SCHUMACHER Ingmar

The Coronavirus pandemic is imposing tremendous health impacts around the world. At the time of writing (20th July 2020) there have been nearly 15 million cases worldwide and well over half a million deaths from the Covid-19 disease caused by the virus. The fact that this statement needs to be effectively date-stamped reflects the rapid development of this pernicious virus. While several vaccines are under rapid development, so far it is unclear if any will be truly effective given the ability of the virus to mutate. already the vast majority of Covid-19 cases are caused by a virus which is no longer identical to that which appeared in Wuhan in late 2019.

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In climate change policy, adaptation tends to be viewed as being as important as mitigation. In this article we present a simple yet general argument for which mitigation must be preferred to adaptation. The argument rests on the observation that mitigation is a public good while adaptation is a private one. This implies that the more one disaggregates the units in a social welfare function, i.e. the more one teases out the public good nature of mitigation, the lower is average income and thus less money (per region, country or individual) is available for adaptation and mitigation. We show that, while this reduces incentives to invest in the private good adaptation, it increases incentives to invest in the public good mitigation since even small contributions of everyone can have significant impacts at the large. Conclusively, private adaptation thus must be viewed as a significant loss to global welfare. When taking this result to the data we find that a representative policy maker who relies on world-aggregated data would invest in both adaptation and mitigation, just as the previous literature recommends. However, a representative policy maker who relies on countrylevel data, or data at further levels of disaggregation, would optimally only invest in mitigation.

We study optimal government policy in a reference model (Rege, 2004, Journal of Public Economic Theory, 6, 65–77) of public good provision and social approval in a dynamic setting. We show that even if complete adherence to the social norm maximizes social welfare it is by no means necessarily optimal to push society toward it. We stress the different roles of social externality and the public good problem. We discuss the problem with the standard crowding in and out argument and analyze the relationship with Pigouvian taxes. We discuss the role of the cost of public funds and show how it can create path dependency, the multiplicity of both optimal equilibria and optimal paths, and discuss the role of parameter instability.

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This thesis is devoted to the study of the implications of uncertainty on environmental policy. The debate around uncertainty has intensified in the context of climate change and sustainability. Many recent studies examining environmental policy have shown how uncertainty can alter economic behavior. This thesis contributes to this growing literature on uncertainty and environmental policy. To this end, Chapter 2 aims to present a new explanation for poverty traps through the presence of disaster probability. I present a new trade-off between adaptation and mitigation policies other than the usual dynamic trade-off highlighted in many studies. Many recent reports from international institutions have begun to highlight the importance of building a market economy through R&D innovations that manage adaptation and mitigation investments. Chapter 3 builds a Schumpeterian growth model in which investors manage adaptation and mitigation investments. Chapter 4 focuses on individual preferences and sustainability. This chapter aims to show that the sustainability criterion may not be consistent with optimal decisions in an economic model with a possibility of catastrophe when there are limit cycles (Hopf bifucation). Therefore, the criterion should be revised by policy makers to include the possibility of limit cycles.

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We study how the Basel III regulations, namely the Capital-to-Assets Ratio (CAR), the Net Stable Funding Ratio (NSFR) and the Liquidity Coverage Ratio (LCR), are likely to impact banks' profitability (i.e., ROA), capital levels and default. We estimate historical series of the new Basel III regulations for a panel of Luxembourgish banks for a period covering 2003q2-2011q3. We econometrically investigate whether historical LCR and NSFR components, as well as CAR positions are able to explain the variation in a measure of a bank's default risk (approximated by Z-score) and how these effects make their way through banks' ROA and CAR. We find that the liquidity regulations induce a decrease in average probabilities of default. We find that the liquidity regulation focusing on maturity mismatches (i.e., NSFR) induces a decrease in average probabilities of default. Conversely, the impact on banks' profitability is less clear-cut. what seems to matter is banks' funding structure rather than the characteristics of the portfolio of assets. Additionally, we use a model of bank behavior to simulate the banks' optimal adjustments of their balance sheets as if they had to adhere to the regulations starting in 2003q2. Then, we predict, using our preferred econometric model and based on the simulated data, the banks' Z-score and ROA. The simulation exercise suggests that basically all banks would have seen a decrease in their default risk during a crisis episode if they had previously adhered to Basel III.

