Theory of Policy Design

Economics has a great deal to say about how to design policies that minimize the costs of achieving public objectives, as well as what those objectives ought to be. My contributions include a look at how a nonlinear tax system can achieve the right outcome when the regulator lacks information on private costs, what the optimal entry/exit condition is for a polluting industry, and how to improve the efficiency of ratio or intensity standards. 

ACADEMIC PAPERS

CHANGING THE DISCOUNT RATE BY ADJUSTING THE PURE RATE OF TIME PREFERENCE

One of the most influential parameters in Cost-Benefit Analysis is the discount rate. It is common in policy discussions to decompose it using the Ramsey formula into the pure rate of time preference ("rho") and an additive part that adjusts for the effect of consumption growth, then to consider different discount rates based on different assumptions about the magnitude of rho. In an new paper coauthored with Jamie Lee and Thanasis Stengos we show that the two don't vary on a 1:1 basis, that is, the relationship is not linearly additive as is commonly assumed. 


We show that as rho changes, the discount rate changes by slightly less than rho, although in the long run steady state the derivative converges on 1 from below. We estimate the relationship on US data and show that it is about 0.9 currently. We also show that the value of rho after 1980 is about 1.6. This analysis has results for debates like the one sparked by the Stern Review on the Economics of Climate Change. Stern argued for an extremely low discount rate based on assuming rho is 0. 
GLOBAL ENERGY SUBSIDIES: AN ANALYTICAL TAXONOMY
There was a debate earlier this year in the pages of the Financial Times regarding the size and extent of global energy subsidies. It was suggested to me that I send a letter in myself, but upon looking at the issue I found it too large and complex to be reducible to a letter. Different authors and institutions have estimated subsidy magnitudes that vary by orders of magnitude even within countries. Why do the numbers vary so much? The reason is that the definitions being applied vary widely, and some of the definitions make no sense. In this paper: I explain what the various definitions are, which ones actually correspond to the usual notion of subsidies, and why some of the looser concepts are not only inaccurate but vary inversely with what they are supposed to be measuring. 
UPDATE: The paper has been published in the journal Energy Policy:
BROWNFIELDS REMEDIATION IN ONTARIO: HOW TO STREAMLINE THE SYSTEM

Back in January 2017 I published a study through the Frontier Centre for Public Policy on Brownfields Remediation in Ontario. It was based on a series of interviews with experts working in the field of site remediation and construction. The system has developed some acute bottlenecks since reforms were implement in 2011, leading to escalating costs and long delays in construction approvals. With the election of a new growth-oriented government in Ontario, I thought it would be timely to draw attention to the paper once again:
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In addition to explaining the current system for obtaining a Record of Site Conditions we identify where and why the bottlenecks are forming and we make a set of recommendations for speeding up the system without compromising the intent of the regulations. 

TRADE LIBERALIZATION AND POLLUTION HAVENS
Bin Hu and I published a study looking at whether the distribution of consumption-generated pollution changes in a different way than production-generated pollution between rich and poor countries under trade liberalization. Previous work has focused on production-generated ("smokestack") emissions rather than consumption-generated ("tailpipe") emissions, and finds pollution intensity tends to rise in rich countries relative to poor countries after trade liberalization. We present a theoretical model in which the opposite pattern is predicted for tailpipe emissions, and we find empirical support for this in an international panel of data on carbon monoxide emissions. 
Contact me if you want reprints of any of these. For my textbook go here.
  • ** McKitrick, Ross (2005). "Decentralizing a Regulatory Standard Expressed in Ratio or Intensity Form." Energy Journal 26(4) 1-9.
  • **McKitrick, Ross R. and Robert C. Collinge. (2002) "The Existence and Uniqueness of Optimal Pollution Policy in the Presence of Victim Defense Measures." Journal of Environmental Economics and Management 44, pp 106-122.
  • **McKitrick, Ross R. (2001) "The Design of Regulations Expressed as Ratios or Percentage Quotas." Journal of Regulatory Economics 19(3), pp. 295-305.
  • **McKitrick, Ross R. and Robert C. Collinge, (2000) "Linear Pigovian Taxes and the Optimal Size of a Polluting Industry" Canadian Journal of Economics 33(4) pp. 1106-1119.
  • **McKitrick, Ross R. (1999) "A Derivation of the Marginal Abatement Cost Function." Journal of Environmental Economics and Management May 1999, pp. 306-314.
  • **McKitrick, Ross R. (1999) "A Cournot Mechanism for Pollution Control under Asymmetric Information." Environmental and Resource Economics October 1999, pp. 353-363.
  • **McKitrick, Ross and Timothy Shufelt (2002) "Environmental Impacts of Enhanced Property Rights." Environment and Energy 13(3) pp. 367-382.

OTHER

THE PRINCIPLE OF TARGETING
I published a brief essay through the Fraser Institute called This essay makes a very simple but easily-overlooked point, namely that good regulation is written so as to target the exact variable of interest in the most direct way possible. Unfortunately, many regulations are written to target indirect variables of no actual interest to the regulator. This leads to costly and inefficient rules and bureaucracy. 
ENVIRONMENT AND INEQUALITY: 
I made an invited presentation to the CIGI conference "False Dichotomies" (Nov 16-17 2012) in a session on the theme of Environment and Inequality. My argument was that there is a kind of Environmental Kuznets Curve connecting social equity and the stringency of environmental policy. In heavily polluted economies, increased stringency and enforcement of regulation generates a mix of benefits and costs that benefit overall equity. But in modern, high income economies with low pollution levels, like Canada and the US, environmental policy overkill is becoming a means by which wealthy urban households derive warm glow benefits while passing the costs disproportionately onto low-income and rural households. My presentation slides are here. The entire session can be viewed online here. Peter Victor speaks first and then I come on at about the 14:00 mark.