Essays on Industrial Organization and Environmental Economics

Abstract

This dissertation consists of three essays on industrial organization and environmental economics. The first essay models the efficient pricing structure when consumers respond to average price rather than marginal price. Regulators have been using increasing block tariffs to regulate important markets such as water and electricity, although such tariffs are not shown to be efficient in the standard literature of industrial organization. In light of recent evidence regarding how consumers respond to complex price schedules, this essay re-examines the regulated non-linear pricing. Results show that increasing per-unit prices (hence increasing block tariffs) may be optimal when consumers respond to changes in average price rather than marginal price. This suggests the equity-efficiency trade-off associated with increasing block tariffs may be less severe than previously believed. The second and the third chapters study the garbage industry. In the United States, waste has been transported across county lines and state borders. Several states and counties have attempted to legalize transboundary waste flow controls in several Congress sessions after their ordinances were overturned by Supreme Court. Using data on intercounty waste flows in California and a random utility model of haulers' decisions about where to deposit waste from each county, the second essay studies the effects of not-in-my-backyard policies and fuel taxes on the spatial and demographic distribution of solid waste. I find that waste is currently more likely to be hauled to disposal facilities in communities with higher percentages of blacks and Hispanics, even after controlling for income, disposal fees, and transport distances. Counterfactual policy experiments show that policies that seek to limit waste flows would reduce intercounty waste transport. However, these policies tend to lead to substitution of waste away from facilities near white residents and toward facilities near Hispanic residents, potentially exacerbating distributional concerns. In the third chapter, I look at the residential mobility hypothesis to explain the uneven distribution of waste by demographics. Forming sound environmental justice policy involves understanding whether the correlation between race and environmental bads results from the disproportionate siting of locally unwanted land uses or nuisance-driven residential mobility. This essay presents evidence of residential sorting using a difference-in-difference strategy. Specifically, I compare changes in population after an opening (and closing) of a trash site between blocks within one mile to faraway blocks. Results show a 11 percent decrease in white population and a 44 percent increase in Hispanic population in a block after a trash site opened within one mile. Closing the site does not change white population immediately while inducing a 11 percent fall in Hispanic population, relative to the operating period.