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Title:Three essays on environmental economics: externalities and policy implications
Author(s):Chen, Tengjiao
Director of Research:Myers, Erica C
Doctoral Committee Chair(s):Myers, Erica C
Doctoral Committee Member(s):Frank, Eyal G; Fullerton, Don; Karney, Daniel H; Khanna, Madhu
Department / Program:Agr & Consumer Economics
Discipline:Agricultural & Applied Econ
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):environmental externality
renewable energy
agricultural production
pesticide use
instrumental variables approach
analytical general equilibrium model
Abstract:This dissertation consists of three studies in applied environmental and energy economics, using both applied theoretical models and empirical approaches. Externalities, especially issues that are unanticipated or have been largely overlooked, are the primary focuses throughout the whole thesis. The first chapter, based on joint work with Daniel Karney, investigates the general equilibrium welfare effects of an environmental tax to correct a pollution externality given imperfect competition and price discrimination. In a Harberger-style analytical general equilibrium model, oligopolistic firms produce energy for residential consumers as final goods, but that energy can also be sold to the industrial sector as intermediate goods. The energy firms engage in third-degree price discrimination across residential consumers and industrial firms. Then, the welfare change from an exogenous environmental tax change is decomposed into three effects: externality, output, and price discrimination. The well-known concern arises that increasing an environmental tax for a sector with market power further reduces output and increases the production distortion. However, in addition to the gains from the externality correction, environmental tax combinations may also be able to offset the increased output distortion by reducing the price discrimination. The other two papers implement modern empirical strategies to reveal causal effects. The second study investigates the impacts of sizable wind farms on local crop yields and farm operations. I develop an instrumental variables approach that exploits local wind potential and aviation safety restrictions as sources of exogenous variation in the development of wind energy. I find positive effects of wind turbines on nearby crop yields and then probe two possible mechanisms. First, using farm-level data, I explore changes in farm operations and find no measurable increases in operating expenses after wind turbines are installed despite the fact that landowners might be receiving royalties. Rather, my results reveal that most of the benefits from the yield increases are realized through higher operator returns. Second, I estimate the causal effects of wind turbines on local meteorological variables and find significant impacts, suggesting that the induced microclimate changes are likely important contributors to higher yields. Economic sectors that operate in the same space might generate spillovers from one to the other. In the context of pollution, discharges and emissions from industrial plants can have negative impacts on the environmental quality that acts as an input in other production functions. The third chapter, based on joint work with Eyal Frank, tests whether ecosystem functions can also act as a channel through which such spillovers occur. Specifically, we explore the impacts of sizable wind farms on local insecticide use, potentially intermediated by wind-turbine induced mortality of natural predators of pests. Since scientific literature indicates that wind turbines kill large amounts of bats and birds, this decline in natural pest-control has lowered the predatory pressure on insects. Using the gradual construction of wind farms across counties, we find that sizable wind farms have resulted in an increase in insecticide use nearby.
Issue Date:2020-06-30
Rights Information:Copyright 2020 Tengjiao Chen
Date Available in IDEALS:2020-10-07
Date Deposited:2020-08

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