Three Essays on the Economics of the Environment, Energy and Externalities

EPA Grant Number: U915760
Title: Three Essays on the Economics of the Environment, Energy and Externalities
Investigators: Lin, Cynthia (Ceen-Yenn)
Institution: Harvard University
EPA Project Officer: Michaud, Jayne
Project Period: September 1, 2000 through August 28, 2003
Project Amount: $102,000
RFA: STAR Graduate Fellowships (2000) RFA Text |  Recipients Lists
Research Category: Academic Fellowships


The objectives of this research project are to (1) analyze the investment timing game in offshore petroleum production; (2) assess the efficiency of petroleum production on U.S. federal lands in the Gulf of Mexico; (3) analyze different regulatory structures for regulating such environmental goods as air quality; (4) assess the efficiency of the current NAAQS regulatory structure; (5) analyze the effects of natural disasters on population growth.  This research project includes the following topics for the three essays for my dissertation on the economics of the environment, energy and externalities: (1) petroleum production, (2) regulatory federalism, and (3) natural disasters.


In this research project, three issues pertaining to the economics of the environment, energy and externalities are examined.  The first essay is on petroleum production.  When individual petroleum-producing firms make their exploration and development investment timing decisions, positive information externalities and negative extraction externalities may lead them to interact strategically with their neighbors.  This essay uses reduced-form and structural econometric approaches to examine whether these inefficient strategic interactions take place in the Gulf of Mexico.  The reduced-form approach is a discrete response model of a firm's exploration timing decision, using variables based on the timing of a neighbor's lease term as instruments for the neighbor's decision.  The structural approach is a structural econometric model of the firms' multi-stage investment timing game.  The results suggest that the federal government best eliminates any inefficiencies in petroleum production that may result from non-cooperative strategic interactions when the tract size is large.

The second essay is on regulatory federalism.  Regulation often takes the form of a standard that can be met through the implementation of any of a number of different policies.  This essay examines how the authority to set the standard and the authority to choose the combination of policies to meet the standard should be allocated between a central government and local governments, when neither setting nor meeting the standard is contractible.  A central finding is that "conjoint federalism" (the central government sets the standard while the local governments meet the standard), which is the regulatory structure often used in federations such as the United States, tends to be the least efficient form, while a reverse form of delegation, in which local governments choose their own individual standards which the central government then decides how to collectively meet, tends to be the most efficient.

The third paper examines whether economic or environmental instability affects fertility.  The identification strategy uses regional data to exploit the natural variation within each of the two countries examined: Italy and Japan.  According to the results, natural disasters have a significant negative effect on fertility in both countries, while economic volatility has a significant negative effect in Italy but no effect in Japan.

Supplemental Keywords:

petroleum production, externalities, investment timing, Gulf of Mexico, reduced-form, structural model, regulation, delegation, federalism, air quality, standards, NAAQS,  natural disasters, population, fertility,, RFA, Economic, Social, & Behavioral Science Research Program, Scientific Discipline, decision-making, Social Science, Economics & Decision Making, air pollution policy, administrative action, economic research, petroleum production, decision making, environmental policy, compliance costs

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Progress and Final Reports:

  • 2001
  • 2002
  • Final