Esther Blanco, AERNA Newsletter Editor
Dear AERNA colleagues and friends,
I am glad to present the Winter 2018 AERNA newsletter. I thank all authors in this newsletter, as well as those who have already committed for the Summer newsletter. I encourage all of you to contact me to participate to the next edition of the newsletter (deadline 15th June 2018) via e-mail (email@example.com). Time is open for contributions! (read more ⇓)
This newsletter includes a strong Institutional Highlights section. This section includes the traditional words by the president and includes an entry for each of the new members of the AERNA board, where they share some reflections on their views and role within AERNA.
This is followed by a Research Highlight section, with two entries about recent research by AERNA members. Please feel free to contact the authors for reactions on their entries! These are meant to be windows of opportunity for scientific exchange.
Next, the Young AERNA follows, including a summary of the PhD research of two AERNA members. Informal communications with PhD students members of AERNA recurrently highlight the networking possibilities as one of the top uses of AERNA for students. Can you add or give feed-back on their research? Can you think of potential collaborations? Contact them! Scientific exchange benefit all of us involved.
Finally, a novelty of this newsletter is that instead of including a detailed overview of Events and Job Openings, I refer to the EAERE webpage. EAERE is the umbrella association for the different national associations in Europe. There is an ongoing process to strengthen the interrelation between EAERE and national associations, and cross-references of this type can be a first step in this direction. Please feel free to share your opinion on that with me! If you miss the detailed description, I could bring it back in future editions.
Antoni Riera, University of the Balearic Islands
Over the last months since our last communication through the AERNA Newsletter, many things have been going on in. The final integration of the new statutes and the partial renovation of the Board of directors are two of the most outstanding. I take the opportunity to give a very special welcome the incoming President and the new officers. (read more ⇓)
2017 has ended with a positive balance, in regards to finance, seminars, research and events. Currently AERNA has already 97 members and 2 institutional members. We have undergone years of consolidation and from now on we will be experiencing years of growth. AERNA needs to keep being a lively, strong and reference organization, following the tradition of its 25 years of history.
2018 gives us the possibility to meet together in the most important event the Association carries out, the AERNA CONGRESS. I would like to thank those who are preparing the next AERNA CONGRESS that will be held in Madrid on September 3-5, 2018. This meeting is very important for AERNA to promote the exchange and improvement of knowledge, and in order to facilitate the scientific work of its members. At the meeting, we will plan the calendar for 2018-2019, laid out next year’s budget and complete a comprehensive review to identify strengths and the scope for improvements during the upcoming year. This will allow us to update our goals for the upcoming year.
I sincerely hope that the winter finds you all well and that you will continue to support AERNA with your membership and activities. Please consider taking a more active role by encouraging other researchers, especially Phd students, to become members or suggesting topics for next meetings.
With best wishes,
Santiago Rubio, University of Valencia
In the last congress of our Association that took place in Aveiro in 2016, the General Assembly decided to introduce some changes in the Statutes to facilitate the running of the association. The Council reduces its members from eight to six and elections for renewing half of the Council will be celebrated each two years. For a small Association like ours it is a good idea to minimize the number of associates in the council, and on the other hand the partial renovation will help to keep the memory of the Association alive combining the impetus of junior members with the experience of the seniors. Moreover, the costs of running the Association for the President will decrease because the appointment reduces the duration of the mandate to two years after a previous experience of two years as Incoming-President. I expect this will increase the probability of finding qualified candidates in the future. Finally, celebrating an election every two years instead of every four years implies a more continue participation of the affiliates in the life of the Association. (read more ⇓)
After the approval of these changes, the partial elections took place on June 2017 through the web page of AERNA, and the membership elected José Luis Oviedo from the CSIC, Renato Rosa from the UNL and myself to become members of the Council substituting Pedro Pintassilgo, Alejandro Caparrós, Alberto Ansuategui, Carmen Arguedas and Guiomar Martín-Herrán. The first thing I would like to do as Incoming President is to thank these colleagues for their implication with the association and their work during the last two year. Now, a new Council begins to walk with the experience of Toni Riera as President, María Loureiro as Secretary and Esther Blanco as communication and publications officer.
