Forschung / Research

Government spendings, hetereogenous skills and convergence

Joint work with Ingrid Ott, Karlsruhe Institute of Technology

We employ a dynamic framework to compare the effects of alternative governmental activities on the process of convergence.

Policy instruments include facilitating private investment and public expenditure (amount and structure) that act as enhancing individual skills. Highly skilled specialists are endowed with both technological and systemic skills, though to different extents.

We analyze how governmental activity speeds up convergence thereby considering productivity growth at the technology frontier either as exogenous or as endogenous parameter. Which policy maximizes the speed of convergence is crucially affected by a country's state of development. A policy switch while catching-up may be preferable.

Governmental activity, integration, and agglomeration

Joint work with Ingrid Ott, Karlsruhe Institute of Technology

We analyze within a regional growth model the impact of productive governmental policy and integration on the spatial distribution of economic activity.

Integration is understood as enhancing territorial cooperation between the regions, and it describes the extent to which one region may benefit from the other region's public input, e.g. the extent to which regional road networks are connected. Both integration and the characteristics of the public input crucially affect whether agglomeration arises and if so to which extent economic activity is concentrated: As a consequence of enhanced integration, agglomeration is less likely to arise and concentration will be lower. Relative congestion reinforces agglomeration, thereby increasing equilibrium concentration. Due to the congestion externalities, the market outcome ends up in suboptimally high concentration.

Resource depletion under uncertainty

Sustainable resource depletion was analyzed in a variety of approaches under different conditions and different sustainablility concepts. My focus is on the impact of uncertainty on sustainable resource extraction.

In reality, future resource regeneration, the amount of the resource stock and future depletion costs are not known with certainty --- in particular since we are interested in processes over very long time. Uncertainty affects risk averse individuals twofold: If the risk associated with resource depletion increases, there is an incentive to substitute away from using the resource. Nevertheless, the income effect leads to an increase in resource use since individuals aim to increase their expected future income level and therefore increase current production as well as capital accumulation.

In this work I show which determinants are crucial for the negative or the positive effect to dominate.

Emergency aid and long-run environmental quality

With this work I show that emergency aid after environmental desasters like hurricanes or floods may be counter working with respect to the aim to internalize environmental externalities.

An endogenous growth model is considered where pollution is an inevitable by-product of production, reduces productivity, and causes disutility. Furthermore, the extent to which the agents perceive their individual influence on aggregate pollution is parameterized. Emergency aid is shown to provide an insurance against the uncertainty associated with pollution. The impact of such an insurance depends crucially on the way pollution affects environmental uncertainty. On the one hand side, there is a pollution decreasing effect of emergency aid due to a decrease in capital accumulation. On the other hand side, there is a pollution increasing effect due to a reduction in abatement activity. Which effects dominates depends on the weight of the productivity effect of environmental quality as well as on individual preference parameters.

Endogenous environmental behavior

Joint work with Ingrid Ott, HWWI Hamburg and IfW Kiel

Recent studies illustrate that individual environmental behavior is influenced crucially by the extent to which the individuals perceive their own behavior as being relevant for actually resulting environmental quality. This is the starting point of our work.

Our main focus is on the endogenous explanation of the individual perception of environmental concerns and on the interdependence between environmental policy and the development of individual mis-perception.

Two possible determinants of partial perception are distinguished:

First, it is reasonable to assume that knowledge about the dependence between individual decisions and aggregate environmental quality increases in the course of economic development. Either the expenditures for environmental education increase or environmentally conscious behavior is a kind of luxury good. With sufficiently high income, the households show less free riding with respect to environmental concerns. Hence, the economy converges towards the sustainable path with Pareto-optimal environmental quality.

Second, we analyze the case where individual mis-perception is linked to environmental quality. Individuals take more care of the environment, if the pollution level increases and the consequences of individual actions for environmental quality get more obvious. In this setting, the convergence towards the sustainable path disappears. Instead, the pollution level remains constant and suboptimally high in the dynamic market equilibrium.

We elaborate the consequences of the specific determinants of individual perception for environmental policy and show that they are profound. Hence, we show that in a long-run perspective it is essential to include the determinants of environmental externalities in the analysis.