• Selected
• Entire List

Abstract:
We consider an economy where most of the health care is publicly provided, and where there is waiting time for several types of treatments. Private health care without waiting time is an option for the patients in the public health queue. We show that although patients with low waiting costs will choose public treatment, they may be better off with waiting time than without. The reason is that waiting time induces patients with high waiting costs to choose private treatment, thus reducing the cost of public health care that everyone pays for. Even if higher quality (i.e. zero waiting time) can be achieved at no cost, the self-selection induced redistribution may imply that it is socially optimal to provide health care publicly and at an inferior quality level. We give a detailed discussion of the circumstances in which it is optimal to have waiting time for public health treatment. Moreover, we study the interaction between this quality decision and the optimal tax/subsidy on private health care.

Public Health Care, Private Health Care, Waiting Time, Health Queues

Abstract:
An important conclusion from the literature on hydropower is that if there are no other constraints than the available water reservoirs for a year, and operating costs are ignored, the competitive (and socially optimal) outcome is characterized by the (present value) price being constant through the year. A second important conclusion is that the outcome under monopoly generally will differ from this, provided that the demand functions differ across different days (or other sub-periods) of the year. We show that even if the demand function is the same all days of the year, the monopoly outcome will generally differ from the competitive outcome. The difference is caused by the profit function of a price-setting producer of hydropower being non-concave. This non-concavity can be caused by short-run capacity limits either on exports and imports of electricity, or on the supply of alternative electricity sources.

Electricity prices, Hydropower

Abstract:
We compare the effects of taxes and quotas for an environmental problem in which the regulator and polluter have asymmetric information about abatement costs, and the environmental damage depends on the stock of pollution. We thus extend to a dynamic framework previous studies in which environmental damages depend on the flow of pollution. As with the static analysis, taxes are more likely to dominate quotas the greater is the curvature of the abatement cost function relative to the environmental damage function. However, in the dynamic model, an increase in the discount rate, the stock decay rate, or either the regulator?s or the firms? ability to make adjustments, all increase the likelihood that taxes dominate quotas. An empirical illustration of these results suggests that taxes dominate quotas for the control of greenhouse gasses.

Abstract:
A standard result in the literature on environmental economics is that efficient environmental policies regulating transboundary pollution will be adopted only if there is interjurisdictional coordination. Efficient policies can be adopted as a result of interregional treaties or mandated by a central authority. The present paper demonstrates that if there is perfect population mobility between the regions affected by the transboundary pollution, the efficient outcome is a Nash equilibrium of the policy game between regional authorities. This is true independently of what policies are available to the regional authorities. However, there may be more than one Nash equilibrium, so that policy coordination may be necessary in order to achieve the best equilibrium.

Transboundary Pollution, Population Mobility, Federalism

Abstract:
Genetic insurance can deal with the negative effects of genetic testing on insurance coverage and income distribution when the insurer has access to information about test status. Hence, efficient testing is promoted. When information about prevention and test status is private, two types of social inefficiencies may occur; genetic testing may not be done when it is socially efficient and genetic testing may be done although it is socially inefficient. The first type of inefficiency is shown to be likely for consumers with compulsory insurance only, while the second type of inefficiency is more likely for those who have supplemented the compulsory insurance with substantial voluntary insurance. This second type of inefficiency is more important the less effective prevention is. It is therefore a puzzle that many countries have imposed strict regulation on the genetic information insurers have access to. A reason may be that genetic insurance is not yet a political issue, and the advantage of shared genetic information is therefore not transparent.

Genetic Testing Insurance, Private Information, Compulsory/Voluntary Mix

Abstract:
Using a dynamic model of the control of an infectious disease, we derive the conditions under which eradication will be optimal. When eradication is feasible, the optimal program requires either a low vaccination rate or eradication. A high vaccination rate is never optimal. Under special conditions, the results are especially stark: the optimal policy is either not to vaccinate at all or to eradicate. Our analysis yields a cost-benefit rule for eradication, which we apply to the current initiative to eradicate polio.

Eradication of infectious diseases, Vaccination, Control theory, Cost-benefit analysis, Poliomyelitis

Abstract:
Fossil fuels are non-renewable carbon resources, and the extraction path of these resources depends both on present and future demand. When this "Hotelling feature" is taken into consideration, the whole price path of carbon fuel will shift downwards as a response to the reduced cost of the renewable substitute. An implication of this is that greenhouse gas emissions in the near future may increase as a response to the reduced cost of the renewable substitute. If this is the case, increased climate costs may outweigh the benefits of reduced costs of a substitute, thus reducing overall social welfare.

climate change, exhaustible resources, renewable energy

Abstract:
Technological development will most likely play an important role in curbing growth in greenhouse gas emissions. It is therefore important to incorporate factors influencing technological change in climate policy analyses. This paper studies climate policy when there are technology spillovers between countries, and there is no instrument that (directly) corrects for these externalities. The lack of an appropriate instrument reflects that R&D expenditures in a country are difficult to verify by other countries. We show that without an international agreement, the non-cooperative outcome will have too much emissions and too little R&D expenditures compared with the social optimum. While the non-cooperative equilibrium depends on whether countries use tradable quotas or carbon taxes as their domestic instruments for controlling emissions, all countries are better off in the tax case than in the quota case. Next we study two types of international climate agreements with full participation. One is a Kyoto type of agreement where each country is assigned a specific number of internationally tradable quotas. In the second type of agreement a common carbon tax should be used domestically in all countries. We show that none of the cases satisfy the conditions for the social optimum. Even if the total number of quotas is set so that the quota price is equal to the Pigovian level, R&D investments will be lower than what is socially optimal in the Kyoto case, whereas with a harmonized domestic carbon tax R&D expenditures could even be too high. Finally we examine the case in which there is an incomplete agreement, i.e. some countries have not signed the agreement. We demonstrate that there is virtually no difference between this case and the case of full cooperation.

