Salerno, Gillian and Beard, Rodney and McDonald, Stuart (2007): Rent Seeking Behavior and Optimal Taxation of Pollution in Shallow Lakes.
Download (338Kb) | Preview
In this paper we extend earlier work on the economics of shallow lakes by M\"aler, Xepapadeas and de Zeeuw (2003) to the case where two communities have incommensurable preferences about lake eutrophication. In the case of incommensurable preferences interest group behavior arises, we therefore consider the case where society is divided into two interest groups and is thus unable to agree on a single management objective. In particular, the communities that share the use of the lake disagree on the relative importance of the shallow lake acting as a waste sink for phosphorus run-off as opposed to other ecosystem services. A dynamic game in which communities maximize their use of the lake results in a Nash equilibrium where the lake is in a eutrophic state when in fact the Pareto optimum would be for the lake to be in an oligotrophic state. Our paper differs from previous work by considering two communities or interest groups with different preferences for environmental services. The tax that would induce, in a noncooperative context, all of society's members to behave in such a way as to achieve a Pareto optimal outcome is derived under the assumption that a social planner does not favor one community or another. We then ask whether or not such a tax rate would in fact be implemented if each community were able to bear political pressure on the social planner and the social planner were a public representative seeking re-election. In this case both types of communities lobby to have their preferred level of tax applied based on their relative preferences for a clean lake and phosphorus loading. The effects of the lobbying on the application of the optimal tax are investigated numerically for particular values of relative preferences and the relative size of each group. The representative seeking election proposes a different tax rate in order to maximize their probability of electoral success. This problem is solved numerically assuming that the lake is in a eutrophic equilibrium. It is shown that political representatives have an incentive to propose tax rates that are insufficient to achieve a return to an oligotrophic steady-state
|Item Type:||MPRA Paper|
|Original Title:||Rent Seeking Behavior and Optimal Taxation of Pollution in Shallow Lakes|
|Keywords:||Pollution of shallow lakes; optimal eco-taxation; dynamic rent seeking|
|Subjects:||Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q52 - Pollution Control Adoption Costs; Distributional Effects; Employment Effects
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling > C63 - Computational Techniques; Simulation Modeling
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q53 - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling > C61 - Optimization Techniques; Programming Models; Dynamic Analysis
C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C73 - Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
|Depositing User:||Rodney Beard|
|Date Deposited:||26. Oct 2008 03:33|
|Last Modified:||13. Feb 2013 14:51|
C. Alaouze. A short run economic analysis of the eutrophication problem of the barwon and darling rivers in new south wales. Technical report, Discussion Paper, The University of New South Wales, 1995.
M. Bartholomew-Biggs. Nonlinear Optimization with Financial Applications. Springer, 2005.
S. Carpenter, D. Ludwig, and W. Brock. Management of eutrophication for lakes subject to potentially irreversible change. Ecological Applications, 9 (3):751–771, 1999.
W. D. Dechert and W. A. Brock. The lake game, 2000. URL http://www. ssc.wisc.edu/econ/archive/wp2003-24.pdf.
W. D. Dechert and S. I. O’Donnell. The stochastic lake game: A numerical solution. Journal of Economic Dynamics and Control, 30:1569–1587, 2005.
E. J. Dockner and F. O. Wagener. Markov-perfect nash equilibria in models with a single capital stock, 2006.
L. Gr¨une, M. Kato, and W. Semmler. Solving ecological management problems using dynamic programming. Journal of Economic Behavior and Organization, 57(4):448–473, 2005.
K. L. Judd. Numerical Methods in Economics. The MIT Press, 1998.
G. Kossioris, M. Plexousakis, A. Xepapadeas, A. de Zeeuw, and K.-G. M¨aler. Feedback nash equilibria for non-linear differential games in pollution control. Journal of Economic Dynamics and Control, 32:1312–1331, 2008.
L. S. Lasdon, A. D. Waren, A. Jain, and M. Ratner. Design and testing of a generalized reduced gradient code for nonlinear programming. ACM Trans. Math. Softw., 4(1):34–50, 1978.
D. R. Lee. Rent-seeking and its implications for pollution taxation. Southern Economic Journal, 51(3):731–744, 1985.
K.-G. M¨aler, A. Xepapadeas, and A. D. Zeeuw. The economics of shallow lakes. Environmental and Resource Economics, 26:603–624, 2003.
J. D. Murray. Mathematical Biology. Biomathematics. Springer-Verlag, 1989.
S. I. O’Donnell and W. D. Dechert. A stochastic lake game, 2004. URL http://panda.econ.uh.edu/research/stochastic.lake.ps.
R. E. Ricklefs. Ecology. Chiron Press, 2nd edition, 1979.
M. Scheffer. Ecology of Shallow Lakes. Chapman & Hall, 1998.
G. Tullock. Efficient rent seeking. In J. M. Buchanan, R. D. Tollison, and G. Tullock, editors, Toward a Theory of the Rent-Seeking Society, pages 97–112. Texax A & M University Press, 1980.
F. Wagener. Skiba points and heteroclinic bifurcations, with applications to the shallow lake system. Journal of Economic Dynamics & Control, 27: 1533–1561, 2003.