Environmental policy under political pressure

General information

• Funding agency: OENB Anniversary Fund (project number 18890)
• Grant size: 87.000,00 EUR
• Project duration: 10/2023 - 03/2025
• Project team: Gerhard Sorger (lead), Andrei Kalk
• Abstract: Climate change poses major challenges for governments around the world. A particularly important aspect of the transition from a traditional economy to a carbon neutral one is that it necessarily creates economic winners and losers. Individual companies or entire industries that are dependent on the use of fossil fuels lose part of their business basis, while other industries benefit immensely from the transition. This situation creates a favorable breeding ground for lobbying and other forms of political influence. The proposed project aims at contributing to the understanding of this problem by modeling climate policy as a dynamic hierarchical game between political interest groups on the one side and the government on the other.

Presentations

• November 23, 2023: Gerhard Sorger, "Climate policy under political pressure", Dynamic Games & Applications Seminar (slides).
• February 18, 2024: Andrei Kalk, "Protecting the environment: On the interplay between voluntary contributions and public policy", The Hebrew University of Jerusalem (slides).
• June 3, 2024: Andrei Kalk, "Protecting the environment: On the interplay between voluntary contributions and public policy", Bar-Ilan University (slides).
• June 20, 2024: Andrei Kalk, "Protecting the environment: On the interplay between voluntary contributions and public policy", CEPET Workshop, Udine (slides).
• June 26, 2024: Andrei Kalk, "Protecting the environment: On the interplay between voluntary contributions and public policy", NAERE Workshop, Bergen (slides).
• September 18, 2024: Gerhard Sorger, "On the effect of anticipation under lack of commitment", EULOG 2024, Vienna (slides).
• February 14, 2025: Andrei Kalk, "Protecting the environment: On the interplay between voluntary contributions and public policy", Vienna Workshop: The Political Economy of the Environment.

Publications

• Andrei Kalk and Gerhard Sorger: "Climate policy under political pressure", Journal of Environmental Economics and Management (2023), 102900
  Abstract: It is widely acknowledged that there is an urgent need for policies that can reduce greenhouse gas emissions. Yet, the policies implemented by governments are far from sufficient to reach their long-term climate targets. In this paper, we propose a theoretical framework to study the implications of political pressure on optimal climate policy. A key feature of the framework is its ability to capture dynamic inconsistency, which naturally arises from the long time horizon of climate policies and their susceptibility to modifications due to political pressure. Our findings offer a new rationale for why green lobbying can make pollution regulation less stringent. We also show that political pressure from the polluting sector leads to a higher rate of clean energy investment chosen by the government and can facilitate the transition from dirty to clean technologies. Similarly, this transition can be facilitated by political pressure from members of the public who care only about immediate consumption.
• Gerhard Sorger: "Anticipation under lack of commitment leads to excess growth", revise and resubmit at International Journal of Economic Theory.
  Abstract: We study a simple asset accumulation problem in which instantaneous utility depends not only on current consumption but also on anticipated future consumption. This feature of the preferences renders them dynamically inconsistent. We solve the model under the assumptions that the decision maker (i) is aware of the dynamic inconsistency and (ii) lacks commitment power (sophisticated approach). It is shown that asset growth under these assumptions always exceeds the corresponding growth rate under commitment.
• Andrei Kalk: "Protecting the environment: On the interplay between voluntary contributions and public policy", Working Paper.
  Abstract: We study the interplay between individuals' voluntary contributions to environmental protection and public environmental policy in a dynamic general-equilibrium model. To capture the observed discrepancy between the willingness of individuals to pay for public and private environmental protection, we treat the quality of the environment as a public good and assume that voluntary contributions are motivated by a 'warm glow' of giving. We show that in the laissez-faire scenario with no government intervention, the intensity of warm glow negatively affects aggregate output and positively affects environmental quality in the long run. However, when the government intervenes and decides on environmental policy in the interests of individuals, the warm-glow intensity has a negative long-run effect on both variables. Thus, our results suggest that advocating for personal actions to combat climate change may be counterproductive in the presence of public environmental policy.

Workshop

• The Vienna Workshop: The Political Economy of the Environment" took place on February 14-15, 2025 in Vienna at the building of the University of Vienna's Economics Department (Oskar-Morgenstern Platz 1, 1090 Vienna). It gathered a group of researchers working on political economy aspects of environmental policy. There were three keynote lectures by internationally renowned scholars and eleven contributed papers. Further information on the workshop (including the full program) can be found here. The workshop also served the purpose of a public presentation of project results as required by the guidelines for processing and invoicing of projects funded by the OENB Anniversary Fund.