Abstract: Developed countries often possess the capacity to innovate technologies that mitigate global biological threats, such as vaccines for infectious diseases, but innovate little when not directly exposed. This chapter develops a spatial dynamic game to study endogenous innovation incentives as biological threats expand into developed countries. In the model, all countries can control threats locally, while only a few can innovate. I decompose how two externalities—threat diffusion and technology spillovers—and their interaction shape strategic innovation incentives. Using evidence of dengue-transmitting mosquitoes expanding into the U.S., I estimate that endogenous U.S. vaccine innovation could reduce dengue cases in the Americas by 54% relative to a no-innovation scenario and assess the resulting global welfare implications. Finally, I show that greater exposure may fail to spur innovation when sustained eradication through local control is optimal for a class of biological threats.
Abstract: We price the transboundary externality of mobile public bads such as diseases and invasive species. We focus on the marginal cost to country B of an increase in the stock (i.e., an outbreak) in country A. These cross-jurisdiction marginal costs depend not only on economic, ecological, and spatial features of both jurisdictions but also on jurisdictions’ strategic reactions to the outbreak. Using a spatial dynamic game, we calculate the “cross-jurisdiction shadow costs” of an outbreak of mobile public bad under the Markov-perfect Nash equilibrium of control efforts. We find that under reasonable conditions, the source country has private incentives to control the outbreak itself, which can lead to a situation where the cross-jurisdiction shadow cost is, in fact, zero. We also derive conditions where a country optimally fails to control the outbreak (for example, damages in that country are small), in which case cross-jurisdiction shadow costs are positive. Finally, we note that since cooperative control of the mobile public bad delivers substantially higher welfare than non-cooperative control, we derive an externality pricing instrument that perfectly internalizes the externality and induces cooperative control among all countries.
Abstract: Nonlinear dynamics, such as fish reproduction or disease transmission, are central to many resource models, and economic insights often hinge on these nonlinearities. In such settings, linearization is inadequate, and the presence of strategic interactions makes structural estimation challenging. We develop a tractable estimation method for a general class of these dynamic games using the Generalized Method of Moments (GMM). Our approach accommodates heterogeneous agents and nonlinear, interactive equations of motion. We derive sufficient conditions under which GMM estimation is feasible and establish consistency and asymptotic normality. We apply the method to a fishery game involving Japanese anchovy harvesting by China, Japan, and the Republic of Korea and estimate their strategic harvest responses to climate-induced shifts in ocean currents.
Abstract: Conservation organizations and governments spend $50 billion per year contracting with private landowners through payments for ecosystem services (PES), which are private agreements in which a landowner agrees to take certain land-use actions in exchange for payment. We analyze the class of ecosystem services where the provision by landowner A affects the cost of provision by landowner B, thus inducing a strategic interaction. We focus on the example of PES for the conservation of a mobile species such as wolves, whales, or elk. In those settings, the strategic responses of the landowners to a PES complicate the conservationist's strategy in economically interesting ways. We show that the transboundary movement of a species can lead a PES to under, or over provide conservation, and the direction hinges on whether the species is viewed as a "good" or a "bad" by the landowner. For example, if countries generally value whales, but require a PES to increase their conservation of whales, we find that the PES will under-provide whales relative to what would have occurred if whales did not cross EEZ boundaries. But if ranchers generally dislike wolves, and require a PES to reduce their depredation on wolves, then the opposite result arises. We conclude that the transboundary nature of many ecosystem services can either accelerate or suppress the efficacy of PES, relative to what would have been predicted with logic from the Coase Theorem. In addition to informing the conservationist's approach to PES for transboundary species, this could explain the observed and paradoxical resistance to some voluntary PES programs and the acceptance of others.
Aggregate Quotas under Depletion Risk (with Mauricio Collado).