CER-ETH Research Seminar, Spring Term 2009

Everyone who is interested is cordially invited!

If you would like to receive our weekly invitation via e-mail, or if you have any other question, please contact Jean-Philippe Nicolai

Speakers

Steinar Holden: Discrimination and Employment Protection

We study a search model with firing cost. We show that there exists an equilibrium with discriminatory hiring standards of workers only differing in an observable characteristic determining their type. Even though the firm can observe the workers’ expected productivity at the hiring stage, it still may condition its hiring standard on group belonging, due to feedback effects of other firm’ hiring standards. The model predicts higher unemployment rates, stricter hiring standards, longer tenure for discriminated workers and a positive relation between employment protection and relative unemployment rates for discriminated workers.

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Nicolas Treich: The Value of a Statistical Life under Ambiguity Aversion

The paper shows that ambiguity aversion increases the value of a statistical life as soon as the marginal utility of wealth is higher if alive than dead. The intuition is that ambiguity aversion has a similar effect as an increase in the perceived baseline mortality risk, and thus operates as the “dead anyway” effect. A numerical example suggests, however, that ambiguity aversion can hardly justify the substantial “ambiguity premium” apparently embodied in environmental policy-making. The paper also shows that ambiguity aversion always decreases the marginal cost of  individual self-protection effort but may also decrease its marginal benefit, so that the total effect is unclear.

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Anil Markandaya: Analysis of Tax Incentives for Energy Efficient Durables

We develop a model for evaluating the impact of subsidies for energy efficient durables in selected EU countries and compare them with energy taxes as measures for reducing the consumption of energy. The options are evaluated with respect to the cost per unit of electricity reduced, the cost per ton of GHGs eliminated, the deadweight welfare cost and the cost in terms of government budget per ton of GHG reduced.

The results indicate that incentives to promote the use of energy efficient appliances can be cost effective, but whether or not they are depends on the particular country and the options under consideration. From the cases considered, tax credits on boilers appear to be an attractive option in both Denmark and Italy, while subsidies on CFLi bulbs in both France and Poland are cost effective in terms of €/ton of CO₂ abated.

Comparing the subsidies against the energy tax options, we find that the subsidies are in most cases less cost effective than the energy tax. Subsides are only preferred to taxes in the case for CFLi bulbs in Poland. Tax credits are more cost effective than energy taxes for boilers in both Italy and Poland. The tax option of course has the advantage of generating revenue that could be used for promoting energy efficiency while the subsidy option places a burden on the budget. In principle this burden has been accounted for by imposing a cost on the subsidy equal to the welfare cost of raising public funds but in situations of fiscal constraints additional pressures on the budget may need to be taken into account.

Andreas Irmen: Population, Pensions, and Endogenous Economic Growth

We study the effect of a declining labor force on the incentives to engage in labor-saving technical change and ask how this effect is influenced by institutional characteristics of the pension scheme. When labor is scarcer it becomes more expensive and innovation investments that increase labor productivity are more profitable. We incorporate this channel into a new dynamic general equilibrium model with endogenous economic growth and heterogeneous overlapping generations. We calibrate the model for the US economy. First, we establish that the net effect of a decline in population growth on the growth rate of per-capita magnitudes is positive and quantitatively significant. Second, we find that the pension system matters both for the growth performance and for individual welfare. Third, we show that the assessment of pension reform proposals may be different in an endogenous growth framework as opposed to the standard framework with exogenous growth.

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Philippe Thalmann: Revising the Swiss CO₂ Law: The Economists' Input

The first draft of a Swiss CO₂ law was subject to wide consultation in 1994. That consultation was fatal, so that it took 5 years for a law to come into force. The consultation process for a complete overhaul of that law was just completed in March 2009. In the meantime, several amendments were considered and presented to Parliament. Thus, there were many opportunities to assess the goals of Swiss climate policy and the alternative instruments considered and implemented for reaching those goals. In this talk, I will assess Swiss climate policy on the basis of that Swiss CO₂ law in its various implementations. The assessment will draw from the public choice literature to try and understand how climate policy can be implemented in a country endowed with strong elements of direct and indirect democracy. The assessment will also use our computable general equilibrium model in order to evaluate the macroeconomic effects of different policies.

Carsten Helm: Incentive compatible climate contracts with asymmetric information

Countries usually have private information about their willingness to pay for greenhouse gas emission abatement and related abatement costs. In this paper we use contract theory to investigate the consequences of asymmetric information for an international climate change contract that specifies emissions reductions. When countries have an incentive to downplay their willingness to pay, then an incentive compatible contract leads to higher emissions than it would be efficient. Furthermore, cooperation is particularly beneficial for countries with a high willingness to pay. The opposite result emerges, when countries' incentives to exaggerate their willingness to pay dominate.

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David de la Croix: An international treaty to break the immigration deadlock

Global migration flows are constrained by immovable anti-immigration regulations of rich-country citizens. Such regulations induce important economic costs for developing countries. By relaxing labor market constraints at origin and inducing large amounts of remittances, unskilled migration can be seen as an explicit component of the development policy of the rich world. Breaking the gridlock on international labor migration requires solutions that are politically acceptable in rich countries. In this paper, we provide a political solution that improves the international allocation of labor. Starting from the current/effective allocation of labor, the goal of our international treaty is to incite rich-country voters to accept additional immigrants without incurring any loss of welfare. Our policy scheme exploits a coordination problem which arises as soon as households are interested in the well-being of the poorer (altruism). In this situation, as soon as a rich country welcome an additional migrant, the developing world is better, and everybody in the rich countries is better off too. Internalizing this externality with a tax subsidy scheme in a simple model where immigration restrictions are endogenously determined by nationalist interests in the North. Our model can be easily calibrated using statistics on immigration, working-aged population and output. Implementing our policy recommendation significantly increase the stock of South-North immigrants.