It is a great honour for me to form again part of the Council after acting as Vice-President of AERNA in its first Council from 2001-2005. Consistently with the changes in the Statutes, I see myself during the next two years helping and advising the current President and Secretary in their tasks and working side by side with the other members of the Council to do the best for our membership. I think that Toni has guided the organizational transition very well and he has done an excellent work in improving the web page of the Association. He has my complete support for the next two years.
One of the origins of AERNA were the Seminars on Environmental and Resource Economics Renan Goetz from the University of Girona organized biannually from 1997 to 2001. In the last meeting, Renan proposed to the people that attended the meeting to create a work group or an association with the aim of organizing the meeting and move the venue to other universities. I abstain from providing a more complete list of names because I do not want to commit an injustice leaving people out of the list. This initiative with other coming mainly from the CSIC and represented by Pablo Campos led to the creation of the Association. Renan and me were elected for the first Council and we proposed to the other members that the Association should have a periodical Congress, a forum for presenting the research that the Iberian Peninsula scholars were developing on our field. In 2004, the project materialized in the first Congress of AERNA that was celebrated in Vigo. Last year, the VII Congress was in Aveiro and in 2018, the VIII Congress will take place in Madrid. After thirteen years, I continue to think that one the most important aims of a scientific association should be to organize a periodical meeting for its members and all scholars working in the field. For this reason, I would translate to my colleagues in the Council the idea that we should give the maximum support to the AERNA 2018 Organizing Committee to have an extremely successful meeting next year in the Institute of Public Goods and Policies of the CSIC in Madrid and that we should begin to look for another venue for 2020.
There are more things, a scientific association should do. For instance, support a journal, recognize the excellence in the research and promote a network to create synergies among the membership. The first task is not realistic for a small organization but I think the Council can and should work in the next years to consolidate a useful network based on our web page. For this task, the collaboration of all the members will be fundamental. We see what we can do. In any case, it will be a pleasure for me to have the opportunity of participating in this common project that is AERNA.
Renato Rosa, Universidade Nova de Lisboa
My first presentation in a scientific meeting, still as first year PhD student, was at the 1st Conference of the Spanish-Portuguese Association of Natural and Environmental Resources Economics in Vigo. My first steps as an environmental economist thus coincided with the foundation of AERNA. Since then I have regularly attended the conferences of our association and when Esther Blanco asked me to write some reflections on AERNA, it was for me a pleasant surprise to realize how a simple glance at the titles of my presentations in AERNA reveal the development of my own academic career. It was definitely not the result of chance that the development of my research agenda was so tightly connected with the life of AERNA. In fact, during the last 15 years our association established itself as a reference point for researchers in the field of environmental economics and is now a consolidated forum for both theoretical and applied scientific discussion. There I grew up as a researcher, developed new ideas, improved ongoing research projects and, not less important, made good friends. (read more ⇓)
The activities of an association of environmental economists involves so many aspects that in the process of writing down some reflections on AERNA on can be easily tempted to discuss too much and end up with a text that is out of scope of a newsletter. Having realized how my own career was connected to the history of AERNA, and accepting the premise that the career of a young Portuguese environmental economist may help shedding some new light on the future of our association, in writing this text I decided to keep the record of my own attendances at AERNA as the anchor around which my thoughts should settle.
This time it was not the list of titles of my presentation in AERNA but my papers’ co-authors that revealed a challenge that the association still faces today: none of them were Spanish or were based in Spain.
In fact, while AERNA has been very successful in bringing together and triggering discussion between Portuguese and Spanish environmental economists, more can be done in fostering joint work. Portugal and Spain share common resources and face common problems; forest management, shared fish stocks and water resources are just some few examples of a much longer list. Perhaps one way to raise cooperation could pass by promoting an event in an AERNA conference with the aim of identifying specific research topics covering some of these shared problems/resources. This identification could be followed by the creation of dedicated AERNA groups. It is true that some AERNA groups already exist, but they don’t explicitly focus on issues affecting the Iberian Peninsula. Researchers have today very busy agendas and this can be a serious constraint to the level of activity of such groups. To circumvent such an obstacle these groups could have as an explicit objective of their tasks to create Portuguese-Spanish consortiums aiming to compete for national and international funding. This is obviously just some food for thought on this issue but, on what concerns me, AERNA can count with my best efforts to start such an endeavor.
