Job Market Paper
Additionality and Asymmetric Information in Environmental Markets: Evidence from Conservation Auctions with Karl M. Aspelund. January 2024.
Market mechanisms aim to deliver environmental services at low cost. However, this objective is undermined by participants whose conservation actions are not marginal to the incentive — or “additional” — as the lowest cost providers of environmental services may not be the highest social value. We investigate this potential market failure in the world’s largest auction mechanism for ecosystem services, the Conservation Reserve Program, with a dataset linking bids in the program’s scoring auction to satellite-derived land use. We use a regression discontinuity design to show that three of four marginal winners of the auction are not additional. Moreover, we find that the heterogeneity in counterfactual land use introduces adverse selection in the market. We then develop and estimate a joint model of multi-dimensional bidding and land use to quantify the implications of this market failure for the performance of environmental procurement mechanisms and competitive offset markets. We design alternative auctions with scoring rules that incorporate the expected impact of the auction on bidders’ land use. These auctions increase efficiency by using bids and observed characteristics to select participants based on both costs and expected additionality.
Working Papers
Waiting or Paying for Healthcare: Evidence from the Veterans Health Administration. October 2023.
The Effects of Floodplain Regulation on Housing Markets with Abigail Ostriker. July 2023.
We investigate the effects of housing regulations designed to correct a wedge between privately- and socially-optimal construction in areas at risk of flooding in Florida. Using a spatial regression discontinuity around regulatory boundaries and an event study around the policy’s introduction, we document that floodplain regulation reduces new construction in high-risk areas and increases the share of newly-built houses that are elevated. Embedding these effects in a model of residential choices with elastic housing supply, we find that the policy reduces expected flood damages by 60%. One-quarter of this reduction is driven by relocation of new construction to lower-risk areas, and three-quarters is driven by elevation of houses remaining in risky areas. However, this second-best policy achieves at best about one-tenth of possible welfare gains because of poor targeting. It overcorrects in many areas, inducing more consumers to elevate and relocate than is socially-optimal, while still allowing inefficiently-high construction in the riskiest places. By contrast, a flexible corrective tax on flood risk would achieve substantial welfare gains of more than $2,700 per newly-developed house.