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How Disagreement About Social Costs Leads to Inefficient Energy-Productivity Investment

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  • Achim Voß

Abstract

Public 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 inefficient, 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 definitely to stay in power: The gain from avoiding a strategic investment then outweighs the loss of not being able to regulate energy consumption. We also analyze the welfare gains from binding agreements. Copyright Springer Science+Business Media Dordrecht 2015

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  • Achim Voß, 2015. "How Disagreement About Social Costs Leads to Inefficient Energy-Productivity Investment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(4), pages 521-548, April.
    • Handle: RePEc:kap:enreec:v:60:y:2015:i:4:p:521-548
    DOI: 10.1007/s10640-014-9778-8
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    Cited by:

    1. Achim Voss, 2019. "The Adverse Effect of Energy-Efficiency Policy," Working Papers 2019.13, Fondazione Eni Enrico Mattei.

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    More about this item

    Keywords

    Political economics; Energy efficiency; Energy externalities; Strategic investment; Time-inconsistency; Q48; Q58; Q55; D72;
    All these keywords.

    JEL classification:

    • 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

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