Essays in resource and development economics
Chapter 1: Does the Adverse Announcement Effect of Climate Policy Matter? A Dynamic General Equilibrium Analysis We quantify the welfare effect of a climate policy that is announced today, but implemented with a known time lag as political procedures impede immediate implementation. The policy is a carbon emissions tax whose time path is chosen optimally at the time when implemented. During the time span before implementation, the announcement induces a lower price of fossil fuel and thus higher emissions as compared to a no-intervention scenario. In principle, this adverse ‘announcement effect’ could more than outweigh in welfare terms the gain from the tax after implementation. We show this not to be just a theoretical curiosity. We quantify a ‘window of opportunity’ such that implementation before (after) its end is a welfare gain (loss) over the no-intervention scenario. The result is highly sensitive to assumptions on the resource stock which is afflicted with particular empirical uncertainties. Our central estimate is a window of opportunity of about 60 years. Hence, there is still time to act, but the window of opportunity may be smaller. Thus, the adverse announcement effect is a worrying phenomenon deserving political awareness. The model is a Ramsey model extended by an exhaustible carbon resource and linked to a stylized dynamic climate model adapted from Nordhaus (2008b). Chapter 2: When will Higher Interest Payments Lead to More Education? Based on observations from field studies in fishing communities in India, we include a fragmented credit market into a two-sector, two-period model with common pool externalities to establish conditions under which credit market distortions either increase or decrease education. We show that higher interest payments increase education if their negative effect on capital investment and therefore labor productivity in low-skilled production outweighs their positive effect on subjective discounting and therefore the present value of highskilled production. Positive common pool externalities from reduced capital investment in low-skilled production can counterbalance the impact of capital changes on low-skilled labor productivity and therefore on education. The overall outcome depends on the affected interest factor, the household’s initial wealth and the common pool externality. Chapter 3: Estimating the Insurance Premium in Interlinked Credit-Output Contracts On informal credit markets, one often observes a type of credit that does not base interest payments on the loan amount, but on income flows (interlinked credit-output contract). This can be understood as a risk sharing mechanism where interest payments include an insurance premium. This paper shows that the premium increases with the income volatility. Based on observations from small-scale fishing communities around Chilika lagoon, India, the paper also confirms the finding empirically. Furthermore, in contrast to pure credit contracts, interlinked contracts allow fishing boats as collateral around Chilika lagoon. This reduces their interest rate. It explains why interlinked interest rates turn out to be of similar size as micro finance interest rates even though the former include an insurance component.