Browsing by Author "Hennlock, Magnus"

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Coasean Bargaining Games with Stochastic Stock Externalities
(2006) Hennlock, Magnus; Department of Economics
The recent approach ‘subgame consistency’ in cooperative stochastic differential games by Yeung and Petrosjan (2006) and Yeung and Petrosjan (2004) is applied to the classical Coase theorem in the presence of stochastic stock externalities. The dynamic Coasean bargaining solution is identified involving a negotiated plan of externality trade over time as well as subgame consistent Coasean liability payments flow under different assignments of property rights. The agent with the right to determine the externality has the advantage to choose his own private equilibrium as the initial condition in the dynamic system of the Coasean bargaining solution. The dynamic Coasean bargaining solution is formulated followed by an illustration showing an analytical tractable solution.
Common ground for effort sharing? Preferred principles for distributing climate mitigation efforts
(2011-03) Hjerpe, Mattias; Löfgren, Åsa; Linnér, Björn-Ola; Hennlock, Magnus; Sterner, Thomas; Jagers, Sverker C.
This paper fills a gap in the current academic and policy literature concerning how parties to the United Nations Framework Convention on Climate Change find common ground when distributing commitments and responsibilities to curb climate change. Preferred principles for sharing the effort to mitigate greenhouse gas emissions are compared among 170 delegates and more than 300 observers attending the UN Climate Conference in Copenhagen in December 2009. Respondents were asked to indicate their degree of support for eight effort-sharing principles for mitigation action. The survey results are analysed according to geographical region and party coalition affiliation. The results indicate that voluntary contribution, indicated as willingness to contribute, was the least preferred principle among both negotiators and observers. This could be seen as ironic, given that voluntary contribution is the guiding principle of the Copenhagen Accord. Across regions and party coalitions, agreement was strongest for basing a country’s mitigation level on its capacity to pay in terms of GDP per capita and on its historic greenhouse gas emissions since 1990.
Does experience eliminate the effect of a default option? - A field experiment on CO2-offsetting for air transport
(2009-10-23T12:49:21Z) Löfgren, Åsa; Martinsson, Peter; Hennlock, Magnus; Sterner, Thomas
Earlier research has shown that using a default option has a decisive effect on individuals’ choices. In many cases, however, the low proportion of subjects who switch from the pre-set default option might partly explained by inexperience with the goods or services offered, and high transaction costs for switching. By conducting a natural field experiment when environmental economists registered on the web to a conference, the default option to offset CO2 emissions was randomly pre-set. Either the participants had to opt-in to offset, opt-out to offset or there was no default option, i.e. an active choice had to be made with no implicit “guidance” from the default. We used experienced subjects and had low transaction costs of switching. Our findings show that the default has no significant effect on the decision to offset.
Emissions Trading Subject to Kantian Preferences
(2018-01) Hennlock, Magnus; Löfgren, Åsa; Sterner, Thomas; Martinsson, Peter; Dept. of Economics, University of Gothenburg
We study a cap-and-trade market equilibrium where different regions belonging to an emissions trading regime have different ambitions about the stringency of the cap. Specifically, we introduce a segment of consumers with Kantian preferences and show that they would prefer a more stringent cap compared to other regions. When a region sets up a voluntary more stringent cap within a cap-and-trade market, dual carbon markets with dual prices on allowances can emerge with trade against both caps. We then show that labelling a subset of the allowances in a cap-and-trade market captures the higher willingness to pay driven by different ambition levels among agents within a trading scheme. We show under what circumstances a socially efficient outcome from carbon markets can be achieved by labelling allowances when there are heterogeneous preferences among regions about the ambition level in an emissions trading regime. Being voluntary, trade in labelled allowances is consistent with a bottom-up approach where efforts are built up gradually by actors, countries and regions that wants to take leadership in international climate policy.
Environmental investment decisions: experimental evidence of team versus individual decision making
(2018-01) Felgendreher, Simon; Hennlock, Magnus; Löfgren, Åsa; Wollbrant, Conny; Dept. of Economics, University of Gothenburg
We study experimentally how investment decisions are affected by equally stringent but different policy regime treatments and how differences depend on whether decisions are made individually or in groups. In our experiment, subjects decide on an investment level either individually or jointly in groups of three. In addition, decisions are made subject to either a tax or performance standard treatment. We find that investments are significantly higher and closer to the level that maximizes revenues of the hypothetical firm in the performance standard treatment. This holds for both individual and group decisions, but we find no evidence of an interaction effect. Even though groups seem to have a knowledge advantage, they are not able to benefit from it, since intragroup communication is not able to transmit the microeconomic reasoning to group members without such knowledge. Also, groups are not able to attenuate the attention bias of focusing on selective information depending on the specific policy treatment.
