Author: Ashish Tyagi

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Published: 2017

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The title of the first essay in this dissertation is Institutional Reforms as Adaptation to Water Scarcity: Bounding the Possibilities. There is substantial agreement that better water institutions are essential for effectively and efficiently addressing increased water scarcity associated with population growth and climate change. But welfare gains from institutional reforms will be overestimated if the inefficient status-quo is compared against ideal but implausible allocations. Non-cooperative bargaining theory can predict feasible welfare gains from reforms but the literature has not yet explored basin structures where inflexibility of existing agreements results in a deadweight loss. A case in point is the institution of Interstate River Compact in the United States. Recent renegotiations suggest that reconsidering compact allocations can be an effective adaptation response to water scarcity. This essay develops a non-cooperative bargaining framework to formalize interstate river compact renegotiations. Equilibrium outcomes from interstate renegotiations followed by intrastate renegotiations among economic sectors place bounds on feasible welfare gains from reforms. Closed-form solutions are applied to a case study of Rio Grande Compact. Comparison between the non-cooperative equilibrium allocation and the optimal allocation indicates that non-cooperative bargaining can achieve allocative efficiency in the basin. However, the distribution of resulting gains depends on the bargaining power of players. This bargaining power is positively related to status-quo allocation, population, area under irrigated agriculture, efficiency of water-use and the degree of aversion to side payments. The second and the third essay in this thesis focus on Indias GHG abatement policy, which is currently heavily skewed towards non-market instruments. Policymakers have started experimenting with theoretically efficient and cost-effective market-based instruments (MBIs) which are likely to play a larger role in the future. But there is little research on intergenerational welfare consequences of using MBIs in India. The second essay, titled Indias Greenhouse Gas Abatement Policies Considering the Case for Market Based Instruments, studies long-term intergenerational welfare consequences in a hypothetical scenario where India had chosen a carbon tax or an emission trading scheme to achieve its Paris Agreements CO2 emission targets. This scenario is modeled using a dynamic perfect-foresight Overlapping Generations (OLG) model with a revenue-neutral price instrument and a quantity instrument. Revenue is recycled through changes in consumption, labor income or capital income tax. Role of modeling assumptions is highlighted by comparing OLG model results with an Infinitely Lived Agent (ILA) approach. Results suggest that the burden of a market-based policy on existing generations is small but welfare of future generations is reduced by 4-5 percent when positive environmental benefits are not taken into account. With environmental benefits, costs of policy on future generations are significantly reduced, even leading to net positive incidence in one scenario.The carbon tax policy studied in Essay two is an efficient and cost-effective way to achieve Paris Agreement targets for India. But the distributional incidence of an MBIs policy may fall unfairly on vulnerable population groups when relative prices of energy goods increase. A desirable MBIs policy must then balance emissions reduction goal against developmental objectives and protect vulnerable population from not only climate change but also adverse policy impacts. The third essay, titled Indias Greenhouse Gas Abatement Policies Distributional Implications of a Carbon Tax, extends the results from the macroeconomic CGE model of Essay two to estimate initial distributional incidence of a carbon tax. This analysis is undertaken through a microsimulation model which uses household level consumption and income data along with the CGE model outputs. Results suggest that the incidence on vulnerable socio-economic groups, identified as lower income quintile households, disadvantaged caste groups and rural households, can be reduced by using a suitable revenue recycling mechanism. In particular, revenue recycling through reductions in labor income tax is a progressive policy as the incidence is lower on vulnerable socio-economic groups. Revenue recycling through reductions in capital income tax has a fairly equal incidence across socio-economic groups. Consumption tax reductions is the worst revenue recycling mechanism as it fails to achieve double dividends and the incidence is large across all socio-economic groups.