Lecture 4

Environmental Economics Lecture 4
Cost-benefit analysis
Instructor: Xianling Long
Spring 2024
Outline
• Cost-benefit criteria
• Discount rate
• Issues in cost-benefit analysis
• Applications
• Reference:
§ Environmental and Natural Resource Economics by Tom Tietenberg and
Lynne Lewis, 11th Edition: Chapters 3, 5
Outline
• Discount rate
• Applications
• Reference:
Normative economics
• Positive economics !"#$%: what it is/was/will be
• Normative economics &'#$%: what ought to be
• Find the optimal choice
• Positive economics and normative economics are related.
• Cost-benefit analysis is both positive economics and normative

economics.
• In economics, the system of measurement is anthropocentric()*

+,-./.
• All benefits and costs are valued in terms of their effects on humanity.
• This doesn’t imply only direct effects are measured.
Types of cost-benefit analysis
• Prospective analysis 0123

– Conducted before a policy has been in place.
– Purposes: 1) determine if a decision is beneficial, 2) compare
multiple options.
• Retrospective analysis 452:

– Conducted after a policy has been in place for some time.
– Purposes: 1) identify opportunities for policy reform, by
evaluating whether existing policies are justified; 2) provide
insights into the accuracy of prospective cost-benefit analysis
and identify ways to improve future analyses.
Cost-benefit criteria
• Three criteria:
– Net benefit = Benefit – Cost.

• Net benefit > 0 ⇒ Potential Pareto improvement
– Benefit-cost ratio = Benefit / Cost.

• Ratio > 1 ⇒ Potential Pareto improvement
– Internal rate of return (IRR) 6789:;a discount rate that

makes present value of net benefit equal 0
Net benefit vs benefit-cost ratio
• No criterion is necessarily better
• If there is no budget constraint (or constraint > $2000), you may

choose net benefit criterion
• If budget constraint < $2000, you may want to choose benefit-cost

ratio criterion
Net benefit criterion
• Calculating net benefits across time
– Present value:
"
𝑁𝐵#
𝑃𝑉 𝑁𝐵! , … , 𝑁𝐵" =) #
1+𝑟
#$!
– Or "
𝑃𝑉 𝑁𝐵! , … , 𝑁𝐵" = ) 𝑁𝐵# * 𝑒 %&#
#$!
– r: discount rate
– NBt: net benefits at time t
• Dynamic optimum <=>?: present value criterion, i.e., maximize

the present value of net benefits.
Condition for dynamic optimum
• Assume that the demand curve for a depletable resource (@ABC

DE) is linear. Thus, the inverse demand curve in year t can be
written as
• The total benefits from extracting an amount 𝑞# in year t are then

the integral of this function (the area under the inverse demand
curve):
• Assume that the marginal cost of extracting that resource is a

constant c and therefore the total cost of extracting 𝑞# in year t is:
Condition for dynamic optimum
• 0 then maximizing
If the total available amount of this resource is 𝑄,
the present value of net benefits is:
𝜆: Lagrangian multiplier (!"#$%&'
• The first-order condition is:
• Therefore, present value of the marginal NB in any period equals 𝜆

• If marginal NB > 0, all resource will be depleted.
• 𝜆: shadow price (FGHI)
Net benefit criterion: exercise
• Suppose the total quantity of the resource is 20, discount rate = 10%
• Find the efficient Q in period 1 and period 2
Period 1 Period 2
Present value of marginal net benefit in Period 1 equals that in Period 2
Present value of marginal net benefit in Period 1 = 3.905-2 = 1.905
Present value of marginal net benefit in Period 2 = (4.095-2)/1.1 = 1.905
Period 1 Period 2
Internal rate of return
• Internal rate of return (IRR) 6789:;a discount rate that makes
present value of net benefit equal 0
%
𝑁𝐵#
2 =0
(1 + 𝐼𝑅𝑅)#
#$"
– Interpretation: it is the expected compound annual rate of return (()

*+,-.)
– If IRR > hurdle rate (/012.) or cost of capital, it passes the criterion.
• Example:
– Project A costs $1000 in year 0 and has a benefit of $2000 in year 10.
2000
− 1000 = 0 ⇒ 𝐼𝑅𝑅 = 7.18%
(1 + 𝐼𝑅𝑅)!"
– Suppose cost of capital = 6%, the the project passes the criterion
Net benefit vs internal rate of return
• Example:
– Project A costs $1000 in year 0 and has a benefit of $2000 in year 10.
– Project B costs $1000 in year 0 and has a benefit of $3000 in year 20.
– IRR criterion: A better than B (IRR for A = 7.18%, for B = 5.65%)
– Net benefit criterion: depends on discount rate
Present value
333
0 Project A
Project B
4.14% 5.65% 7.18% Discount rate