Climate Policy, International Environmental Agreements, R&D, Technology Spillovers

Abstract:
We study climate policy when there are technology spillovers within and across countries, and the technology externalities within each country are corrected through a domestic subsidy of R&D investments. We compare the properties of international climate agreements when the inter-country externalities from R&D are not regulated through the climate agreement. With an international agreement controlling abatements directly through emission quotas, the equilibrium R&D subsidy is lower that the socially optimal subsidy. The equilibrium subsidy is even lower if the climate agreement does not specify emission levels directly, but instead imposes a common carbon tax. Social costs are higher under a tax agreement than under a quota agreement. Moreover, for a reasonable assumption on the abatement cost function, R&D investments and abatement levels are lower under a tax agreement than under a quota agreement. Total emissions may be higher or lower in a second-best optimal quota agreement than in the first-best optimum.

Climate policy, International environmental agreements, R&D Policy, Technology spillovers

Abstract:
We study an international climate agreement that assigns emission quotas to each participating country. Unlike the simplest models in the literature, we assume that abatement costs are affected by R&D activities undertaken in all firms in all countries, i.e. abatement technologies are endogenous. In line with the Kyoto agreement we assume that the international climate agreement does not include R&D policies. We show that for a second-best agreement, marginal costs of abatement should exceed the Pigovian level. Moreover, marginal costs of abatement differ across countries in the second-best quota agreement with heterogeneous countries. In other words, the second-best outcome cannot be achieved if emission quotas are tradable.

Climate Policy, International Climate Agreements, Emission Quotas, Technology Spillovers

Abstract:
We compare taxes and quotas when firms and the regulator have asymmetric information about abatement costs. Damages are caused by a stock pollutant. Uncertainty enters multiplicatively, i.e. it affects the slope rather than the intercept of abatement costs. We calibrate the model using cost and damage estimates of greenhouse gases. As with additive uncertainty, taxes dominate quotas. The advantage of taxes is much greater with mulitiplicative, compared to additive uncertainty.

Abstract:
In countries where health care is publicly provided and where equity considerations play an important role in policy decisions, it is often argued that an increase in co-payments is unacceptable as it will be particularly harmful to the less well-off in society. The present paper derives socially optimal co-payments in a simple model of health care where people differ in income and in severity of illness. The social optimum depends on the welfare weights given to persons with different levels of expected utility. Increased concern for equity may increase optimal co-payments for illnesses with homogeneous severity across the population. For illnesses where the severity varies strongly across the population, optimal co-payments go down as a response to increased concern for equity, provided income differences in the society are sufficiently small.

public health, co-payments, equity concerns

Abstract:
A central theme in the international debate on genetic testing concerns the extent to which insurance companies should be allowed to use genetic information in their design of insurance contracts. We analyze this issue within a model with the following important feature: A person's well-being depends on the perceived probability of becoming ill in the future in a way that varies among individuals. We show that both tested high-risks and untested individuals are equally well off whether or not test results can be used by insurers. Individuals who test for being low-risks, on the other hand, are made worse off by not being able to demonstrate this to insurers. This implies that verifiability dominates nonverifiability in an ex-ante sense.

Abstract:
We examine international cooperation on technological development as a supplement to, or an alternative to, international cooperation on emission reductions. R&D should be increased beyond the non-cooperative level if (i) the technology level in one country is positively affected by R&D in other countries, (ii) the domestic carbon tax is lower than the Pigovian level, or (iii) the domestic carbon tax is set directly through an international tax agreement. A second-best technology agreement has higher R&D, higher emissions, or both compared with the first-best-outcome. The second-best subsidy always exceeds the subsidy under no international R&D cooperation. Further, when the price of carbon is the same in the second-best technology agreement and in the case without R&D cooperation, welfare is highest, R&D is highest and emissions are lowest in the second-best R&D agreement.

climate policy, international climate agreements, R&D policy, technology spillovers

Abstract:
When pollution is transboundary and there is international trade, a domestic inefficiency may arise in addition to the well-known inefficiencies at the international level. More precisely, there will be a Nash equilibrium in which each country chooses a policy that gives it lower welfare than would otherwise be possible given the emission levels of all countries. However, there will also be a Nash equilibrium in which each country chooses tradable emission quotas as its policy instrument to achieve its desired level of emissions. In this Nash equilibrium, welfare in each country is maximised given the emission levels of all countries.

Abstract:
In a recent paper, Barrett (2006) reaches the conclusion that in general the answer to the question in the title is no. We show in this paper that a focus on the R&D phase in the development of breakthrough technologies changes the picture. The stability of international treaties improves and thus the possibility of realizing benefits of cooperation.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.