Richard D. Horan

Pollution permit trading is of interest due to its potential to meet pollution control targets at minimum cost without market designers knowing polluters’ abatement costs. This potential has been substantially realized in applications to air emissions but, with a very few exceptions, not to water quality protection. Yet substantial interest in water quality trading remains. We explore the economic literature on water quality trading, focusing on class of trades generating the most interest: trades between point sources and agricultural nonpoint sources, or PS-NPS trading. We describe how NPS pollution processes and institutional environments create unique market design challenges, prompting the development of a specialized literature. The principal challenges stem from NPS emissions being unobservable and stochastic, preventing actual NPS emissions from serving the traditional role of a quantifiable, tradeable property right. Additionally, PS-NPS trading programs generally operate in complex institutional environments that limit the ability to regulate agricultural sources and also include pre-existing environmental policies. We describe that, while the integration of PS and NPS control efforts under PS-NPS markets has the potential to improve the overall efficiency of pollution control, good market design is key to realizing these gains. Well-designed markets will incentivize trades so that cost-reducing abatement reallocations do occur, with these trades either reducing or not substantially increasing environmental risks brought about by NPS uncertainties.

One cause of the high rate of COVID-19 cases in the USA is thought to be insufficient prior capital investment in national health programs to preemptively reduce the likelihood of an outbreak and in national capacity to reduce the severity of any outbreak that does occur. We analyze the choice of capital investments (e.g. testing capacity, stockpiles of PPE, and information sharing capacity) and find the economically efficient capital stock associated with mitigating pandemic risk should be dramatically expanded. Policymakers who fail to invest in public health forgo significant expected cost savings from being prepared.

The rapid urban spread of Ebola virus in West Africa in 2014 and consequent breakdown of control measures led to a significant economic impact as well as the burden on public health and wellbeing. The US government appropriated $5.4 Billion for FY2015 and WHO proposed a $100 Million emergency fund largely to curtail the threat of future outbreaks. Using epidemiological analyses and economic modeling, we propose that the best use of these and similar funds would be to serve as global insurance against the continued threat of emerging infectious diseases. An effective strategy would involve the initial investment in strengthening mobile and adaptable capacity to deal with the threat and reality of disease emergence, coupled with repeated investment to maintain what is effectively a ‘national guard’ for pandemic prevention and response. This investment would create a capital stock that could also provide access to safe treatment during and between crises in developing countries, lowering risk to developed countries.

An individual’s infectious disease risks, and hence the individual’s incentives for risk mitigation, may be influenced by others’ risk management choices. If so, then there will be strategic interactions among individuals, whereby each makes his or her own risk management decisions based, at least in part, on the expected decisions of others. Prior work has shown that multiple equilibria could arise in this setting, with one equilibrium being a coordination failure in which individuals make too few investments in protection. However, these results are largely based on simplified models involving a single management choice and fixed prices that may influence risk management incentives. Relaxing these assumptions, we find strategic interactions influence, and are influenced by, choices involving multiple management options and market price effects. In particular, we find these features can reduce or eliminate concerns about multiple equilibria and coordination failure. This has important policy implications relative to simpler models.

Most models designed to understand how to manage infected wildlife systems with bioeconomic multi-stability take the initial conditions as given, thereby treating pathogen invasion as unanticipated. We examine how ex ante management is an opportunity to influence the ex post conditions, which in turn affect the ex post optimal outcome. To capture these ex ante management choices, we extend the Poisson “collapse” model of Reed and Heras (Bull Math Biol 54:185–207, 1992) to allow for endogenous initial conditions and ex post multi-stability. We account for two uncertain processes: the introduction and establishment of the pathogen. Introduction is conditional on anthropogenic investments in prevention, and both random processes are conditional on how we manage the native population to provide natural prevention of invasion and natural insurance against establishment placing the system in an undesirable basin of attraction. We find that both multi-stability of the invaded system and these uncertainty processes can create economic non-convexities that yield multiple candidate solutions to the ex ante optimization problem. Additionally, we illustrate how the nature of natural protection against introduction and establishment risks can play an important role in the allocation of anthropogenic investments.