UC Santa Barbara

This dissertation is a collection of essays that contributes to the fields of environmental and natural resource economics and econometrics. The role of political economy factors in environmental and natural resource economics is a common theme of the first two chapters. The third chapter is a contribution to econometric methodology.

The first chapter deals with rent-seeking behavior with respect to environmental regulation. The allocation of costless permits during the establishment of an emission permit trading program creates incentives for rent-seeking. I hypothesize that firms with strong political connections have an advantage in rent-seeking, which I model as a low rent-seeking cost in a contest for permits. Low rent-seeking costs are predicted to yield a higher permit allocation for a firm in equilibrium. This prediction is tested by exploiting an unusual feature of the U.K.'s allocation procedure in Phase 1 of the European Union's Emissions Trading Scheme for carbon dioxide emissions. I observe both a firm's actual permit allocation as well as an earlier, provisional allocation that was rooted in technocratic projections of future emissions but was never implemented. Firms had the opportunity to appeal their provisional allocation. I find that a firm's financial connections to members of the House of Commons strongly predict its post-appeal allocation. Even after controlling for the provisional allocation, along with industry and financial characteristics, a connection to an additional member is associated with a significant increase in a firm's actual permit allocation. Although no data exist on the amount firms spent on rent-seeking, theoretical predictions on rent-dissipation provide a basis for estimating these expenditures. The welfare loss from rent- seeking is estimated to be at least 137 million euros, which represents a significant cost over and above the abatement costs firms incurred to reduce their emissions.

In the second chapter, I investigate the "resource curse" hypothesis in the context of a single country (the United States), focusing in particular on the role of institutional differences across states in mitigating or amplifying the resource curse. I build on the work of Papyrakis and Gerlagh (2007) by explicitly considering the interaction between a state's natural resource wealth and its institutional quality as measured by per capita corruption convictions. I find that natural resource wealth is associated with lower economic growth only in relatively corrupt states. In states with relatively little corruption, natural resource wealth is actually associated with higher economic growth. These results suggest that the institutional aspect of the resource curse hypothesis is relevant even in a developed country context.

The third chapter deals with the identification and estimation of treatment effects under interference. The framework of potential outcomes has historically assumed that the treatment status of other individual's does not influence a given individual's outcome. However, many empirical settings are characterized by "interference", where an individual's outcome depends both on own treatment and the treatments of others. We extend the potential outcomes framework and define treatment effects that are relevant in such settings. Treatment effects may involve a comparison between outcomes when an individual's treatment status changes or when only the treatment statuses of others change. We propose necessary conditions under which a full range of treatment effects are identified and show how these effects can be estimated through a linear regression. Evidence from simulations suggests that incorrect specification of the regression equation can result is highly misleading estimates.