Outline
• Discount rate
– Types of discount rate
– Estimate discount rate
– Origin of time preference
• Applications
• Reference:
Discounting
• An unresolved debate in econ literature: whether discount rates
should be positive or normative?
– Positive discount rate 3456. (or financial discount rate 𝑟& )

• Reflecting actual interest rates
• Definition: the discount rate which translates a marginal change in
future consumption into the marginal change in current
consumption (money-equivalent)
– Normative discount rate 7856. (or utility discount rate 𝑟' )

• Reflecting ethical considerations
• Definition: the discount rate which translates a marginal change in
future consumption into the utility-equivalent marginal change in
current consumption
– Positive discount rate usually lower than normative discount rate

The Ramsey rule
• Utility discount rate (𝑟' ): Equate marginal utility (MU) now to marginal
utility then, that is, you are indifferent between getting 1 now or (1 + 𝑟' )#
in time 𝑡.
(
𝑀𝑈'! $ 1 = $ 𝑀𝑈'" $ (1 + 𝑟- )#
((*+)"
– Ct: consumption in time t
– Pure rate of time preference: 𝜌
( !"#
– Assume utility function: 𝑈 = . 𝜂: elasticity of marginal utility with
!)*
respect to consumption.
– Consumption growth rate g: 𝐶# = (1 + 𝑔)# 𝐶"
# )*
#
𝑀𝑈( (1 + 𝜌) 𝐶" (1 + 𝜌)#
(1 + 𝑟' ) = $
= )* = (1 + 𝑔)*# (1 + 𝜌)#
𝑀𝑈(% 𝐶#
+, !-. ≈. 012 3 456++

Ramsey equation: 𝑟' = 𝜌 + 𝜂𝑔
The Ramsey rule
• 𝑟- = 𝜌 + 𝜂𝑔
• Utility discount rate is positively affected by:
– 𝜌 : Pure rate of time preference

– 𝜂 : Elasticity of marginal utility with respect to consumption
– 𝑔 : Consumption growth rate
Financial vs utility discount rate
• When shall we reduce consumption today to save for the future?

• Reducing one unit of consumption now will increase consumption
tomorrow by 1 + 𝑟. , which has the present value utility (1 + 𝑟. )/
(1 + 𝑟- )
• If 𝑟- < 𝑟. , we should reduce consumption today
• If 𝑟- > 𝑟. , we should increase consumption today
• If 𝑟- = 𝑟. , resources are already allocated efficiently across time.
– At the equilibrium, we should have 𝑟- = 𝑟. , because 𝑟- and 𝑟.
change with saving behavior.
Importance of discount rate
SCC (Social cost of CO2) across different discount rates

Outline
• Discount rate
• Applications
• Reference:
Estimate discount rate
• Two estimation ways:

– Laboratory experiments
– Revealed by intertemporal decisions
• Estimate short-term discount rate: Rooftop solar (JKLM)
• Estimate long-term discount rate: Housing
Estimate short-term discount rate
• Rooftop solar
– Intertemporal: Rooftop solar adoption has a fixed cost and
continuous future electricity cost savings
– Intuition:
• When the annual benefit = $1000 for 20 years, and the fixed cost
is $10000. The agent adopts rooftop solar
• When the annual benefit = $800 for 20 years, and the fixed cost
is $10000. The agent doesn’t adopt rooftop solar
• The implied discount rate? Rate <8.92%, and >5.61%
– Needed variation (we need the annual benefits to differ across
households so that we can narrow down the discount rate):
• Electricity price.
• Rooftop characteristics (solar radiation)
Ref: Bollinger, Gillingham, Kirkpatrick (2023)

• Variation in annual benefit
– Electricity price

• Variation in annual benefit
– Solar radiation

• Results: Discount rates by income groups
• Given estimated discount rates, how to design policy to encourage more

rooftop solar adoption?
– Net Metering 9:;<=: pay owner for the electricity added to grid
– Policy 1: Increases the payout in Net Metering
– Policy 1 results: Doesn’t encourage low-income group, but can
encourage high-income group


