Conservation Versus Competition? Environmental Objectives in Government Contracting
(Revisions requested, American Economic Journal: Microeconomics) [Appendices] Abstract
Government contracts increasingly incorporate environmental objectives or preferences for sustainable products. I show how such environmental restrictions can influence contract bids through firm costs, strategic bidding behavior, and bidder participation decisions. Using data from Michigan timber auctions and a structural model of equilibrium bidding, I find that conservation restrictions impose compliance costs of up to 15% of the winning bid. These costs are found to be fully borne by the state. Loggers capture a larger share of auction surplus for restricted contracts, indicating that the policy blunts competitive pressure in the auctions. Optimal reserve prices can partially mitigate the revenue disparity between more- and less-restricted contracts.
Air Pollution as a Cause of Violent Crime: Evidence from Los Angeles and Chicago
(with Anthony Heyes, Erich Muehlegger & Soodeh Saberian)
Selected coverage: Washington Post | Atlantic CityLab | Fusion | Independent (UK) | Chicago Booth Review
Exposure to air pollution has adverse impacts on human health, workplace productivity, and educational and cognitive performance. However, empirical evidence linking pollution exposure to high-stakes decisionmaking is limited. Motivated by research from medicine and psychology linking pollution to aggression, we provide the first evidence of a causal link between short-run variation in ambient pollution and the commission of violent crime. Using the location of crimes and wind direction as a source of pollution variation, we find that air pollution increases violent crime in both Chicago (by 2.2%) and the Los Angeles metro area (by 6.1%). Consistent with the literature on aggression and ambient pollution, we find no effect on property crime. The results are robust to a wide variety of specifications and falsification tests. Back of the envelope calculations indicate that the cost of pollution-induced crime is comparable in magnitude to other outcomes studied in the literature and should be included in benefit-cost analysis of pollution abatement policies. Overall, the results suggest that pollution may reduce welfare and affect behavior and decisionmaking through an even wider set of channels than previously understood.
What lies beneath: Pipeline awareness and aversion
(with Richard Sweeney)
NBER Working Paper #23858
Coverage: C.D. Howe Institute
Stated safety concerns are a major impediment to making necessary expansions to the natural gas pipeline network. While revealed willingness to pay to avoid existing natural gas pipelines appears small, it is difficult to know if this reflects true ambivalence or a lack of salience and awareness. In this paper, we test this latter hypothesis by studying how house prices responded to a deadly 2010 pipeline explosion in San Bruno, CA, which shocked both attention and information. Using multiple identification strategies, we fail to find any evidence of a meaningful shift in the hedonic price gradient around pipelines following these events. We conclude with a discussion of how this result relates to latent, fully informed preferences, as well as the implications for future pipeline expansions.
Work in Progress:
This paper seeks to estimate the impacts and explain the presence of two pervasive features of oil and gas lease contracts between mineral owners and extraction firms: the royalty and the primary term. The royalty is a percentage of hydrocarbon revenue that is paid to the mineral owner, and the primary term specifies the maximum number of years within which the firm must drill and produce from at least one well, lest it lose the lease. Using detailed data on lease contracts and the timing of drilling, we show empirically that primary term expiration dates have an economically significant impact on firms’ drilling decisions: a large share of wells are drilled just prior to expiration. This systematic pattern is difficult to fully explain with other factors such as information or common pool externalities. We then develop a model to explain why primary terms and royalties can help maximize the mineral owner’s expected revenue from a lease, despite the distortions they generate. In our model, the firm has private information about the expected productivity of the well and the inputs used in drilling. Intuitively, the optimal contract strikes a balance between extracting the firm’s private information and distorting its incentive to choose the timing of and inputs into the well-drilling process. To achieve this balance, payments are tied to observable production outcomes and drilling timing decisions.
Seller Commitment and the Empirical Analysis of First-Price Auctions
The empirical auction literature focuses on recovering firm valuations, which are used to calculate surplus division, optimal reserve prices, and the impacts of an increased number of competing bidders. In the case of a binding reserve price, the standard assumption is that the auctioneer keeps the object if the reserve price is met. However, this assumption is violated in many settings, including auctions for timber contracts and oil leases. In this paper, I consider a model in which the seller may re-auction the object once if the initial reserve price is not met. I argue that the value distributions are nonparametrically identified without additional modeling assumptions using standard arguments in the literature. However, the distribution of shocks to values between the first- and second-round auctions is not identified using only bid data. I impose a parametric assumption and propose a semiparametric estimation procedure. A Monte Carlo simulation shows that the estimator performs well, and demonstrates that ignoring the seller commitment problem will lead to biased estimates of bidder valuations. Finally, I discuss how previous methods using reserve prices can be adapted to identify the first-round distribution of unobserved heterogeneity and allow it to persist into the second round. Future work will apply the approach to data from timber auctions, and seek to allow for interdependent values to better characterize oil lease auctions.
Do alcohol taxes in Europe and the US rightly correct for externalities?
(with Ian Parry & Juha Sikkamäki)
International Tax and Public Finance, Vol. 22 (Feb. 2015), 73-101.
We develop an analytical framework for assessing corrective taxes and other policies to reduce alcohol-related externalities and apply it to the US, UK, Sweden, and Finland. The corrective tax estimates for the European countries fall short of current taxes and vice versa for the US (where drunk-driving externalities are larger and current taxes smaller). Alcohol sales restrictions are more difficult to justify on efficiency grounds as (unlike taxes) they involve large, first-order deadweight losses. For all countries, the efficiency case for stiffer drunk driver fines seems strong (though the same does not necessarily apply to non-pecuniary penalties).
Weather, Salience of Climate Change, and Congressional Voting
(with Erich Muehlegger)
Journal of Environmental Economics and Management, Vol. 68 (Nov. 2014), 435-448.
Climate change is a complex long-run phenomenon. The speed and severity with which it is occurring is difficult to observe, complicating the formation of beliefs for individuals. We use Google search intensity data as a proxy for the salience of climate change and examine how search patterns vary with unusual local weather. We find that searches for “climate change” and “global warming” increase with extreme temperatures and unusual lack of snow. Furthermore, we demonstrate that effects of abnormal weather extend beyond search behavior to observable action on environmental issues. We examine the voting records of members of the U.S. Congress from 2004 to 2011 and find that members are more likely to take a pro-environment stance on votes when their home state experiences unusual weather.
Understanding Errors in EIA Projections of Energy Demand
(with Carolyn Fischer & Richard Morgenstern)
Resource and Energy Economics, Vol. 30 (Aug. 2009), 198-209.
This paper investigates the potential for systematic errors in the Energy Information Administration’s (EIA) widely used Annual Energy Outlook, focusing on the near- to midterm projections of energy demand. Based on analysis of the EIA’s 22-year projection record, we find a fairly modest but persistent tendency to underestimate total energy demand by an average of 2 percent per year after controlling for projection errors in gross domestic product, oil prices, and heating/cooling degree days. For 14 individual fuels/consuming sectors routinely reported by the EIA, we observe a great deal of directional consistency in the errors over time, ranging up to 7 percent per year. Electric utility renewables, electric utility natural gas, transportation distillate, and residential electricity show significant biases on average. Projections for certain other sectors have significant unexplained errors for selected time horizons. Such independent evaluation can be useful for validating analytic efforts and for prioritizing future model revisions.