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Abstract
This dissertation is a collection of three studies that identify unintended behaviors of economic agents in environmental economics, centered on the climate change policies, investigate the causes of such behaviors, and try to find the alternatives to minimize the resulting effects. The first essay explains agents’ trading behaviors and markets in the presence of endowment effects in carbon cap and trade, building on the reference-dependent model of Kőszegi and Rabin (2006) with forward-looking reference points. This study supports the notion that auction allocation of allowances can be socially preferable to free allocation and explores policy options that can mitigate unintended results caused by endowment effects and that enable ambitious climate actions under the Paris Agreement.The second essay studies the carbon price movements under the expectation for insufficient market supply in the Korean Emission Trading Scheme (K-ETS). We theoretically overview that the expectation for insufficient market supply can significantly increase current allowance prices by intertemporal no-arbitrage. We empirically investigate allowance price movements, comparing them to a random walk process under the weak-form market efficiency (Fama, 1965) as a reference. We present that uncertain price rules under the shortage of market supply can cause higher variations of firms’ expectations, which can be made worse by a short-term cap (uncertain long-term policy) and a high proportion of free allocations (firms’ uncertain holding tendency). We explore policy options that can be harmonized with individually constrained banking, the current main intervention in the K-ETS.
The third essay investigates how the main variables in the agricultural production economy respond to weather shocks, constructing an estimated dynamic stochastic general equilibrium (DSGE) model with multi-sectors on the U.S. data. We find that with the shock in weather-driven losses the contribution of weather shocks can be significant for fluctuations of the main variables (output, capital, investment, and land costs) even in the short term. We show that the technological progress (possibly through the public R&D) and the adjustment of agricultural lending rates (possibly linked to incentives for sustainable practices) can lead to a more rapid recovery of output losses caused by extreme weather events.