– Policy 2: decreases the payout in Net Metering with revenue
recycling as an installation subsidy
– Policy 2 results: largely encourages low-income group


– Summary:
• To encourage more adoption among high-income groups:
increase future benefits
• To encourage more adoption among low-income groups:
decrease current costs

Estimate long-term discount rate
• Many environmental issues are long-run, e.g., climate change,

biodiversity.
• To do cost-benefit analysis for these issues, we need a long-run
discount rate.
• How can we estimate very long-run discount rate (e.g., >100 years)?
• Does long-run discount rate differ from short-run discount rate?
• How can we estimate very long-run discount rate (e.g., >100

years)?
– Rely on decisions involving very long-run benefits or costs.
– Purchase decision in housing market
– Example: U.K. and Singapore have two forms of house
ownership: leaseholds and freeholds.
– Leaseholds (NOPQ) are temporary contracts with maturities
(RS) between 99 and 999 years
– Freeholds (TUPQ) are perpetual ownership contracts (VW
XQY)
years)? (Cont’d)
– The difference between leasehold and freehold prices = the
present value of perpetual rental income starting at leasehold
expiry ZNORS[\]^_NO8`_abc
– So, we can use the difference between leasehold and freehold
prices to infer discount rate.
Leasehold expiry
Leasehold
(maturity T) Additional rental income
T periods compared to leasehold
Freehold
∞ periods
years)? (Cont’d)
– D: annual rental income at time 1
– r: discount rate
– g: growth rate of rental income
– PT: price of a leasehold house with maturity T
– P∞: price of a freehold house
7
1+𝑔
𝐷 1 −
7 𝐷 1+𝑔 # 1+𝑟 8 7
𝐷
7
𝑃 =2 = 𝑃 = lim 𝑃 =
(1 + 𝑟) # 1+𝑔 7→8 1+𝑔
#$! 1− 1−
1+𝑟 1+𝑟
7
𝑃7 1+𝑔
− 1 = −
𝑃8 1+𝑟
– Example: if 100-year leasehold house is 10% lower than freehold
house, and g=0.7%, then r≈ 3%
Short-term vs long-term discount rates
Country Short to medium-term Long-term

3.5% all projects and
United Kingdom Declines to 1% after 300 years
regulatory analysis
• Lower rate for intergenerational projects
recommended by US Office of
3–7%, depending on source of
United States Management and Budget
funding
• 2.5% recommended by US
Environmental Protection Agency
Risk free rate declines to 1.5% for 75 year

France 2.5% for risky projects
horizon
3% for risky projects and Risk free rate declines to 1% after
Norway
regulatory analysis 100 years
3% for all projects and Apply declining discount rates,

Netherlands
regulatory analysis considering type of capital and risk
Time horizon
• Time horizon can significantly affect the results.
• Three time horizon concepts:

• Financial analysis period: usually up to 30 years
• Physical lifetime of the project: ranging from several years to more
than 100 years
• Welfare impact horizon: can be very long
• The choice of time horizon also affects the choice of discount rate.
Outline
• Discount rate
• Applications
• Reference:
Origin of time preference
• Agriculture
– Intertemporal: Upfront agricultural investment, crop growth cycle and
yields
– Intuition: same as rooftop solar example
– Needed variation: variation in crop growth cycle and yields
Figure: Distribution of crop yields and growth cycle
Ref: Galor and Ozak (2014) AER

• Method 1: cross-sectional regression
– Data: Long-Term Orientation (->?@) from Hofstede et al. (2010),

World Values Survey

• Method 1: cross-sectional regression

• Method 2: restrict sample to 2nd generation migrant

• Method 3: Columbian Exchange (defgh) as a natural
experiment
The introduction of
new crops due to
Columbian Exchange

Outline
• Discount rate
– Value estimation
– Uncertainty
• Applications
• Reference:
Value estimation
• Engineering approach for costs of technology
• Catalog the possible technologies that could be used to meet the
objective and to estimate the costs of those technologies.
• Rank all technologies by their marginal cost.
• Costs are not always easy to quantify, e.g., value of time
• Cost of pollution: accounting scope
• E.g., social cost of carbon: global or national?
• Indirect benefits and costs: general equilibrium effects

