Three Essays on the Economics of Environmental Public Goods and Externalities

This dissertation is comprised of three essays that explore the economics of environmental public goods and externalities. The first essay examines multilateral financial mechanisms that are formed to address global environmental problems like climate change. The essay models two important features of multilateral financial mechanisms: a burden sharing rule, which coordinates countries in fundraising to improve global environmental quality, and a grant disbursement system, which delineates how funds are distributed among countries for environmental projects. The analysis specifically shows how multilateral financial mechanisms can address the dual goals of economic efficiency and equity simultaneously. The second essay studies the so-called rebound effect. Economists have long noted that improving energy efficiency can lead to a rebound effect, which can reduce or possibly even eliminate the energy savings from the efficiency improvement. Yet there are important nuances in the microeconomic theory of the rebound effect that have not been explored. This paper develops a generalized model of the rebound effect. It overturns conventional wisdom by showing how several identities that are frequently used to estimate the rebound effect no longer hold in a generalized setting. It also clarifies the relationship between the direct and indirect rebound effect, highlighting the importance of substitute and complement relationships between energy services. Lastly, this analysis shows how externalities can be built into the rebound model to reveal when energy efficiency improvements will be welfare-improving. The final paper in this dissertation provides a general framework for understanding consumer behavior related to goods and services that are environmentally friendly. It generalizes the impure public good model and derives its comparative static properties, accounting for any number of impure public goods and joint production of any number of public and private characteristics. This generalization provides a bridge between the impure public good model and the well-known linear characteristics model, both of which are special cases of the model developed here.