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How disagreement about social costs leads to inefficient energy productivity investment

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  • Voß, Achim

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 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.

Suggested Citation

  • Voß, Achim, 2013. "How disagreement about social costs leads to inefficient energy productivity investment," CAWM Discussion Papers 62, University of Münster, Center of Applied Economic Research Münster (CAWM).
  • Handle: RePEc:zbw:cawmdp:62
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    More about this item

    Keywords

    political economics; environmental policy; energy policy; energy effciency; rebound effects; energy externalities; strategic investment; sequential games; time-inconsistency;

    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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