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We develop a theoretical model to study the combined effect of lobbying and time preferences on emission tax policies. With a two-period model, we show that the influence of lobbying, by dirty industries and by environmental organizations, on the equilibrium tax decreases with the time horizon of the policymakers. An extension of the model to four periods shows that social welfare maximising policymakers may implement a tax higher than the marginal cost in the first period to speed up the transition to green technology. A policymaker influenced by lobby groups may, however, do the opposite, because future lobbying income will decrease if more firms invest in green technology. The results of this study indicate that countries with powerful lobby groups and a short-sighted policymaker are not likely to implement the optimal carbon tax. The influence of lobbying in combination with time preferences may explain some of the diversity in carbon taxes that we observe in practice. The results lead to the policy recommendation to combine carbon taxes with trade policies, which create an incentive for short-sighted governments to participate in carbon pricing policies.

The flood insurance protection gap, the level of uninsured flood risk, is a problem faced by many European countries and is expected to increase due to climate change. In some countries a cause of low demand for flood insurance is the crowding out of private insurance uptake due to the anticipation of government compensation for uninsured damage, a phenomenon known as charity hazard. This study applies a partial equilibrium model of flood insurance markets to explore the extent of charity hazard and the insurance protection gap for EU-countries until 2050. For this analysis, we apply an expected utility framework with insurance purchase decision functions that capture the probability, ambiguity and extent of government compensation. By accounting for country-level insurance systems and government compensation types, as well as regional flood risk, we aim to assess how charity hazard develops under different conditions. The extent of charity hazard decreases with uncertainty of government compensation, as well as with higher flood risk. Considering current and future conditions, the highest impact of charity hazard is observed in regions of Germany and Italy. The projected insurance protection gap is highest in Germany, followed by Spain, Poland and Italy, and is expected to grow towards 2050.

The theory on the disaster impacts on firm growth is ambiguous and the empirical evidence on this topic is scarce, which hampers the design of disaster risk reduction and climate change adaptation policies. This paper estimates growth models of the impacts of natural disasters on labour, capital, and value-added growth of firms in the short run, and identifies the role of financial constraints in shaping disaster outcomes. The analysis uses a comprehensive enterprise census data (2000-2009) and also two different types of disaster measures from Vietnam: the physical intensity measures and the socioeconomic damage measures. We apply the Blundell-Bond generalized method of moments (GMM) to estimate firm level disaster impacts, and find robust evidence that natural disasters on average increase firm growth significantly. We also find stronger positive impacts in labour and output growth for more constrained firms. We argue that this occurs because financially more constrained firms substitute labour for capital during the reconstruction phase after a disaster.

This paper uses firm-level survey data matched with official tax records to estimate the unobserved true sales of formal firms in Mongolia. Taking into account firm-level incentives to comply with taxes and a production function technology linking unobserved true sales with observable firm-level production characteristics, we derive a multiple-indicators, multiple-causes model predicting true sales. We find that firms underreport sales to the tax office by 38.6%, but firm-level survey data also suffer from significant underreporting. Finally, we compare our approach with two alternative approaches of measuring underreporting and discuss the practical implications of the findings for firm-level analyses of underreporting. © 2014 The President and Fellows of Harvard College and the Massachusetts Institute of Technology

Financial constraints are expected to be severe in Vietnam, especially for private firms, but there is limited quantitative evidence for the size of financial constraints experienced by SOEs and private firms and the resulting efficiency losses. This paper investigates the size of the capital market distortions using a model of establishment dynamics allowing for different collateral constraints experienced by SOEs and private firms. The parameterized model consistent with the key features of the manufacturing panel census (2000-2009) implies that firms in Vietnam face severe collateral constraints, more so for private firms. I also find capital distortions across ownership types are a quantitatively important misallocation channel. The resulting TFP losses are large and robust (ranging from 11.5%-19.1% of GDP). This adds extra evidence to the controversy in the literature about the importance of financial frictions in generating TFP losses.