Publications by Year: 2013

Seo, Hee Kwon. “Can Behavioral Biases Explain Demand for a Harmful Pesticide? Evidence from India.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2013.Abstract

Millions of cotton farmers in India use Monocrotophos, a pesticide that is both toxic—the level of exposure found in the field is linked to irreversible cognitive impairment, depression and suicidal tendencies—and inferior in efficacy to other safer, similar cost alternatives. I use three experiments to test whether misperception and inferential challenges created by a habit of mixing different inputs together explain why farmers fail to abandon Monocrotophos. I conduct a brief information campaign that reduces farmers’ self-reported plans to purchase the pesticide for the next planting season by 37%. I show how the campaign addresses behavioral biases. I discuss implications for public health policy interventions and general lessons for thinking about mechanisms for technology selection in markets where “unlearning” specious product benefits may be difficult due to psychological and behavioral stumbling blocks.

Kopczuk, Wojciech, Justin Marion, Erich Muehlegger, and Joel Slemrod. “Do the Laws of Tax Incidence Hold? Point of Collection and the Pass-through of State Diesel Taxes.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2013.Abstract

The canonical theory of taxation holds that the incidence of a tax is independent of the side of the market which is responsible for remitting the tax to the government. However, this prediction does not survive in certain circumstances, for example when the ability to evade taxes differs across economic agents. In this paper, we estimate in the context of state diesel fuel taxes how the incidence of a quantity tax depends on the point of tax collection, where the level of the supply chain responsible for remitting the tax varies across states and over time. Our results indicate that moving the point of tax collection from the retail station to higher in the supply chain substantially raises the pass-through of diesel taxes to the retail price. Furthermore, tax revenues respond positively to collecting taxes from the distributor or prime supplier rather than from the retailer, suggesting that evasion is the likely explanation for the incidence result.

dp50_muehlegger-etal.pdf dp50_muehlegger-etal_two-page-summary.pdf
Talbott, Will. “Lighting the Way: Unlocking Performance Gains in Electricity Distribution and Retailing in India.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2013. dp46_talbott.pdf
Drake, David F, and Stefan Spinler. “Sustainable Operations Management: An enduring stream or a passing fancy?.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2013.Abstract

Paul Kleindorfer was among the first to weigh in on and nurture the stream of Sustainable Operations Management. The thoughts laid out here are based on conversations we had with Paul relating to the drivers underlying sustainability as a management issue: population and per capita consumption growth, the limited nature of resources and sinks, and the responsibility and exposure of firms to ensuing ecological risks and costs. We then discuss how an operations management lens contributes to the issue, and criteria to help the Sustainable Operations Management perspective endure. This article relates to a presentation delivered by Morris Cohen for Paul’s Manufacturing and Service Operations Management Distinguished Fellows Award, given at Columbia University, June 18, 2012. We wrote this article at Paul’s request.

Weitzman, Martin. “A Voting Architecture for the Governance of Free-Driver Externalities, with Application to Geoengineering.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2013.Abstract

Climate change is a global "free rider" problem because significant abatement of greenhouse gases is an expensive public good requiring international cooperation to apportion compliance among states. But it is also a global "free driver" problem because geoengineering the stratosphere with reflective particles to block incoming solar radiation is so cheap that it could essentially be undertaken unilaterally by one state perceiving itself to be in peril. This paper develops the main features of a "free driver" externality in a simple model based on the asymmetric consequences of type-I and type-{II} errors. I propose a social-choice decision architecture embodying the solution concept of a supermajority voting rule and derive its basic properties. In the model this supermajority voting rule attains the socially optimal cooperative solution, which is a new theoretical result around which the paper is built.

Herrnstadt, Evan, and Erich Muehlegger. “Weather, Salience of Climate Change and Congressional Voting.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2013.Abstract

Climate change is a complex long-run phenomenon. The speed and severity with which it is occurring is difficult to observe, complicating the formation of beliefs for individuals. We use Google Insights search intensity data as a proxy for the salience of climate change and examine how search patterns vary with unusual local weather. We find that searches for "climate change" and "global warming" increase with extreme temperatures and unusual lack of snow. The responsiveness to weather shocks is greater in states that are more reliant on climate-sensitive industries and that elect more environmentally-favorable congressional delegations. Furthermore, we demonstrate that effects of abnormal weather extend beyond search behavior to observable action on environmental issues. We examine the voting records of members of the U.S. Congress from 2004 to 2011 and find that members are more likely to take a pro-environment stance on votes when their home-state experiences unusual weather.

Cicala, Steve. “When Does Regulation Distort Costs? Lessons from Fuel Procurement in U.S. Electricity Generation.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2013.Abstract

Under what conditions does cost-of-service regulation lead firms to distort costs? This paper analyzes changes in fuel procurement practices by coal- and natural gas-fired electricity generating plants in the United States following state-level legislation that ended cost-of-service regulation among investor-owned electric utilities in the late 1990s. I construct a detailed dataset that links confidential, shipment-level data on the price of virtually all of the fuel delivered to coal- and gas-fired electricity plants in the United States from 1990-2009, with plant-level data on operations and regulatory status. Using a matched difference-in-difference estimation strategy to account for confounding shipping costs, I found the price of coal drops by 12% at deregulated plants relative to matched plants that were not subject to any regulatory change, whereas there was no relative drop in the price of gas. Deregulated plants disproportionately switch to burning low-sulfur coal rather than install capital-intensive abatement equipment to comply with environmental regulations, and expand imports from out of state by 25% if they were initially burning in-state coal. I show how these results lend support to theories of asymmetric information between generators and regulators, regulatory capture, and capital-bias as important sources of distortion under cost-of-service regulation. I then show that the drop in the price of coal is associated with a reallocation of purchases to more productive mines, rather than simply a transfer of regulatory rents from coal producers to electricity generators. Although only one quarter of U.S. coal-fired capacity has been deregulated, the end of cost-of-service regulation has reduced the price of fuel by about one billion dollars per year for these plants.