How disagreement about social costs leads to inefficient energy productivity investment
AbstractPublic energy productivity investment influences the amount of future energy consumption. If a present government expects its successor to value the social costs of fuel usage differently, this adds a strategic component to its investment considerations. We analyze this governmental time-inconsistency situation as a sequential game. In particular, we show how the expectation of a more conservative party taking over makes a green government choose an investment level that is ineffcient in that neither of the parties would prefer it to the investment level of a permanent green government. Under some circumstances, the opposition would even prefer the government to stay in power for sure: The gain of avoiding strategic investment then outweighs the loss of not being able to regulate energy consumption. We also analyze welfare gains of binding agreements. --
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Bibliographic InfoPaper provided by Center of Applied Economic Research Münster (CAWM), University of Münster in its series CAWM Discussion Papers with number 62.
Date of creation: 2013
Date of revision:
political economics; environmental policy; energy policy; energy effciency; rebound effects; energy externalities; strategic investment; sequential games; time-inconsistency;
Other versions of this item:
- Achim Voß, . "How Disagreement about Social Costs leads to Inefficient Energy Productivity Investment," Working Papers 201287, Institute of Spatial and Housing Economics, Munster Universitary.
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
- Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-02 (All new papers)
- NEP-ENE-2013-03-02 (Energy Economics)
- NEP-ENV-2013-03-02 (Environmental Economics)
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