This paper analyzes the optimal mix of adaptation and mitigation expenditures in a cost-effective setting, in which countries cooperate to achieve a long-term stabilization target (550 CO2-eq). It uses an Integrated Assessment Model (AD-WITCH) that describes the relationships between different adaptation modes (reactive and anticipatory), mitigation and capacity building to analyze the optimal portfolio of adaptation measures. Results show that the optimal intertemporal distribution of climate policy measures is characterized by early investments in mitigation followed by large adaptation expenditures a few decades later. Hence, the possibility of adapting does not justify postponing mitigation. Moreover, a climate change policy combining mitigation and adaptation is less costly than mitigation alone. In this sense mitigation and adaptation are shown to be strategic complements rather than mutually exclusive.

In this model, well-being depends on leisure, on an environmental renewable resource, and on a non-storable output, which can substitute for the environmental resource or can satisfy needs different from those satisfied by the resource. Individuals have free access to the environmental resource, which is subject to negative externalities: that is, is depleted by the production and consumption of the output. Individuals react to negative externalities by increasing their labour supply in order to produce substitutes for the diminishing resource. The increase in production and consumption that ensues generates further deterioration of the future quality or quantity of the free resource, thus giving rise to a self-reinforcing process. Multiple equilibria and ‘critical mass effects’ are consistent with the functioning of this economy and the resulting level of aggregate production may be higher than is socially desirable.

The paper analyzes the economic impacts of climate change-induced fluctuations on the performance of Ethiopia's agriculture, using a countrywide computable general equilibrium (CGE) model. We model the impacts on agriculture using a Ricardian model, where current agricultural production is modelled as a function of temperature and precipitation, among other things, and where future agriculture is assumed to follow the same climate function. The effect of overall climate change is projected to be relatively benign until approximately 2030, but will become considerably worse thereafter. Our simulation results indicate that, over a 50-year period, the projected reduction in agricultural productivity may lead to reductions in average income of some 20 per cent compared with the outcome that would have prevailed in the absence of climate change. This indicates that adaptation policies – both government planned and those that ease autonomous adaptation by farmers – will be crucial for Ethiopia's future development.

International climate negotiations have specified that projects under the Clean Development Mechanism (CDM) should not lead to a ‘diversion’ of official development assistance (ODA). It is however unchallenged that ODA can be used in capacity building for the CDM. Diversion can be interpreted in purpose, sectoral, and regional terms. There are possibilities to use ODA benchmarks to define diversion such as the UN 0.7 per cent target but they are unlikely to be politically acceptable. On the project level, three main options exist but none of them is perfect. The Development Assistance Committee of OECD endorses deduction of the value of emissions credits (CERs) from ODA. This however leads to a long-term pressure on the ODA level. Differentiating an ODA-financed baseline project and a ‘piggyback’ CDM option is likely to be arbitrary in many circumstances. Even if CERs do not accrue for the ODA share of the investment, still private CDM projects are crowded out due to the subsidizing of CDM projects.

The paper first presents evidence from the engineering literature on air and water pollution control, which shows that, when the pollution abatement technologies are in place, large reductions in pollution have been achieved at costs that are small relative to the costs of production. A simulation model is then developed to study the effects of technical progress on pollution abatement, and applied to particular cases in developing countries. The results are compared with the projections of an environmental Kuznets curve: they reproduce the latter if policies were not to be introduced until per capita incomes reached levels comparable to those of the industrial countries when they first introduced their policies; but show dramatically lower and earlier peaks if policies were to be introduced earlier. The conclusion is shown to apply more generally, and it is argued that developing countries can aspire to addressing their environmental problems at a much earlier phase of development than the industrial countries before them.

A contingent valuation study measured citizen willingness to pay (WTP) for an improvement in surface water quality in Latvia. The average respondent was willing to pay 0.7 per cent of household income for the environmental improvement, but that amount was much less than needed to finance the required investments in treatment facilities. While the income elasticity of WTP for the average resident was low (0.56), it increases as income increases, reaching 0.9 at an income level double the current average. As real incomes increase in Latvia, the demand for environmental quality by citizens can be expected to increase substantially.