Jose Oviedo, CSIC
I see AERNA as a meeting point for Portuguese and Spanish researchers to find common ground on fields of mutual interest that can bring up the opportunity of collaborations. In a more and more globalized scientific world, I see a value added in regional associations, such as AERNA, that can bring perspective to local and regional problems that can benefit from a research agenda in which AERNA should play an important role. This is, precisely, the main objective during my term as a Research Officer in the Board of Directors of AERNA. I intend to promote activities and initiatives that strength the collaboration among AERNA members to enhance joint research projects and activities mainly focused on natural resource and environmental problems in the Iberian Peninsula and on the economic instruments that can be applied to solve these problems. (read more ⇓)
My specific goals are to use the working groups of the association to enhance the possibility of joint research projects, to involve AERNA members in joint initiatives for the discussion of potential fields of collaborations and to foster the creation of networks that can be the seed of collaborations among members of the association. A key event for the consolidation of these initiatives will be the biannual AERNA conference. I hope that these activities and initiatives serve at least as the basis upon which research projects and collaborations among AERNA members are built in the future and bring up the opportunity of strengthening the connections among members in research fields of common interest and of regional relevance in the Iberian Peninsula.
Julia de Frutos Cachorro, Universidad de Barcelona
The Paris Agreement, adopted in Paris on 12 December 2015, aims to accelerate and intensify the actions and investment needed for the transition to a low carbon society. Indeed, the European Union (EU) member states have specific targets to reach on renewable energy generation. Concerning 2020 binding targets, most of the member states are well on track to reach the objectives (Spitzley et al., 2015). For example, Belgium would normally achieve the 2020 target of 13% on energy production (for electricity, transport and cooling sectors) from renewable technologies. However, European authorities claim that additional investments will be needed in order to ensure the compliance of current and future more ambitious targets. (read more ⇓)
In this context, factors such as the characteristics of the market, as well as policy uncertainty can play an important role in order to decide on the long term investments decisions for a low carbon future. In particular, nuclear policies are constantly under debate in EU and uncertainty about the definitive nuclear phase-out, or on the contrary, the extension of nuclear license permits might slow new investments in renewable technologies. However, the analysis of how the interaction between the uncertainty about a nuclear phase out, and the level of competition between energy suppliers on the electricity market, is currently affecting new investment decisions, has received little attention in the economic literature.
This research relates to two topics of the economic literature: optimal investment capacity under perfect and imperfect electricity markets and the impact of policy uncertainty on investment decisions. Before liberalization of the electricity market in the 1980’s, most of the economic literature about optimal investment and production decisions in the electricity market was based on perfect competition markets, in which the main model assumption is that individual suppliers of the market assume that no single firm can influence the market price. However, nowadays, proper market models must deal with imperfectly competitive markets (see Ventosa et al., 2005 for a review) in which single firms can take a strategic position in order to influence the market price. Since the early 1990’s, several authors have focused on analyzing strategic long-term capacity investments under imperfect market conditions using the concept of Nash-Cournot equilibrium (Filomena, Campos-Náñez, and Duffey, 2014; Genc and Sen, 2008; Leibowicz, 2015; Murphy and Smeers, 2005). Leibowicz (2015) couples a regional integrated assessment model and a one shot Nash equilibrium model to investigate how climate policy and learning spillovers interact with market electricity structure to affect renewable technology adoption and producer profits. Filomena, Campos-Náñez, and Duffey (2014) analyze the problem of production decisions, technology selection and capacity investment for electricity generation in a competitive environment under uncertainty concerning marginal costs. Genc and Sen (2008) focus on investment capacity decisions in the electricity market in Ontario (Canada), by using the concept of S-adapted open-loop Nash equilibrium, a multi-period dynamic game with an uncertain demand price function. Next, Murphy and Smeers (2005) compare long-term investment in generation capacity under different market electricity structures, namely perfect competition and oligopolistic market with dynamic interactions (open-loop and feedback Nash equilibria). In fact, most of the papers that analyze investment strategic decisions in competitive markets advocate for the use of dynamic multi-period models. However, in these papers, authors have to make strong modelling assumptions due to the complexity of finding analytical solutions. For example, they consider a reduced number of technologies and/or periods, and players are typically assumed to be symmetric in the market. As a result, although their findings are sound from a theoretical perspective, they face limitations in terms of its application to specific study cases. The study by de Frutos Cachorro, Willeghems and Buysse (2017), simplifies this theoretical literature by considering a one shot static game of production and investment capacity decisions, but which takes into account all the producers and technologies on the Belgian market.
