UC Santa Barbara

Economic incentives for users of natural resources depend on both environmental conditions and policies in place to govern use of those resources. Similarly, polluting firms are financially impacted by the regulatory context in which they operate and the manner in which natural systems exposed to their pollution are affected. Shifts in environmental conditions or policy thus may alter the economic incentives and behavior of resource users and polluting firms. To the extent that such shifts impose higher costs, economic theory suggests that economic agents will seek ways to mitigate their exposure to such costs, either through preventative behavior or adaptation. As a result, the economic effects of change will depend upon the responses of affected individuals or firms. Here, I examine the effects of three types of change on the behavior of natural resource users and polluting firms. The first chapter employs dynamic game theory to examine the effect of a potential environmental regime shift on coalition formation in a shared fishery, finding that the threat of such shifts can support enhanced cooperation as a means to avoid the shift. The second chapter focuses attention on a policy shift in a multi-species fishery, studying how resource users respond to the introduction of tradable permits for bycatch species. That study uses a combination of theory and panel econometric approaches to identify multi-margin responses to the regulatory change, and in so doing, estimates the marginal costs of conservation for overfished species. In the final chapter, I continue to examine regulatory change, but shift systems to examine how environmental policy may stimulate innovation. In particular, I explore how tradable emissions permits can create incentives for unregulated firms to innovate, illustrating the consequences of such spillovers for policy analysis using both theory and an empirical application to the European Union Emissions Trading System.