This paper measures the impact of climate on Mexican agriculture using a Ricardian analysis. The analysis relies on economic data from 621 individual farms that were collected in 2002. Data on climate, elevation, soils, and distance to nearest city were matched with each farm. The analysis reveals that farmland values in Mexico are sensitive to climate. On average, warmer temperatures reduce land value by 4,000 to 6,000 pesos per degree Celsius. Examining three climate scenarios for 2100, the models predict average losses of between −42% to −54% of land value in Mexico. As a percent of income, rainfed farms will suffer slightly larger damages than irrigated farms but comparisons between small and large farms are mixed.

This paper, based on a computable general equilibrium model of the Indian economy, shows that a domestic carbon tax policy that recycles carbon tax revenues to households imposes heavy costs in terms of lower economic growth and higher poverty. However, the decline in economic growth and rise in poverty can be minimized if the emissions restriction target is modest, and carbon tax revenues are transferred exclusively to the poor. India's participation in an internationally tradable emission permits regime with grandfathered emissions allocation is preferable to any domestic carbon tax option, provided the world market price of emission permits remains low. Even better would be if India participated in a global system of tradable emission permits with equal per capita emission entitlements. India would then be able to use the revenues garnered from the sale of surplus permits to speed up its economic growth and poverty reduction and yet keep its per capita emissions below the 1990 per capita global emissions level.

Ferraro and Simpson (2002) argue that when markets are competitive, payments for environmental services (PES) are more cost-effective in achieving environmental goals than more indirect approaches such as subsidies to capital. However, when eco-entrepreneurs face non-price rationing in input or output markets, as is typical for credit in developing countries for example, we show that interventions which relax constraints can be more cost-effective than PES. One corollary of this is that such indirect approaches are preferred to PES by interveners (e.g., donors) and eco-entrepreneurs alike. Both of these outcomes are more likely when constraints are severe. This has implications for schemes with dual environment and poverty alleviation objectives.

Traditional grazing grounds near Amboseli National Park (Kenya) are being rapidly converted to cropland – a process that closes important wildlife corridors. We use a spatially explicit simulation model that integrates ecosystem dynamics and pastoral decision-making to explore the scope for introducing a ‘payments for ecosystem services’ scheme to compensate pastoralists for spillover benefits associated with forms of land use that are compatible with wildlife conservation. Our break-even cost analysis suggests that the benefits of such a scheme likely exceed its costs for a large part of the study area, but that ‘leakage effects’ through excessive stocking rates warrant close scrutiny.

This paper examines whether green Official Development Aid (ODA) has a significant role in mitigating carbon emissions in recipient countries, and if institutional quality matters for the effectiveness of green ODA. For 86 green ODA recipient countries over the period 2003–2014, we explore the nexus between green ODA, institutions and carbon emissions. By using a two-step system generalized method of moment (GMM), we find that green ODA overall has no direct association with the mitigation of carbon emissions. However, when institutional quality indices are included, we found a significant effect of institutional quality on the effectiveness of green ODA. In general, green ODA is associated with higher carbon emissions in countries with poor institutions. In particular, green ODA is effective in mitigating carbon emissions when channeled to countries that enjoy higher economic freedom as well as more freedom from corruption. Results are mixed for the rule of law.

This paper explores the potential impacts of payments for agricultural soil carbon sequestration on poverty of farm households and on the sustainability of agricultural systems, using economic theory combined with evidence from three case studies in Kenya, Peru, and Senegal. The case studies indicate that the likely impact of carbon contracts will be to raise rural incomes and reduce the rate of soil carbon loss. In some cases, carbon contracts may be able to stabilize soil carbon stocks at a higher level than would otherwise be economically feasible. These findings suggest that carbon payments could have a positive impact on the sustainability of production systems while also reducing poverty. The analysis indicates that payments for environmental services are most likely to have a positive impact when they are implemented in an enabling economic and institutional environment.

Water scarcity is a constraint on economic activity in many regions, and improving the allocation of water is an important part of the process of economic development. Economists have advocated water markets as a way to increase efficiency and to cope with environmental problems. Unfortunately, actual water markets, including those in developed countries, usually fall far short of this ideal. The paper considers the allocation of water by markets that are only imperfectly developed, in which prices are not publicly known and in which there is no centralized trading location. These limitations impose transaction costs on buyers and sellers, that is costs associated with completing a transaction. A conceptual model of the effect of transaction costs on trading patterns is developed. Stylized results are tested using data from an informal water market in California. The paper concludes with a description of the importance of transaction costs, comments on the transition to more formal water markets, and policy recommendations.