Despite the methodology used, some of the previous studies have also analyzed the optimal capacity investments for different level of market competition, or, in other words, for different types of market structure. The vast majority of these models consider uncertainty on demand (e.g. Genc and Sen, 2008; Grimm and Zoettl, 2013; Grimm et al., 2017; Murphy and Smeers, 2005; Nesta, Vona, and Nicolli, 2014) as the main source of uncertainty on electricity markets. Grimm and Zoettl (2013) study how the degree of spot market competition influences investment incentives and welfare, taking into account fluctuating and uncertain demand. They show that higher market competition results in lower investment incentives of strategic firms.
However, as explained before, little attention is paid to instability of investments caused by policy uncertainty, in particular, uncertainty about the future of nuclear power. Recent studies have analyzed the impact of the German nuclear phase-out on Europe’s electricity generation and electricity prices. On the one hand, Bruninx et al., (2013) estimate that nuclear generation will be replaced by coal generation, leading to an increase in CO2 emissions. They hence argue for an extension of some nuclear plants’ licenses. On the other hand, Nestle (2012) calls into question the reasons of the recent German government decision concerning nuclear plants’ license extension and the expected increase on overall prices in a context of nuclear phase-out. However, in these papers, uncertainty about the nuclear phase-out policy is not explicitly considered. In the Belgian context, de Frutos Cachorro, Willeghems and Buysse (2017) show that an increase in probability of nuclear license extension results in lower levels of investment - primarily in renewable energy –, lower total production and higher electricity prices, assuming an imperfect oligopoly market. Willeghems, de Frutos Cachorro and Buysse (2017), extend the analysis made in the previous work to different levels of market competition, namely monopoly and perfect competition (the efficient solution), and show that imperfect oligopolistic markets offer slightly more possibilities for increased expansion in renewable energy as compared to extreme perfect and imperfect markets. They are, however, more influenced by an increase in the probability of nuclear license extension as compared to monopolies, and need to expand in non-renewable technologies, in order to secure supply when a nuclear phase-out is highly likely. Indeed, Kettunen, Bunn and Myth (2011) argue that ‘apart from the level of carbon prices, the associated policy uncertainty will have an effect on market structure evolution through a tendency for investments to be led by dominant incumbents rather than smaller independent power producers, leading to a more concentrated and hence less competitive market.’ The same argument could then be used to justify the study of how policy uncertainty associated to nuclear phase-out influences investments, depending on the level of market competition.
Finally, this research question is especially relevant for the case of Belgium. The Belgian electricity market is characterized by being in a state of uncertainty regarding nuclear phase-out. On the one hand, in 2003, the government committed about a nuclear phase-out in 2015. On the other hand, the Belgian electricity market is highly dependent on nuclear energy and the market player that operates all the nuclear plants in Belgium has an overall dominant market position as well. Thus, the fear of a highly likely electricity shortage, coupled with the necessary compliance with the new renewable energy targets, has led to the partial extension of nuclear plants permits. In this context, de Frutos Cachorro, Willeghems and Buysse (2017) and Willeghems, de Frutos Cachorro and Buysse (2017) give interesting insights in how the Belgian market could efficiently invest to ensure a stable investment climate and supply security in a low carbon future.
Bruninx, K., Madzharov, D., Delarue, E., D’haeseleer, W. (2013). Impact of the German nuclear phase-out on Europe’s electricity generation-A comprehensive study. Energy Policy, 60, 251–261. https://doi.org/10.1016/j.enpol.2013.05.026
de Frutos Cachorro, J., Willeghems, G., Buysse, J. (2017). Strategic investment decisions under the nuclear power debate in Belgium. Working Paper. Submitted to Resource and Energy Economics.