• Co-benefits (ij89): arise when compliance with a regulation
leads to reductions in some other pollutant that is not the
regulation’s intended target
Approaches to cost estimation
Uncertainty
• Policy options (j = A, B, C, D)
• Possible economic growth scenarios (i = x, y, z)
• 4*3 possible outcomes: Ax, Ay, Az, …
• The policy that maximizes NB under scenario x may be different
from that which maximizes NB under y or z.
• Solution 1: estimate the expected PV of NB (assuming risk neutral)
Uncertainty
• Policy options (j = A, B, C, D)
• Possible economic growth scenarios (i = x, y, z)
• 4*3 possible outcomes: Ax, Ay, Az, …
• The policy that maximizes NB under scenario x may be different
from that which maximizes NB under y or z.
• Solution 1: estimate the expected PV of NB (assuming risk neutral)
• Solution 2: sensitivity analysis kl2mn
• Re-calculate NB when the values of key parameters are changed
• Key parameters include: the discount rate, time horizon, elasticities,
technologies, etc.
Outline
• Discount rate
• Applications
– CBA framework and steps: Clean Air Act
– CBA can be wrong: Mercury and Air Toxics Standard
– CBA research: Fuel Economy Standard
• Reference:
Clean Air Act
• opqrstuv
CBA used in Clean Air Act
Ecological
effects
Ref: Benefits and Costs of the Clean Air Act 1990 - 2020:
Revised Analytical Plan For EPA's Second Prospective
Analysis
• Scenario development
– Policy
• Business as usual scenario (counterfactual): no policy scenario
• Policy scenario
– Socioeconomic factors: same between two scenarios
Analysis
• Emission profile development

– By emission source by sector
– Method: Employ emission and economic models
Analysis
• Cost estimation
– Direct costs: expenditures necessary to comply with the policy

• Data: Pollution Abatement Costs and Expenditures (PACE) survey
• Consider the ”learning effects”
– Indirect costs (economic impacts and social cost): outputs,

employments
• Method: Computable General Equilibrium Model
• Consider other policies (interaction with other policies lead to indirect
costs, e.g., tax interaction effects)
Analysis
• Air quality modeling

– Translate emission to pollutant concentration
– Method: computer models that simulate the transport and
transformation of emitted pollutants in the atmosphere
• Physical effects (Health effects)

– Method: Concentration-response functions AB-CDEF
– Data: pollutant concentration, population
Analysis
• Ecological effects
Analysis
• Valuation
– Data: Willingness-to-pay (GHIJ), Avoided medical costs, Value
of Statistical Life (K:LM=N)
Analysis
• Comparison of benefits and costs
Analysis
CBA can be wrong
• Mercury and Air Toxics Standards (MATS) wxsty2z{:

Issued in 2012, it is the first US federal regulatory limits on
hazardous air pollution from coal-burning power plants.
Ref: Aldy-Kotchen-Evans-Fowlie-Levinson-Palmer (2020) Science

CBA can be wrong
• Mercury and Air Toxics Standards (MATS) wxsty2z{:

Issued in 2012, it is the first US federal regulatory limits on
hazardous air pollution from coal-burning power plants.
• In 2018, EPA (Environmental protection agency) has proposed to
roll back this policy, arguing that the benefits of reducing
emissions of mercury and other hazardous air pollutants do not
justify the costs.
• The new CBA conducted by EPA in 2018 concludes that the
original MATS rule was not “appropriate and necessary”.
• A Science paper (Aldy et al., 2020) finds deep flaws in the CBA.
Ref: Aldy-Kotchen-Evans-Fowlie-Levinson-Palmer (2020) Science

CBA can be wrong
Flaws in the CBA of Mercury and Air Toxics Standards (MATS):
• Which pollutants to
consider?
• Ignorance of co-benefits
• MATS will also reduce

particulate matter (OPQ).
Ecological
• An earlier CBA in 2011 of effects
MATS found the majority

of the economic benefits
were from reductions in
particulate matter.
CBA can be wrong
• Rely on a narrow and

outdated set of direct
benefits
• Ignores new scientific

findings that mercury
emissions disperse more Ecological
effects
widely than previously
thought.
• Ignores mercury’s harmful

effects on cardiovascular
system (RSTUK)
CBA can be wrong
• Ignorance of major
changes in the electricity
sector
• Electricity sector has been

cleaner, so the costs of
the policy should be
lower than the CBA Ecological
effects
predicts.
• Business-as-usual scenario
also ignores these
changes
CBA can be wrong
• The 2018 new CBA is a retrospective analysis, but it ignored the

