CAREER: Market Institutions, Regulation, and Economic Growth

Yale University, New Haven CT

Investigators

Abstract

In a global environment, our ability to guarantee clean air for all Americans depends in part on decisions made by other nations and their citizens. However, some of these countries are both dependent on energy use for economic growth and vulnerable to harm by failures in energy markets. These failures include not only the external costs of energy use, but also incomplete information, market power, and limits on contract enforcement. This project focuses on understanding energy market and environmental institutions and their effect on outcomes, understanding that market and regulatory institutions are a response to market and governance failures. The award funds three separate lines of research. The first examines private investment in power generation. The second examines the effects of market-based environmental regulation, including a careful examination of regulatory costs. The third considers the role of adverse selection in determining whether or not offset programs are effective. The project advances state of the art methods to test the efficiency of abatement mechanisms. Economic theory predicts that certain abatement mechanisms are an efficient way to achieve societal goals. However, the theory does not take into account constraints such as limits on contract enforcement, market power, and incomplete information. The first project tests theories on how improved property rights and contract enforcement can result in more private investment in energy technologies. The second project will use a novel real-world experiment to measure the benefits of replacing command-and-control regulation with a market-based approach. The third project considers the efficiency of transfer payment programs in promoting clean air. This research includes these constraints to develop better measures of the efficacy of abatement mechanisms in practice. The goal is to attribute energy or regulator costs to specific institutional and market failures. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.