Three essays on environmental economics and intra-household decision making
This dissertation is divided into two major topics. The first two chapters belong to the field of environmental economics and the third chapter belongs to development and behavioral economics. The work on environmental economics is divided into two parts: Chapter 1 studies the design of environmental markets when pollutants are complements and Chapter 2 studies the effectiveness of a subsidy program that promotes cover crops, a new pollution abatement technology in agriculture, in Iowa. Lastly, the work on development economics in Chapter 3 studies intra-household dynamics using a lab-in-the-field risk experiment in rural Cameroon.
As environmental concerns are gaining more attention, the need for more research on environmental markets seem pertinent. Among the topics that require more attention is the usage or prohibition of double-dipping or stacking, which occurs when a firm is allowed to obtain payments for two environmental services that come from the same action. Given the various implementations of payments for ecosystem/environmental services (PES), understanding the usage of payments for several environmental services becomes very relevant for policy makers. Motivated by the relevance of this subject, Chapter 1 includes a theoretical framework on the design of environmental programs for pollutants that are complements and Chapter 2 includes an empirical assessment of a payment program to increase the adoption of a new pollution abatement technology.
The interest in the design of environmental programs for pollutants that are complements is motivated by the current state of the literature. In particular, the literature lacks a consensus on whether program participants should be compensated for reductions of both pollutants, which is commonly referred to as double-dipping or stacking (Woodward 2011, Murray et al. 2012, Cooley & Olander 2012, Greenhalgh 2008, Moslener & Requate 2005). Several authors have attempted to understand the implications of double-dipping, but there are unresolved questions in need of additional study. Chapter 1's contribution to the literature is to further expand the understanding of different environmental program designs (e.g. prices versus quantities (Ambec & Coria 2011, Weitzman 1974)). Chapter 1 includes a theoretical framework that expands Woodward's model to consider more policy designs. Chapter 1 compares quantities with prices. Under prices, a regulator can allow or prohibit double-dipping. Hence, three policy choices are essentially compared. The chapter starts with a regulator who has full information. Then, it moves to a second-best setting modeling two scenarios in which full information is absent for the regulator. The first scenario is based on two uncoordinated regulators who set either prices or quantities without taking into account the other regulator's environmental program. The second scenario is based on a regulator who designs two environmental programs ignoring complementarity. A contribution of Chapter 1 is to explicitly model the regulators' behavior. Under each scenario, there are market characteristics that favor one policy over the other. In particular, the curvature of the marginal benefit curves favors the usage of prices versus quantities, not ruling out prices with stacking. By understanding different environmental program designs, policy makers can design better programs that attain pollution abatement more efficiently.
The motivation for Chapter 2 is based on water quality problems that remain severe across much of the United States. Improvements are particularly challenging in agricultural regions where upwards of 90 percent of the pollution load comes from sources that fall outside regulatory control under the Clean Water Act. These nutrient sources are responsible for a large “dead” zone in the Gulf of Mexico, the closure of Toledo's drinking water facility, and ubiquitous damage to recreational amenities. In Iowa, several state and federal programs encourage the adoption a new agricultural pollution abatement technology, cover crops, through cost-share funding opportunities, in which farmers receive matching funds or incentive payments to cover a proportion of the conservation costs. The promotion of cover crops through cost-share funding combined with a longitudinal data set with large Iowa farm operators including information on farmers both before and after introduction of the subsidy program provides an identification strategy to evaluate the effectiveness of funding for this promising new abatement technology. Using propensity score matching and a Tobit estimator that takes into account non-adoption, Chapter 2 finds that cost-share funding significantly increases the proportion of cover crops planted and cover crops acres among both recipients of funds and among adopters. These results have critical implications for finding solutions to address persistent water quality problems with limited conservation budgets.
Lastly, Chapter 3 is motivated by the importance of intra-household dynamics and spouses' relative influence on household expenditure decisions for the success of development strategies. The study is based on the results from a lab-in-the-field risk experiment in rural Camerooon, in which husband and wife individually participated in isolation and then participated together as a couple. Using the experimental results, Chapter 3 focuses on risk preference differences between spouses, spouses' individual influence over the couple's joint decision, and the relation between this relative influence and different expenditure decisions. Chapter 3 answers the following research questions: (i) Are there differences in risk preference between husbands and wives within households?; (ii) are there differences in the relative influence of each spouse over joint decisions involving risk?; and (iii) how does this relative influence affect household educational and medical expenditure decisions?
Chapter 3 finds evidence of risk aversion among husbands, wives, and couples (i.e. husband and wife together) on average, in which husbands are more risk averse than wives and couples. The study identifies some factors influencing the heterogeneity in risk preferences between spouses including whether the wife chose her husband for marriage and whether the wife worked during the past year. For the relative influence of spouses over couple's decisions under risk, Chapter 3 finds variables that increase the likelihood that one spouse is closer to the couple. Moreover, using a proxy for female bargaining power based on the difference in choices between each spouse and the couple, the study finds that monogamous wives are more likely to be more empowered than polygamous wives. At the same time, monogamous wives married to Muslim husbands are more likely to be less empowered than monogamous wives married to non-Muslim husbands. Lastly, the proxy for female bargaining power is positively correlated with educational and medical expenditures. Chapter 3's results provide a deeper insight into intra-household dynamics in the studied area, but more research is required to continue informing policy and supporting the generation of more effective development strategies in the region.