data since the policy was implemented.
– Firms began complying with the policy in 2016, so
government has access to 3 years of real-world data.
– Government ignored these data and relied on outdated
forecasts.
The policy is “appropriate and necessary"
The policy is not “appropriate and necessary"
The policy is not “appropriate and necessary"
The policy is “appropriate and necessary"
https://www.epa.gov/stationary-sources-air-pollution/mercury-and-air-toxics-standards
US fuel economy standard
• Costs and benefits of fuel economy standards
• Fuel economy standard |}#$z{
– Regulate how far our vehicles must travel on a gallon of fuel
US fuel economy standard
• Costs and benefits of fuel economy standards
• Fuel economy standard |}#$z{
– Regulate how far our vehicles must travel on a gallon of fuel
– Trump administration rolls back Obama-era fuel economy standard
Fuel economy standard
• For a firm, the standard is imposed on its average fuel economy,

not every vehicle
• Consequences of the standard

– Firm changes its mix of vehicle to comply
– Impacts beyond new-car market, by affecting used-car prices
– Cost of driving decreases, so people drive more
• Paper:
– Bento, A.M., Jacobsen, M.R., Knittel, C.R. and Van Benthem, A.A., 2020. Estimating the
costs and benefits of fuel-economy standards. Environmental and Energy Policy and the
Economy, 1(1), pp.129-157.
– Bento, A. M., Gillingham, K., Jacobsen, M. R., Knittel, C. R., Leard, B., Linn, J., ... &
Whitefoot, K. S. (2018). Flawed analyses of US auto fuel economy standards. Science,
362(6419), 1119-1121.
Conceptual framework
• New-car market
– Fuel-economy effect: Private welfare change from a marginal
tightening of the standard (price, quantity, costs, etc)
– Mileage effect: External welfare change from the environmental,
congestion, and safety externalities due to increased driving
– Gasoline effect: External welfare change from the environmental
externalities due to changed fuel consumption
• Interaction with used-car market

– Overall fleet and extent of scrappage
Ref: Bento et al. (2020)

Conceptual framework: consumer
• Private benefit from driving:
" 𝑞)
𝐷 = 𝐷(𝑣, 𝑚, 𝐻,
• External cost from driving:

" 𝐺̅
𝐸 𝑀,
" = 𝑣𝑚 over all consumers, and total gasoline
Total vehicle miles 𝑀
consumption 𝐺̅ = 𝑔𝑣𝑚 over all consumers, with 𝑔 as gallons consumed
per 100 miles.

Conceptual framework: consumer
• Utility function:
" 𝐺̅
𝑈 = 𝑢 𝐷, 𝑋 − 𝐸 𝑀,
X, a general consumption good
• Budget constraint:
𝐼 + 𝐹 = 𝑝! 𝑋 + 𝑝" + Γ 𝑣
Γ = 𝜌 𝑝# + 𝑡# 𝑚𝑔
𝜌 is perception of operating costs, 𝜌 < 1

Conceptual framework: producer &
government
• Competitive firms (zero profit):
𝑝" − 𝑝;" = 𝐶(𝑔; − 𝑔,̅ 𝑞)

;
𝑔̅ 𝑔̅
• Revenue-neutral government:
𝑡# 𝐺 = 𝐻 + 𝐹

Conceptual framework: equilibrium
• Equilibrium:
– Consumer max utility with budget constraint
– Producer zero profit
– Government revenue neutral
• Indirect utility function:
𝑉 𝑔,̅ 𝐸, 𝐹, 𝐻
= max 𝑢 𝐷, 𝑋 − 𝐸 + 𝜆 𝐼 + 𝐹 − 𝑝/ 𝑋 − 𝑝̂0 + 𝐶 𝑔B − 𝑔,̅ 𝑞B + 𝑝1 + 𝑡1 𝑚𝑔̅ 𝑣
where 𝜆 denotes the Lagrange multiplier (!"#$%&) for budget constraint,

representing the marginal utility of income
Ref: Bento et al. (2020) and Fischer et al. (2007) The Energy Journal
Conceptual framework: welfare
• Welfare effect of a tightening of the fuel-economy standard:
– Fuel-economy effect: private fuel-savings benefit minus tech cost

– Mileage effect: external cost from increased miles driven
External cost change Mileage change due

due to mileage change to policy change
Conceptual framework: welfare
• Welfare effect of a tightening of the fuel-economy standard:
– Fuel-economy effect: private fuel-savings benefit minus tech cost

– Mileage effect: external cost from increased miles driven
– Gasoline effect: value minus external cost from gasoline consumption
𝜇: Marginal value of
government revenue
External cost change Gasoline consumption change

due to gasoline change due to policy change
Results: private benefits and costs
Ref: Bento et al. (2018) Science

Results: external benefits and costs
Ref: Bento et al. (2018) Science

Advantages of CBA
• A variety of different impacts can be measured in the same units.

