Seminar Bologna Environmental Economics Group (BEEG) Seminar

Presenter 1: Ozlem Yasar 

Title: Permanent Pollution, Temporary Commitment: A Dynamic Game with Exit (joint with Marco Casari)

Abstract: In many collective action problems, the ability to walk away is unevenly distributed. Some agents can credibly exit to an outside option, while others remain bound to their group by circumstance. Wealthy households can relocate away from polluted neighborhoods, skilled workers can leave deteriorating firms, mobile capital can flee high-tax jurisdictions, and member states can withdraw from international agreements. Those who can leave face weaker motivation to invest in collective outcomes, while the cost is borne by those who remain. Such asymmetric commitment may shape the incentive to cooperate when actions today determine the environment tomorrow. This paper studies a dynamic social dilemma in which some players (mobile) hold an irreversible option to exit their group for a fixed outside payoff, while others are permanently rooted. We solve the model for varying shares of mobile players, tracing a transition from a pure public bad to a common-pool setting. The theory predicts that exit options erode cooperation through three channels: mobile players internalize less future damage and contribute more to the shared damage, escalate their contributions as exit approaches, and accelerate the race to leave when their share in the group rises. A laboratory experiment is designed to test these predictions.

Presenter 2: Niko Samuli Jaakkola

Title: Green state aid and emissions trading in the EU (joint with Maria Arvaniti)

Abstract: We develop a theoretical model of the European Union emissions trading scheme (EU ETS) in which participants design collectively optimal policy, understanding that they will face heterogeneous political pressure to conduct more or less ambitious policy ex post.  Member states can commit to an ex ante minimum requirement on complementary emission reduction technologies.  If policy on these complementary technologies is designed at the Union level, this minimum requirement will also  take into account the redistributive effect through permit allocation and the global externality.  However, asymmetric information still distorts the emission cap away from the constrained-efficient outcome.  The carbon price is distorted away from the Pigouvian level to reduce monetary transfers between member states, and to motivate biased governments to undertake more or less investment.