Managing environmental quality: Three essays in applied environmental economics

The dissertation in its three essays investigates public and private management of environmental quality at a regional and international level.; In the first essay I analyze economic incentives for land developers to invest in wetlands mitigation banks for wetlands restoration. A stochastic optimal control model of the investment problem is developed to incorporate the uncertainty of returns in restoration investment based on the dynamic and uncertain recovery of degraded wetlands. Solving the model numerically with data from California provides a sensitivity analysis of how model parameters of restoration costs, stochastic biological growth, interest rate, and the market value of credits affect the trajectory of investment, the value of investment program, and the optimal stopping state (i.e., the state of wetlands quality at which it is optimal to cash in the investment for credits).; In the second essay, I examine how public wastewater treatment plants balance objectives of cost minimization, protection of water quality, and pollution prevention. This analysis is the first empirical application of maximum entropy estimation for dynamic optimal control problems. I use time series observations of expenditures for wastewater treatment and water quality to recover parameters in the objective function and state equation. The maximum entropy estimation does not require restrictions needed by other techniques used to estimate nonlinear, ill-posed problems. I use the estimates in a sensitivity analysis which examines changes in the plant's expenditures based on changes in the cost efficiency of the treatment methods.; In the third essay, I solve numerically a differential game to study how trade liberalization may ameliorate transboundary wastewater pollution in a border waterway between the U.S. and Mexico. The potential for agricultural trade stimulates demand for reclaimed wastewater to produce the traded crop. This facilitates internalization of the environmental externality and increases employment. The framework offers a means of analyzing the intertemporal nature of pollution control when the U.S. and Mexico coordinate efforts for pollution control and when they act independently. I compare the cooperative and noncooperative solutions in terms of the emissions levels, pollution stock, trade flows and employment.