Natural disasters have always been and probably always will be a problem for humans and their settlements. With global warming seemingly increasing the frequency and strength of the climate related disasters, and more and more people being settled in urban centers, the ability to model and predict damage is more important than ever.The aim of this thesis has been to model and analyze a broad range of disaster types and the kind of impact that they have. By modeling damage indices for disaster types as different as hurricanes and volcanic eruptions, the thesis helps with understanding both similarities and differences between how disasters work and what impact they have on societies experiencing them. The thesis comprises four different chapters in addition to this introduction, where all of them include modeling of one or more types of natural disasters and their impact on real world scenarios such as local budgets, birth rates and economic growth.Chapter 2 is titled “Natural Disaster Damage Indices Based on Remotely Sensed Data: An Application to Indonesia". The objective was to construct damage indices through remotely sensed and freely available data. In short, the methodology exploits that one can use nightlight data as a proxy for economic activity. Then the nightlights data is matched with remote sensing data typically used for natural hazard modeling. The data is then used to construct damage indices at the district level for Indonesia, for different disaster events such as floods, earthquakes, volcanic eruptions and the 2004 Christmas Tsunami. The chapter is forthcoming as a World Bank Policy Research Paper under Skoufias et al. (2017a).Chapter 3 utilizes the indices from Chapter 2 to showcase a potential area of use for them. The title is “The Reallocation of District-Level Spending and Natural Disasters: Evidence from Indonesia" and the focus is on Indonesian district-level budgets. The aim was to use the modeled intensity from Chapter 2 to a real world scenario that could affect policy makers. The results show that there is evidence that some disaster types cause districts to move costs away from more general line items to areas such as health and infrastructure, which are likely to experience added pressure due to disasters. Furthermore, volcanic eruptions and the tsunami led to less investment into more durable assets both for the year of the disaster and the following year. This chapter is also forthcoming as a World Bank Policy Research Paper under Skoufias et al. (2017b).The fourth chapter, titled “Urban Global Impact of Earthquakes from 2004 through 2013", is a short chapter focusing on earthquake damage and economic growth. This chapter is an expansion of the index used in the previous two chapters, where we use global data instead of focusing on a single country. Using a comprehensive remotely sensed dataset of contour mapsof global earthquakes from 2004 through 2013 and utilizing global nightlights as an economic proxy we model economic impact in the year of the quakes and the year after. Overall, it is shown that earthquakes negatively impact local urban light emissions by 0.7 percent.Chapter 5 is named “A Whirlwind Romance: The Effect of Hurricanes on Fertility in Early 20th Century Jamaica" and deviates from the prior chapters in that it is a historical chapter that looks at birth rates in the early 1900s. The goal was to use the complete and long-term birth database for Jamaica and match this with hurricane data to check fertility rates. We create a hurricane destruction index derived from a wind speed model that we combine with data on more than 1 million births across different parishes in Jamaica. Analyzing the birth rate following damaging hurricanes, we find that there is a strong and significant negative effect of hurricane destruction on the number of births.

In climate change policy, adaptation tends to be viewed as being as important as mitigation. In this article we present a simple yet general argument for which mitigation must be preferred to adaptation. The argument rests on the observation that mitigation is a public good while adaptation is a private one. This implies that the more one disaggregates the units in a social welfare function, i.e. the more one teases out the public good nature of mitigation, the lower is average income and thus less money (per region, country or individual) is available for adaptation and mitigation. We show that, while this reduces incentives to invest in the private good adaptation, it increases incentives to invest in the public good mitigation since even small contributions of everyone can have significant impacts at the large. Conclusively, private adaptation thus must be viewed as a significant loss to global welfare. When taking this result to the data we find that a representative policy maker who relies on world-aggregated data would invest in both adaptation and mitigation, just as the previous literature recommends. However, a representative policy maker who relies on countrylevel data, or data at further levels of disaggregation, would optimally only invest in mitigation.

We develop an overlapping generations model with environmental quality and endogenous environmental culture. Based upon empirical evidence, preferences over culturally-weighted consumption and envi- ronmental quality are assumed to follow a Leontie function. We fi nd that four diff erent regimes may be possible, with interior or corner solutions in investments in environmental culture and maintenance. Depending on the parameter conditions, there exists one of two possible, asymptotically stable steady states, one with and one without investments in environmental culture. For low wealth levels, society is unable to free resources for environmental culture. In this case, society will only invest in environmental maintenance if environmental quality is suffi ciently low. Once society has reached a certain level of economic development, then it may optimally invest a part of its wealth in developing an environmental culture. Environmental culture has not only a positive impact on environmental quality through lower levels of consumption, but it improves the environment through maintenance expenditure for wealth-environment combinations at which, in a restricted model without environmental culture, no maintenance would be undertaken. Environmental culture leads to a society with a higher indirect utility at steady state in comparison to the restricted model. Our model leads us to the conclusion that, by raising the importance of environmental quality for utility, environmental culture leads to lower steady state levels of consumption and wealth, but higher environmental quality. Thus, for societies trapped in a situation with low environmental quality, investments in culture may induce positive feedback loops, where more culture raises environmental quality which in turn raises environmental culture. We also discuss how en- vironmental culture may lead to an Environmental Kuznets Curve.

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The role of environmentally induced income variability as a determinant of migration has been studied little to none. We provide a theoretical discussion based on a ‘risk aversion channel’ and an overview of the empirical literature on this. We also extend a previous empirical study on 39 sub-Saharan African countries with yearly data from 1960 to 2000 by including income variability and its weather determinants. Our findings lead us to acknowledge that, based on our dataset and methodology, income variability is a negligible driver of migration decisions at the macroeconomic level.