Filomena, T. P., Campos-Náñez, E., Duffey, M. R. (2014). Technology selection and capacity investment under uncertainty. European Journal of Operational Research, 232(1), 125–136. https://doi.org/10.1016/j.ejor.2013.07.019
Genc, T. S., Sen, S. (2008). An analysis of capacity and price trajectories for the Ontario electricity market using dynamic Nash equilibrium under uncertainty. Energy Economics, 30(1), 173–191. https://doi.org/10.1016/j.eneco.2007.02.005
Grimm, V., Schewe, L., Schmidt, M., Zöttl, G. (2017). Uniqueness of market equilibrium on a network: A peak-load pricing approach. European Journal of Operational Research, 261(3), 971–983. https://doi.org/10.1016/j.ejor.2017.03.036
Grimm, V., Zoettl, G. (2013). Investment Incentives and Electricity Spot Market Competition. Journal of Economics & Management Strategy, 22(4), 832–851. https://doi.org/10.1111/jems.12029
Kettunen, J., Bunn, D. W., Myth, W. (2011). Investment propensities under carbon policy uncertainty. Energy Journal, 32(1), 77–117. https://doi.org/10.5547/ISSN0195-6574-EJ-Vol32-No1-4
Leibowicz, B. D. (2015). Growth and competition in renewable energy industries: Insights from an integrated assessment model with strategic firms. Energy Economics, 52, 13–25. https://doi.org/10.1016/j.eneco.2015.09.010
Murphy, F. H., Smeers, Y. (2005). Generation Capacity Expansion in Imperfectly Competitive Restructured Electricity Markets. Operations Research, 53(4), 646–661. https://doi.org/10.1287/opre.1050.0211
Nesta, L., Vona, F., Nicolli, F. (2014). Environmental Policies, Competition and Innovation in Renewable Energy. Journal of Environmental Economics and Management, 67(April 2013), 396–411. https://doi.org/http://dx.doi.org/10.1016/j.jeem.2014.01.001
Nestle, U. (2012). Does the use of nuclear power lead to lower electricity prices? An analysis of the debate in Germany with an international perspective. Energy Policy, 41, 152–160. https://doi.org/10.1016/j.enpol.2011.09.043
Spitzley, J.-B., Najdawi, C., Steinhilber, S., Resch, G., Liebmann, L., Westerhof, J., … Hendricks, D. (2015). EU Tracking Roadmap 2015.
Ventosa, M., Baíllo, Á., Ramos, A., Rivier, M. (2005). Electricity market modeling trends. Energy Policy, 33(7), 897–913. https://doi.org/10.1016/j.enpol.2003.10.013
Willeghems, G., de Frutos Cachorro, J., Buysse, J. (2017). Effect of the degree of competition on investment decisions under the nuclear power debate in Belgium, In progress.
Rui Mota, Universidade Nova de Lisboa
A typical management strategy of a depleted fish stock is to implement measures that reduce the exploitation by following a proposed Harvest Control Rule (HCR). In this context, the HCR is used to define yearly total allowable catches depending on the observed biomass. A HCR is constructed, typically, by evaluating in a simulated population model the performance of specified control rules, in order to guarantee one or more management targets. For instance, to reach a chosen biomass level in a given time interval. Defining a harvest control rule requires solid scientific knowledge of fish stocks and it is perhaps for this reason that biologists have been typically at the forefront of management plans’ design. Recently, however, there is a trend emerging in favor of including economic objectives in the design of fishery management plans. However, while most countries manage their fisheries to achieve a combination of biological, economic and social objectives, there is still little insight on how to define and balance these objectives. (read more ⇓)
In this paper, we contribute to the efforts of including economic aspects of fisheries into the design of a HCR. Particularly, providing an analysis of optimal harvesting under preference for landings’ smoothing and risk of fishery collapse in an age-structured population while discussing the possibility of using optimal paths to assist the design of a HCR.
This framework is applied to the Ibero-Atlantic sardine stock, which is under a multiannual management plan encompassing a HCR. This HCR was constructed in response to a conjugation of historically low population levels and overfishing in recent years. Recent assessments reveal that the current stock faces reduced reproductive capacity, and the most recent advice is, in fact, to close the fishery.
Our results show that using an optimal bioeconomic model may result in paths that can be directly comparable to a typical HCR. To illustrate this, we use different types of objective functions starting from pure profit and sequentially incorporating preferences for, both, low fluctuations in landings, and risk of stock collapse. The fishermen’s objective of reducing landings’ fluctuations as well as the precautionary concerns of the local fishery management authorities, are characteristics that are generally required in the context of a multiannual management plan.
The first objective is accomplished by defining a utility function with aversion to intertemporal income fluctuations. Then, a probability of fishery collapse is defined, and used by means of an expected utility function framework. We then investigate, under these new objective functions, how optimal trajectories of catches and stock levels are affected by changes in preferences, and how these trajectories can be used to inform fishery policies.
