Economics and Politics Research Group

There is Trouble with the Trees: How to Avoid Trade-Induced Deforestation?

Alan Leal

Maurício S. Bugarin  

Trade and environment are intertwined subjects. The literature on the impact of trade opening on environmental outcomes are vast. Lacking however is the literature in how trade can be used politically to induce better environmental outcomes. To model this properly, we develop a game theoretic model in which two countries engage in trade and choose their respective levels of deforestation and trade tariffs. We consider the scenarios of market and central equilibria and derive some useful insights into their relationship of these two variables. As an extension, we also propose different model specifications and develop a numeric generalization of the model, which allows testing our models prediction for several countries. As a result, we find that there is an incentive for free-riding from the countries less concerned
with deforestation on the countries that suffer the most disutility of its own deforestation.
Keywords: trade; deforestation; game theory

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The Economics and Politics Research Group started publishing its working papers on June 12, 2013. Please check here every week for a new working paper.

The case for auctioning transmission margins: the design of a competitive mechanism for access to the National Interconnected System in Brazil

Lucas Santos e Silva

Maurício S. Bugarin

Recent transformations in the Brazilian Electricity Sector (BES) have ushered in a period marked by intense competition for transmission capacity within the National Interconnected System (NIS). This has brought attention to the inherent scarcity of transmission resources and revealed the inadequacy of the current queue criterion for allocating remaining margins in such a scenario. To address the country’s new reality, this paper proposes adopting a competitive mechanism for granting access to the transmission grid—an alternative that employs a simple and transparent procedure, enhances allocative efficiency, and improves access dynamics. Specifically, our paper introduces the design of a Transmission Margin Auction (TMA) for the BES, a mechanism based on an open ascending format, where all the available capacity outlined in the National System Operator’s (ONS) expansion plan is sequentially offered, and participants are granted the opportunity to compete at any preferred connection point of their choice.

Key Words: Mechanism design, Transmission margin auctions, Brazilian national interconnected system, Transmission network access, Grid access.

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The Economics and Politics Research Group started publishing its working papers on June 12, 2013. Please check here every week for a new working paper.