Published:
Pauli Lappi (2019), “On the non-compliance of a polluting mine under an emission tax”, Strategic Behavior and the Environment: Vol. 8: No. 1, pp 33-71. DOI: 10.1561/102.00000090
Abstract: “The production of different exhaustible resources, and mining in particular, are a source of stock pollutants and the growth of these stocks can be constrained by abatement and taxation. However, the firm may have incentives to non-comply with these regulations. This study analyzes the enforcement of an emission tax in a dynamic model, which includes stock externalities and abatement by the mining firm and by natural processes. The purpose of this investigation is two-fold. First, to study the consequences of a given enforcement scheme in a dynamic model and to generalize the results from previous static models. Second, to analyze the time paths of control variables and the violation level. It is argued that non-compliance in itself does not necessarily imply that net emissions from the mine are excessive compared to the full-compliance emission level. It is the possibility of a zero emission report that may cause the divergence from the socially optimal emission levels. The time path of violation and hence the path of unpaid taxes can have multiple shapes depending on the type of tax applied.”
Pauli Lappi, “A model of optimal extraction and site reclamation”, Resource and Energy Economics DOI: 10.1016/j.reseneeco.2019.101126
Abstract: “Environmental issues during and after extraction are a major problem in contemporary exhaustible resource production. Production operation deteriorates the state of the environment and is a source of possibly harmful emissions. After the extraction has ceased, the site is in need of reclamation and clean-up. This paper analyses the last two stages of exhaustible resource production: extraction and site reclamation decisions. The socially optimal regulation is investigated, and it is found that a pollution tax, a shut-down date and a requirement for the firm to deposit funds for costly reclamation can be used to incentivize socially optimal extraction of the resource. It is also found that the firm can be required to pay the monies to a reclamation trust at the beginning of the extraction operation, which protects the tax payers from the possible insolvency of the firm who tries to avoid paying for the reclamation.”
(old title: A model of optimal extraction and rehabilitation)
Working papers:
“On optimal extraction under asymmetric information over reclamation costs”, revise and resubmit, Journal of Economic Dynamics and Control
Abstract: “Polluting exhaustible resource extraction ends with costly reclamation and producers have better information about future reclamation costs than the regulator. This paper analyzes optimal contract between the regulator and the mining firm in a two-stage model, in which extraction and pollution generation is followed by reclamation with asymmetric information over reclamation costs. The contract consists of a pollution tax and a mechanism used for cost information revelation, and it extracts all the profit from the highest-cost type, leaves profits for the more efficient types and dictates a reclamation effort that is lower than the complete information effort. It is further shown that the optimal pollution tax under asymmetric information can be lower or higher than the tax under complete information. In addition, the exclusion of the most expensive types is analyzed. The results can help to design policies that improve the existing ones by saving public funds, by improving the state of the environment and by excluding those mining operations that do not produce (net) benefits for the society.”
“From cradle to grave? On optimal nuclear waste disposal” with Jussi Lintunen, submitted
Abstract: “This paper analyses socially optimal nuclear plant operation and nuclear waste management. Two waiting rules are derived: the first characterizes the optimal continuation of electricity production, and the second gives the optimal nuclear waste disposal date. Both rules balance the cost and benefit of either continuing production or delaying waste disposal into a deep geological repository. In addition, multiple regulatory options are investigated. The optimized waste storage and disposal cost forms the payment that should be collected from the nuclear power firm into a nuclear waste fund. The properties of this payment and other regulatory options including a tax to be paid at the shutdown date of the plant are investigated, and it is shown that the money can be collected by a plant-specific constant fee targeted at firm’s profit or output. Numerical illustration shows that waste disposal to a deep geological repository is a cost-minimising solution only with very low interest rates. For interest rates above one percent it is optimal to store the waste in an on ground storage facility in perpetuity.”
(old title: On optimal nuclear waste disposal)
“On the choice between price and quantity instrument under endogenous lobby formation”
Abstract: “The choice between emission tax and emission quotas and the choice on the level of the instrument is analyzed in a political economy framework with endogenous lobby formation. The polluting firms can influence the choice between these instruments in addition to the level of the instrument, and choose whether to take part in the lobby group. It is shown that if some of the firms do participate in the lobby group, then the level of either instrument is different from the level that results in the social optimum. Sufficient conditions for the existence of non-null lobby group are presented in addition to a condition that results in a group that consists of firms with the lowest participation costs. Furthermore, it is shown with specific function forms that the firms who expect to be lobbyists will unambiguously favor a quantity instrument over a price instrument, and can induce the regulator to choose this instrument.”
(old title: Lobbying and environmental policy instruments)
“Lobbying for size and slice of the quota”
Abstract: “The formation and allocation of an emission quota is analyzed in a common agency model with two stages. First, the principals (firms or countries) lobby for the size of the aggregate quota. Second, after the aggregate quota has been set, the principals lobby for individual slices of the quota. It is shown that although the slices are allocated such that the marginal profits of the principals are equalized, the size of the aggregate quota is distorted from the social optimum characterized by the Samuelson’s rule for public goods. This quota is set such that the aggregate marginal profit from it is less than the marginal damage, and in effect, there is an overallocation of individual and aggregate quotas.”
Work in progress:
Conference presentations:
Workshop and seminar presentations:
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