Comparing the HCR used to manage the stock with the trajectory obtained from maximizing profit, we find that optimal catches for relatively low biomass are significantly higher than the ones allowed by the HCR. Moreover, introducing preferences for smoother landings has the consequence of increasing catches for low biomass levels.
In light of these results, and to understand how would the optimal agent balance conservation and profit maximization, we introduce a risk of stock collapse. In this setting, the agent accommodates the probability of stock collapse by drastically reducing initial catches, thus allowing biomass to recover to safer stock levels. In fact, for a range of parameter values it is optimal to reduce catches almost to zero for low biomass stock levels, meaning a recommendation for closing the fishery.
Comparing to the HCR followed to manage the sardine fishery, the optimal paths can be more precautionary for low population biomass. In particular, depending on the probability of stock collapse and on the level of fishermen’s aversion to harvesting fluctuations, fishery moratorium can now result from an optimal trajectory. This is a management reference point that depends both on economic and biological variables, as well as on the preferences regarding uncertainty of estimates of biomass level below which recruitment may be severely impaired. This is in contrast to MSY-type reference points that do not change with, for instance, price and cost changes. Bioeconomic models may thus provide valuable insights to the design of fishery management plans.
Rosa, R., Vaz, J., Mota, R., Silva, A. Environ Resource Econ (2017).
Jose Morales, University of Murcia
Why we sometimes observe the existence of an industrialized core and an agricultural periphery, and other times the economic activity is mostly disperse? What makes these spatial patterns exist? What are its main determinants? Being able to answer these questions is essential for the adoption of equality and growth policies among regions. After all, the economic wealth of regions depends to a large extent on its productive structure. World´s wealth is heavily concentrated in industrialized regions, while the "agricultural periphery" usually has a lower level of economic development. (read more ⇓)
New economic geography (NEG) literature seeks to answer these questions. NEG models point that transport costs are fundamental to determine the spatial distribution of the economic activity (Fujita et. al. 2001 and Baldwin et. al. 2003). When transport costs are high, industrial firms face high barriers to international trade, therefore sales are mainly local and competition within region becomes greater. This favors the dispersion of the economic activity (equal distribution between regions). However, when transport costs fall below a threshold, firms can sell both locally and abroad, which reduces the competition. Thus, the economic activity tends to concentrate in a single region in order to benefit from the larger market (an industrial core).
However, NEG literature focuses mainly on industrialized economies, overlooking some important determinants of resource-based economies. The changes in the spatial distribution in these particular economies are not negligible worldwide. Carr (2009) points that of the 80 million migrants in 1990, 25 million migrated due to the degradation of natural resources. Furthermore, since the middle of the 20th century, more than 1 billion hectares of land in the world has suffered soil degradation and harvests have declined, causing massive numbers of environmentally-induced migrants (Swain, 1996). As a consequence of these migratory processes, markets change their sizes, labor supply varies, and some sectors can experience boosts and contractions, which ultimately reshape the spatial configuration of the economies.
There are some attempts to incorporate notions from environmental economics into NEG models. Pflüger (2001) studies the choice of imposing emission taxes; Zeng and Zhao (2009) and Rauscher (2009) extend some NEG models to study the impact of pollution in the spatial configuration of the economy; Rieber and Tran (2009) investigate the consequences of unilateral environmental regulations; and Rauscher and Barbier (2010) highlight the conflict arising from competition for space between economic and ecological systems. However, the regenerative ability of natural resources and the extractive efficiency of harvesting efforts are not considered. Martínez-García and Morales (2016) propose a NEG model that incorporates the dynamics of renewable natural resources. The resulting model is able to give a closer economic intuition behind the agglomeration and dispersion forces that come into play in resource-based economies.
The main result is that the dynamics of the natural resource becomes a force that disperses economic activity. When a region seems more attractive for industrial firms to settle, the exploitation of the natural resource rises in that region, compromising the long-run stock of the resource and the future extractions. This causes an increase in the region primary prices, making production more expensive and rising the cost of living; which discourages the agglomeration of firms and people. Thus, as transport cost decreases, the economic activity moves from agglomeration to dispersion. The advantage of being agglomerated in one region will be reduced (because industrial prices tend to equalize) while the difference in the stock of natural resources makes the less populated (unexploited) region more attractive.