This paper investigates the relationship between land concentration and deforestation in the Brazilian Amazon. It develops a conceptual framework in which an individual may have three alternatives: to be a farmer in an already established place, to be a rural worker, or to migrate to the agricultural frontier in order to deforest. This model implies that land inequality affects deforestation positively. Based on data from municipalities with positive deforestation from 2002 to 2011, a model has been estimated to test this theoretical prediction. By making use of an instrumental variable, results show that there is statistical evidence to support the existence of a direct relationship between land inequality and deforestation. Results are stronger for the period 2002–2005. This might be due to command and control policies which have significantly increased the cost of clearing land since the mid-2000s.

The development literature has devoted considerable attention to the commons and has ignored the wider economic context of the commons. I develop a model of two kinds of agents (naïve and sophisticated) using two kinds of assets (safe and unsafe) to illustrate the possibility of resource degradation in the commons in the absence of free riding, shirking, and general theft among members of the village and its associated commons. This model makes it possible to understand that degradation of the commons arises from factors outside of the commons rather than arising from ‘perverse’ property rights and selfish behavior within the commons. This approach suggests a needed reformulation of development assistance away from prescriptions for the commons. Instead, development assistance must be refocused on the more serious challenge of institutional incoherence in the larger economy of which the village and its commons are but a part.

Identifying a demand function for air quality is a key input to calculate welfare measurements of pollution abatement policies. We defined intra-urban housing submarkets to apply a Second Stage hedonic pricing model that allowed us to identify an inverse demand function for PM10 reductions in Bogotá. The monthly benefits of compliance with the U.S. Environmental Protection Agency standard (50 μg/m3 – annual average), and the far more stringent World Health Organization standard (20 μg/m3 – annual average) are valued at US$12.16 and US$189.64 per household, respectively. These values, in turn, represent about 1.35 per cent and 21.04 per cent of the average household income. The hedonic model applied hereby shows that intra-urban housing submarkets are suitable for the identification of a demand function to be used by policy makers interested in evaluating non-marginal benefits (costs) from air quality improvements (deterioration).

The entire agricultural supply chain, from crop production to food consumption, is expected to suffer significant damages from climate change. This paper empirically investigates the effects of warming on agricultural labor supply through variation in dietary intake in rural Uganda. We examine labor supply, food consumption, and overall social welfare under various climate change scenarios. First, we combine nationally representative longitudinal survey data with high-resolution climatic data using an instrumental variable approach. Controlling for calorie intake, our study shows that warming has a non-linear impact on agricultural labor supply, with the number of hours worked being optimized at an optimal temperature of 21.3°C. Using these econometric estimates to parametrize an overlapping generations model, we find that under RCP8.5, output per adult decreases by 20 per cent by the end of the century due to the combined effect of climate change on food consumption and labor supply.

During the last 20 years, the mining sector in Peru has been experiencing sustained growth. Using census, administrative, nationally and regionally representative data we compare districts in the Peruvian Highlands with a recent mining development with suitable counterfactuals. We find that the new mining activities attract migration inflows, and have some positive effects over educational indicators, and that these impacts, on average, are smaller in districts with lower levels of corporate social expenditure. However, the results of this study suggest that the local potential welfare impact of the mining boom is largely untapped and corporate social responsibility has had a limited role in improving this effect.

This paper analyzes the economy-wide gains obtainable from the allocation of surface irrigation water to its most productive use, and evaluates a decentralized mechanism for achieving this result in a spatially heterogeneous environment. The focus country for the analysis is Morocco. The analysis is based on a general equilibrium model that, in addition to the rest of the economy, captures 82 agricultural production activities, 66 of which are in seven separately identified water districts that span the entire country. The results suggest that a decentralized water trading mechanism could increase agricultural output by 8.3 per cent, affect the rental rates of other agricultural inputs at the national level, including labour, and have economy-wide effects that entail a decline in the cost of living, an increase in aggregate consumption, and expansion of international trade.

Studies of compliance with fishing regulations have been based on fishery crimes where the offender faces a one-period decision problem of maximizing an expected utility. Moreover, the returns from the crimes are uncertain because the offender may lose them if caught. This paper extends these models by considering a fishery crime that generates a flow of returns until the offender is caught and then punished. Consequently, it incorporates into the existing model the influence of dynamic deterrence in which the discount rate affects violation levels. The predictions of the model are tested on data from an artisanal fishery in Ghana.