Fiscal Federalism, Interjurisdictional Externalities and Overlapping Policies
(University of Gothenburg, 2018-09) Coria, Jessica; Hennlock, Magnus; Sterner, Thomas; Dept. of Economics, University of Gothenburg
In this paper, we analyze the effects of the interaction between national and local policies designed to reduce an environmental externality that causes environmental damages both nationally and locally. We formulate a theoretical model to develop hypotheses regarding the combined effects of such policies on the stringency of the local policies and on firms’ emissions reductions. To test our hypotheses, we use actual data for Sweden, where emissions of nitrogen oxides from combustion plants are subject to a heavy national tax and to individual emissions standards set by county authorities. Our analytical findings suggest that it is unlikely that local regulators will impose emissions standards stringent enough to achieve further reductions than those induced by the national tax. This is confirmed in our data, where most emissions reductions can be attributed to the national tax and the effects of the emissions standards are not significant.
A Note on the Cost-Benefit Ratio in Self-Enforcing Agreements
(2009-04-03T08:48:34Z) Hennlock, Magnus; Department of Economics School of Business, Economics and Law at University of Gothenburg Vasagatan 1, PO Box 640, SE 405 30 Göteborg, Sweden
Since the analysis of a self-enforcing agreement by Barrett (1994) it has been clear that the ratio between the slopes of the marginal cost and marginal benefit functions is conclusive for stability of self-enforcing agreements. For example Finus and Rundshagen (1998) stated: 'it turns out that all qualitative results depend only on this ratio' as it determines the non-orthogonal free-riding response along Nash reaction functions. This note shows that this 'pure' connection between the cost-benefit ratio and non-orthogonal free-riding response occurs due to the 'anonymous contributions' property of public goods, and in such cases the cost-benefit ratio effect holds regardless the functional form of objectives, the formulation of congestion or the degree of impureness of the public good. Therefore we expect to see the cost-benefit ratio still be the conclusive component also in self-enforcing agreements based on more general functional forms than seen hitherto in the literature.
Prices versus Standards and Firm Behavior: Evidence from an Artefactual Field Experiment
(2017-01) Hennlock, Magnus; Löfgren, Åsa; Wollbrant, Conny; Dept. of Economics, University of Gothenburg
We conduct an artefactual field experiment in which 164 managers and senior advisors recruited from Swedish industry were presented with a task of maximizing net revenue from abatement investments under three different but equally stringent environmental policy regimes. We find that investment decisions are strongly influenced by type of policy instrument. Economic instruments and performance standards cause different attentional and judgment biases that are inconsistent with standard economic theory. Inconsistencies are larger with economic policy instruments (tax and subsidy) than with performance standards even though subjects’ attention to cost minimization was greater with economic instruments than under performance standards.
Robust Control in Global Warming Management: An Analytical Dynamic Integrated Assessment
(2009-04-17T06:18:32Z) Hennlock, Magnus
Knightian uncertainty in climate sensitivity is analyzed in a two sec- toral integrated assessment model (IAM), based on an extension of DICE. A representative household that expresses ambiguity aversion uses robust control to identify robust climate policy feedback rules that work well over IPCC climate-sensitivity uncertainty range [1]. Ambi- guity aversion, together with linear damage, increases carbon cost in a similar way as a low pure rate of time preference. Secondly, in combi- nation with non-linear damage it makes policy responsive to changes in climate data observations as it makes the household concerned about misreading sudden increases in carbon concentration rate and temper- ature as sources to global warming. Perfect ambiguity aversion results in an infinite expected shadow carbon cost and a zero carbon-intensive consumption path. Dynamic programming identifies an analytically tractable solution to the model.
Self-Enforcing International Environmental Agreements: The Role of Climate Tipping
(2017-10) Liu, Xin; Zhu, Lei; Zhang, Xiao-Bing; Hennlock, Magnus; ∗Xin Liu, Chinese Academy of Sciences. Lei Zhu, Beihang University. Xiao-Bing Zhang (corresponding author: xbzhmail@gmail.com), Renmin University of China, Beijing, PRC. Magnus Hennlock, IVL Swedish Environmental Research Institute.
Taxes, Permits and Costly Policy Response to Technological Change
(2010-05-10T10:39:42Z) Coria, Jessica; Hennlock, Magnus
In this paper we analyze the e ects of the choice of price (taxes) versus quantity (tradable permits) instruments on the policy response to technological change. We show that if policy responses incur transactional and political adjustment costs, environmental targets are less likely to be adjusted under tradable per- mits than under emission taxes. This implies that the total level of abatement over time might remain unchanged under tradable permits while it will increase under emission taxes.