Additionally, the extractive productivity becomes a key parameter that determines if the transition between agglomeration and dispersion is sudden or smooth. If the productivity is high, dispersion forces are strong, and the transition will be smooth. Agglomeration and dispersion forces are balanced, gradually leaning the economic activity towards dispersion with successive reductions in transport costs (which weaken agglomeration forces). On the other hand, when productivity is low, the dispersion forces are weak, and the transition will be abrupt. This transition will only take place when the agglomeration forces lose all their strength. Recently, Roman et al. (2018) consider also this parameter as critical to explain transitions.
Baldwin, R., Forslid, R., Martin, P., Ottaviano, G., & Robert-Nicoud, F. (2003). Public policies and economic geography. Princeton: PUP.
Carr, D. (2009). Population and deforestation: why rural migration matters. Progress in Human Geography, 33(3), 355-378.
Fujita, M., Krugman, P. R., & Venables, A. (2001). The spatial economy: Cities, regions, and international trade. MIT press. Massachusetts.
Martínez-García, M. P., & Morales, J. R. (2016). Resource effects in the Core-Periphery model. Geocomplexity Discussion Papers, ISSN 2409-7497.
Pflüger, M. (2001). Ecological Dumping under Monopolistic Competition. Scandinavian Journal of Economics, 103(4), 689-706.
Rauscher, M. (2009). Concentration, separation, and dispersion: Economic geography and the environment. Thünen-series of applied economic theory, 109.
Rauscher, M., & Barbier, E. B. (2010). Biodiversity and geography. Resource and Energy Economics, 32(2), 241-260.
Rieber, A., & Tran, T. A. D. (2009). The Effects of Unilateral Environmental Regulations in a World with Capital Mobility and Trading Costs. Asia-Pacific Journal of Accounting & Economics, 16(3), 317-338.
Roman, S., Palmer, E., & Brede, M. (2018). The Dynamics of Human–Environment Interactions in the Collapse of the Classic Maya. Ecological Economics, 146, 312-324.
Swain, A. (1996). Environmental migration and conflict dynamics: focus on developing regions. Third World Quarterly, 17(5), 959-974.
Zeng, D. Z., & Zhao, L. (2009). Pollution havens and industrial agglomeration. Journal of Environmental Economics and Management, 58(2), 141-153.
Jorge Marco Renau, University of Girona
The tragedy of the commons is often explained by the fact that a natural resource is owned by a community. However, such social trap is not inevitable when cooperative behavior is promoted efficiently within the community. At the community level, many factors impacting cooperation (i.e., trust, communication, social pressure) are very dependent on the underlying structure of social interactions, often formalized by a social network. (read more ⇓)
A first attempt to analyze the interplay between the emergence of cooperation and social networks was based on the evolutionary-game-theoretic approach. In its initial phase, this approach was based on the premise that every agent can randomly meet any other agent, i.e., all agents are directly linked to each other. In terms of a social network, one would talk about a complete network. While this approach (Bowles, 2004) helped to understand the driving factors behind the emergence and preservation of cooperation, it does not take full account of the complexity, vicinity and segregation patterns that occur between agents when interacting in realistic networks. For this reason, Nowak et al. (1992) and Szabó et al. (2007) introduced a simple spatial structure where agents can interact only with their immediate neighbors. This new framework demonstrated that cooperation is evolutionarily viable within a narrow window of the specified parameters of the game. Yet, this approach neglects empirical evidence (Amaral et al., 2000; Jackson et al., 2017) showing that agents are grounded in strongly heterogeneous networks with a great diversity among their neighborhood structure. To overcome the topological identity of the agents and to break up the underlying symmetry of the network structure, Santos et al. (2005, 2006, 2012) analyzed the emergence of cooperation in non-regular networks. Their results show that more complex networks actively support the emergence of cooperation within a simple economic context.