In this article we study the implication of thresholds in preferences. To model this we extend the basic model of John and Pecchenino (1994) by allowing the current level of environmental quality to have a discrete impact on how an agent trades off future consumption and environmental quality. In other words, we endogenize the semi-elasticity of utility based on a step function. We motivate the existence of the threshold based on research from political science, from arguments based on regulation and standards, cultural economics as well as ecological economics. Our results are that the location of the threshold determines both the potential steady states as well as the dynamics. For low (high) thresholds, environmental quality converges to a low (high) steady state. For intermediate levels it converges to a stable p-cycle, with environmental quality being asymptotically bounded below and above by the low and high steady state. We discuss implications for intergenerational equity and policy making. As policy implications we study shifts in the threshold. Our results are that, in case it is costless to shift the threshold, it is always worthwhile to do so. If it is costly to change the threshold, then it is worthwhile to change the threshold if the threshold originally was su ciently low. Lump-sum taxes may lead to a development trap and should be avoided if there are uncertainties about the threshold or the eff ectiveness of the policy.

We investigate how insurance affects agents’ decisions when being faced by endogenous, climate-driven extreme events. This is not only important in order to understand how the possibility of insurance augments mitigation and saving decisions, but it also improves our understanding of how insurance should be provided. Since there are no studies as of now that rely on such an integrated approach, we extend the literature along two lines. Firstly, we develop a neoclassical growth framework with endogenous extreme events and an insurance sector. Secondly, we introduce a simulation method that allows us to explicitly take these extreme events into account and which yields additional numerical insights. In doing so we can fully characterize and quantify the impact of different insurance policies for mitigation and economic growth decisions.

We empirically investigate the dynamic interactions between sovereign ratings and the macroeconomic environment. We use a Panel VAR on annual data for European countries from 1986-2010. Our results provide evidence for a significant two-way interaction between the macroeconomic environment and changes in sovereigns' ratings. Thus, rating changes are able to exacerbate a country's boom-bust cycle.

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No summary available.

In this article we study the implication of thresholds in preferences. To model this we extend the basic model of John and Pecchenino (1994) by allowing the current level of environmental quality to have a discrete impact on how an agent trades off future consumption and environmental quality. In other words, we endogenize the semi-elasticity of utility based on a step function. We motivate the existence of the threshold based on research from political science, from arguments based on regulation and standards, cultural economics as well as ecological economics. Our results are that the location of the threshold determines both the potential steady states as well as the dynamics. For low (high) thresholds, environmental quality converges to a low (high) steady state. For intermediate levels it converges to a stable p-cycle, with environmental quality being asymptotically bounded below and above by the low and high steady state. We discuss implications for intergenerational equity and policy making. As policy implications we study shifts in the threshold. Our results are that, in case it is costless to shift the threshold, it is always worthwhile to do so. If it is costly to change the threshold, then it is worthwhile to change the threshold if the threshold originally was su ciently low. Lump-sum taxes may lead to a development trap and should be avoided if there are uncertainties about the threshold or the eff ectiveness of the policy.

In this article we develop a dynamic model where an endogenous evolution of trust impacts a politician's choice for bribe-taking and tax re-distribution. The politician obtains utility from net income that comes from his wage income, tax embezzlements and bribe-taking, and he also has incentives for tax re-distribution. The higher the tax embezzlements and the more bribes the politician takes the lower his citizens' trust and the less likely will he be re-elected. We support the evolution of trust with an econometric investigation. We analyze the necessary and su cient conditions, and nd that withholding taxes and taking bribes may be complements or substitutes for a politician, depending on the politician's incentives for tax re-distribution. Without these incentives, tax embezzlement and bribe taking are necessarily substitutes. With su ciently strong incentives, we nd re-distribution and bribe-taking may become complements. Complements implies that the politician, at least partly, increases bribe-taking because this allows him to increase re-distribution, which aids his additional motives for tax re-distribution. Based on comparative statics at steady state we also nd that the higher the politician's wage the lower the bribe-taking and the higher the trust. stronger social capital leads to less bribe-taking and higher levels of trust. improvements in electoral accountability induce a decrease in bribing while trust increases.

We develop an overlapping generations model with environmental quality and endogenous environmental culture. Based upon empirical evidence, preferences over culturally-weighted consumption and envi- ronmental quality are assumed to follow a Leontie function. We fi nd that four diff erent regimes may be possible, with interior or corner solutions in investments in environmental culture and maintenance. Depending on the parameter conditions, there exists one of two possible, asymptotically stable steady states, one with and one without investments in environmental culture. For low wealth levels, society is unable to free resources for environmental culture. In this case, society will only invest in environmental maintenance if environmental quality is suffi ciently low. Once society has reached a certain level of economic development, then it may optimally invest a part of its wealth in developing an environmental culture. Environmental culture has not only a positive impact on environmental quality through lower levels of consumption, but it improves the environment through maintenance expenditure for wealth-environment combinations at which, in a restricted model without environmental culture, no maintenance would be undertaken. Environmental culture leads to a society with a higher indirect utility at steady state in comparison to the restricted model. Our model leads us to the conclusion that, by raising the importance of environmental quality for utility, environmental culture leads to lower steady state levels of consumption and wealth, but higher environmental quality. Thus, for societies trapped in a situation with low environmental quality, investments in culture may induce positive feedback loops, where more culture raises environmental quality which in turn raises environmental culture. We also discuss how en- vironmental culture may lead to an Environmental Kuznets Curve.