• Can be used as a device for determining where limited funding
and resources should be directed.
• Takes into account both direction and intensity of preferences.
• Allows us to emphasize both the economic value of environmental
protection as well as the opportunity cost of protecting the
environment.
Challenges in CBA
• Difficult to predict the effects of a single change on an entire

ecosystem.
• Determining value for the environment.
• Discounting future costs and benefits. What should the discount
rate be?
• Can the CBA be manipulated to reflect the interests of firms or
politicians?
• No CBA is perfect, but we can have a genuine and credible effort.

• Although not many studies directly do CBA, they provide the
basis for CBA. Ultimately, CBA is the goal.
Summary
• Dynamic cost-benefit analysis

• Comparison between 3 criteria
• 2 types of discount rates
• Application: estimating discount rates, cost-benefit analysis of
environmental regulation

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Environmental Economics Lecture 4

Instructor: Xianling Long

• Positive economics and normative economics are related.

• Cost-benefit analysis is both positive economics and normative

• In economics, the system of measurement is anthropocentric()*

• Prospective analysis 0123

• Retrospective analysis 452:

– Net benefit = Benefit – Cost.

– Benefit-cost ratio = Benefit / Cost.

– Internal rate of return (IRR) 6789:;a discount rate that

• No criterion is necessarily better

• If there is no budget constraint (or constraint > $2000), you may

• If budget constraint < $2000, you may want to choose benefit-cost

• Dynamic optimum <=>?: present value criterion, i.e., maximize

• Assume that the demand curve for a depletable resource (@ABC

• The total benefits from extracting an amount 𝑞# in year t are then

• Assume that the marginal cost of extracting that resource is a

𝜆: Lagrangian multiplier (!"#$%&'

• The first-order condition is:

• Therefore, present value of the marginal NB in any period equals 𝜆

– Interpretation: it is the expected compound annual rate of return (()

4.14% 5.65% 7.18% Discount rate

– Positive discount rate 3456. (or financial discount rate 𝑟& )

– Normative discount rate 7856. (or utility discount rate 𝑟' )

– Positive discount rate usually lower than normative discount rate

+, !-. ≈. 012 3 456++

• Utility discount rate is positively affected by:

– 𝜌 : Pure rate of time preference

• When shall we reduce consumption today to save for the future?

SCC (Social cost of CO2) across different discount rates

• Two estimation ways:

Ref: Bollinger, Gillingham, Kirkpatrick (2023)

Ref: Bollinger, Gillingham, Kirkpatrick (2023)

Ref: Bollinger, Gillingham, Kirkpatrick (2023)

• Given estimated discount rates, how to design policy to encourage more

Ref: Bollinger, Gillingham, Kirkpatrick (2023)

• Given estimated discount rates, how to design policy to encourage more

Ref: Bollinger, Gillingham, Kirkpatrick (2023)

• Given estimated discount rates, how to design policy to encourage more

Ref: Bollinger, Gillingham, Kirkpatrick (2023)

• Many environmental issues are long-run, e.g., climate change,

• How can we estimate very long-run discount rate (e.g., >100

Country Short to medium-term Long-term

Risk free rate declines to 1.5% for 75 year

3% for all projects and Apply declining discount rates,

• Time horizon can significantly affect the results.

• Three time horizon concepts:

Figure: Distribution of crop yields and growth cycle

Ref: Galor and Ozak (2014) AER

– Data: Long-Term Orientation (->?@) from Hofstede et al. (2010),

Ref: Galor and Ozak (2014) AER

Ref: Galor and Ozak (2014) AER

Ref: Galor and Ozak (2014) AER

Ref: Galor and Ozak (2014) AER

• Indirect benefits and costs: general equilibrium effects

• Emission profile development

– Direct costs: expenditures necessary to comply with the policy

– Indirect costs (economic impacts and social cost): outputs,

• Air quality modeling

• Physical effects (Health effects)