In contrast to traditional ways of economic thinking, the evolutionary-game-theoretic framework assumes that the agents’ rationality is limited and individual decisions are taken by comparing payoffs. The proportion of individuals choosing a particular behavior increases when the payoff for that behavior exceeds the average payoff in the population, and decreases when the reverse is true. Hence, behavior that performs badly from the individual’s point of view is weeded out, while behavior that reaps benefits is imitated (Sethi and Somanatham, 1996; Osés-Eraso and Viladrich-Grau, 2007). Within the evolutionary-game-theoretic framework, little attention has been paid to how payoffs are determined. Payoffs could be based on short-term or long-term perspectives, depending on the degree of individual commitment to the interests of the collective. In a short-term perspective individual interests predominate, whereas a long-term perspective reflects the welfare of the collective. In the latter case, the payoff can be calculated as the outcome of a differential game. Finally, determining the optimal strategic response to, let us say, thousands of other agents (each of whom occupies a unique position in the social network) could, because of the complexity of the strategic decision problem, stretch the assumption of rationality beyond its limits. Therefore, the assumption of limited rationality seems reasonable to us if the social network is large and topologically complex.
Alternatively, economists have studied the behavior of agents constituting part of a social network within the framework of repeated games (Haag and Lagunoff, 2006; Jackson, 2016). This strand of the literature establishes that cooperation can be maintained throughout the game if the defecting agents are sanctioned and excluded from cooperative benefits forever. The infinitely repeated games are framed as bilateral or multilateral prisoner dilemmas. While the results of these studies are interesting, their applicability to real life situations is limited because equilibrium is only found on the basis of grim trigger strategies within the set-ups of infinitely repeated prisoner dilemma type games (Jackson, 2016). Examples of successful cooperation (Sethi and Somanatham, 1996), however, show that these social networks are not based on grim strategies at all. Such repeated games are the repetition of static games and do not consider the evolution of a stock variable. Consequently, neither do they allow for the tragedy of the commons, where the evolution of a natural resource is a fundamental element of the problem being analyzed.
In view of these considerations, we suggest a new framework that combines the distinctive aspects of the three strands of the literature, i.e., an evolutionary game-theoretic approach based on the solutions to the differential games employed within a social network that accounts for the complexity of the interaction between agents.
Our current research includes theoretical and empirical works in this direction. Preliminary results (go to working paper) suggest that (i) single aspects of the network, such as the initial share of cooperators or the total number of links in the network, are poor predictors for cooperativeness; (ii) the origin of the tragedy of the commons –shortsighted behavior- is also the starting point for a solution in the form of a one-time payment.
Environmental economics contribute to general economics by establishing a foundation for and formalizing methods to measure the value of intangible goods and services. Our approach aims to contribute to the literature by analyzing the monetary value of some intangible factors impacting cooperation (i.e., social pressure).
Amaral, L. A. N., A. Scala, M. Barthélémy and H. E. Stanley (2000). "Classes of small-world networks." Proceedings of the National Academy of Sciences 97(21): 11149-11152.
Bowles, S. (2004). Microeconomics - Behavior, Institutions, and Evolution. Princeton, Princeton University Press.
Haag, M. and R. Lagunoff (2006). "Social norms, local interaction, and neighborhood planning." International Economic Review 47(1): 265-296.
Jackson, M. O. (2016). The past and future of network analysis in economics:. Oxford Handbook of the Economics of Networks. Y. Bramoulle, A. Galeotti and B. Rogers. New York, Oxford Publisher: 71 - 79.
Jackson, M., B. Rogers and Y. Zenou (2017). "The economic consequences of social network structure." Journal of Economic Literature 55(1): 49 - 95.
Nowak, M. A. and R. M. May (1992). "Evolutionary games and spatial chaos." Nature 359(6398): 826-829.
Santos, F. C. and J. M. Pacheco (2005). "Scale-free networks provide a unifying framework for the emergence of cooperation." Physical Review Letters 95(9): 098104.
Santos, F. C., J. M. Pacheco and T. Lenaerts (2006). "Evolutionary dynamics of social dilemmas in structured heterogeneous populations." Proceedings of the National Academy of Sciences of the United States of America 103(9): 3490-3494.
Santos, F. C., F. L. Pinheiro, T. Lenaerts and J. M. Pacheco (2012). "The role of diversity in the evolution of cooperation." Journal of Theoretical Biology 299: 88-96.
Sethi, R. and E. Somanathan (1996). "The evolution of social norms in common property resource use." American Economic Review 86(4): 766-788.
Szabó, G. and G. Fáth (2007). "Evolutionary games on graphs." Physics Reports 446(4–6): 97-216.
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