM maize. Findings have implications for debates concerning the introduction of GM maize and the design of in situ conservation programs in these sites.

The influence of price, in view of macro-economic policy change and a set of other factors, on herd off-take rates from ranches in Kenya over a period of 17 years was assessed. An AR(1) equation, based on Nerlove's classical dynamic supply model, was derived and fitted to panel data using the Cochrane–Orcutt procedure. Pooling of data was done to circumvent data insufficiency, thereby improving the statistical power of the analysis. Results indicate that price change has had a significant effect on ranch herd off-take, and climatic factors also account for long-run off-take levels.

This paper builds on the earlier development of WAS – a method of dealing with water issues that focuses on water values rather than water quantities and takes into account public values that are not simply private ones (see Fisher et al., 2005). WAS can be used for infrastructure or policy planning, but it can also assist in the resolution of water disputes. Indeed, WAS-guided cooperation in water can turn what appears to be a zero-sum gain into a win-win situation. It is shown that if WAS sets the rules for cooperation, then, when all claimants use those rules, the coalition of all of them together is stable. Results for possible coalitions of Israel, Jordan, and Palestine are given for varying assumptions as to water ownership. The gains from cooperation are compared and analyzed. WAS-guided cooperation is seen to make the value of ownership shifts relatively trivial.

This paper presents the results of a dichotomous choice contingent valuation (CV) study of reduced flood risks in Bangladesh. Sensitivity of willingness to pay (WTP) to varying risk exposure levels is tested in a ‘natural experiment’, targeting floodplain residents facing regular annual flooding and a disaster flood once every five to ten years. Accounting for price, income and education levels, both subjective risk aversion and objective baseline risk exposure affect stated WTP for a common level of flood protection. We find a number of problems with the CV application in this specific developing country context. Half of the respondents are unable to pay in financial terms, but are willing to contribute in kind. The combined use of a monetary and non-monetary measure of WTP would have lowered the number of zero bids considerably. A test-retest carried out six months after the original survey shows that the stated WTP values are reliable.

We present the results of a framed field experiment with Ethiopian farmers that use the mountain rain forest as a common pool resource. Harvesting honey causes damage to the forest, and open access leads to over-harvesting. We test different mechanisms for mitigating excessive harvesting: a collective tax with low and high tax rates, and a tax/subsidy system. We find that the high-tax scheme works best in inducing the desired level of harvesting, while the tax-subsidy scheme may trigger tacit collusion. Via a panel data analysis we further investigate which variables influence the subjects' decisions during the treatments.