Droughts, deluges, and (river) diversions: Valuing market-based water reallocation
August 2022 (first draft: October 2019). Accepted, American Economic Review.
Abstract: This paper develops and applies a method to value water trading on a river network. The framework relies on regulatory variation in diversion caps to identify production functions for irrigated farms, then uses the estimated shadow values to assess the market’s reallocation. I apply this framework to the largest water market in human history, located in southeastern Australia. Observed water trading increased output by 4–6% from 2007–2015, equivalent to avoiding an 8–12% uniform decline in water resources. Reallocation and average surplus both increase substantially during drought, implying that water markets can be most valuable when climatic variability is most severe.
Conservation priorities and environmental offsets: Markets for Florida wetlands (with Daniel Aronoff)
Abstract: We introduce an empirical framework for valuing decentralized markets in environmental offsets. Using newly-collected data on wetland conservation and offsets, we apply this framework to evaluate a set of decentralized markets in Florida, where land developers purchase offsets from a small number of long-lived producers that restore wetlands over time. We find that offsets led to substantial private gains from trade, creating about $1 billion of net surplus from 1995–2018 relative to a historical conservation mandate. Offset trading also led to large differences in hydrological outcomes, driven by significant differences between restored and existing wetlands in terms of area and location within floodplains. A locally differentiated Pigouvian tax on offset transactions would have prevented $800 million of new flood damage while preserving more than two-thirds of the private gains from trade.
Mirage on the horizon: Geoengineering and carbon taxation without commitment (with Daron Acemoglu)
September 2021. NBER Working Paper, No. 24411, March 2018.
Abstract: We show that, in a model without commitment to future policies, geoengineering breakthroughs can have adverse environmental and welfare effects because they change the (equilibrium) carbon taxes. In our model, energy producers emit carbon, which creates a negative environmental externality, and may decide to switch to cleaner technology. A benevolent social planner sets carbon taxes without commitment. Higher future carbon taxes both reduce emissions given technology and encourage energy producers to switch to cleaner technology. Geoengineering advances, which reduce the negative environmental effects of the existing stock of carbon, decrease future carbon taxes and thus discourage private investments in conventional clean technology. We characterize the conditions under which these advances diminish—rather than improve—environmental quality and welfare, and show that given current estimates of costs and environmental damages, these conditions are likely to be satisfied in our model.
Competing discourses of energy development: The implications of the Medupi coal-fired power plant in South Africa (with Benjamin K. Sovacool)
Global Environmental Change, Vol. 22 No. 3, August 2011, pp. 1141–1151