The Singapore Economic Review

The Chicago Climate Exchange (CCX), which operated from its launch in 2003 to its sale to the Intercontinental Exchange (ICE) in 2010, was the world’s first and still only cap-and-trade system covering all six major greenhouse gases (GHGs) Membership in CCX was voluntary, but all emissions reduction commitments, auditing and trading rules were mandatory via a legally binding civil contract, a first in history. The goal was to use a market-based solution to reduce carbon emissions at the lowest possible cost, and CCX drew more than 400 members to its system at the time when there were no mandatory greenhouse gas reduction policies in place in the United States or abroad. The question is why did major emitters, market participants, cities, states and other entities choose to act to use emissions trading to mitigate climate change when there was no requirement for them to do so? This paper examines the question, suggesting that the CCX model embodied aspects of theories put forward by economists such as Knetsch, Buchanan and Coase and that CCX could serve as a bridge between theory and practice for economists interested in further study of markets and public goods. The paper also highlights the influence of CCX as a rules-based single coherent entity that significantly influenced the development of what has become known as the “voluntary carbon market” (VCM), while being quite different from the VCM. In the process of building its operations, CCX also generated a number of firsts, including creating the world’s first GHG registry, and inventing the world’s first carbon-based tradeable unit, the carbon financial instrument (CFI), equivalent to one hundred metric tonnes of CO₂e, and spearheaded a landmark joint venture in China that created China’s first pilot carbon market, the Tianjin Climate Exchange (TCX). Given the start-up nature of CCX, its significant global membership and international coverage is notable. The paper suggests the evolution and growth of CCX represents perhaps the largest ever experiment in behavioral economics relevant to contemporary climate change and environmental issues, yet one of the least understood and studied other than by those who had been involved. The paper will explore the origins, rationale, structure, framework, rules and legacy of CCX, including recommendations based on lessons learned, as the world faces the compounding crisis of climate change and the urgency of meeting the objectives of the Paris Agreement to stem climate change, the myriad of disparate Net Zero pledges to reduce emissions, and additional international environmental agreements aimed to protect biodiversity and other natural systems and processes.

Drawn on some Knetsch observations, this paper illustrates a due process for the economic evaluation of mining projects that impact sensitive and irreversible ecological assets. Towards this end, two case studies of coal mining projects in Australia are considered — one on the Liverpool Plains in New South Wales and the other on the Galilee Basin in Central Queensland. The adverse environmental and social externalities of these projects are well known — especially the impacts on the Gunnedah and the Great Artesian Basins. Notwithstanding these impacts, which are exceedingly difficult to value, private financial analyses demonstrate significant revenue gains. Mining firms find such gains difficult to ignore. Nevertheless, economic analyses illustrate that the net benefits to Australia are possibly absent even without accounting for the costs of environmental social externalities. Given that the property rights of the mineral reserves are vested with the State, the Resource Rent Tax (RRT) becomes a legitimate fiscal policy tool. The paper argues that the assessment of mining decisions must account for the depreciation of the Mineral asset. When this depreciation is measured alongside the Hartwick–Rule, the mining projects demonstrate monetary viability only when the RRT is enforced and is invested in its entirety on options that generate annual returns in excess of 3% to 4%. If recognized, the costs of environmental and social externalities could readily wipe out this, and for that matter any, monetary viability owing to the irreversible nature of the natural social endowments.

This paper develops a model in which a country, which only has access to a dirty technology for producing electric power in the short run, looks to expand its production in the long run by only permitting new power plants based on clean technology. The model mimics current reality in which major developing countries are being pushed by factors, such as the Paris Climate agreement of 2015 and the large burden of mortality and morbidity resulting from use of fossil fuels, to rely more on clean technologies. Our model shows how emissions and emission intensity of power output after the adoption of clean technologies are increasing in the targets for power production set by the government before availability of such technology and supply variables such as the wage rate and expenses on fixed capital, and decreasing in the tax on power production before the availability of clean technologies. Finally, it is seen that for low enough cost of the clean resource input, a country with a higher demand is able to set a higher target for production with the dirty technology when the clean technology is not available and yet achieves lower emissions and emission intensity in the long run.

The electric vehicles (EVs) market in Malaysia, though growing remains relatively small. Previous related studies on Malaysia focused mainly on consumer preferences and the country’s readiness towards a higher adoption of environmentally friendly alternative vehicles. This study extends previous work to examine consumer preferences towards EVs through a market survey conducted in Klang Valley. Then follows a comparative economic and environmental cost-benefit analysis of EVs relative to conventional vehicles and hybrid vehicles to provide some understanding on the market diffusion of the former. The key findings from the survey suggest that pricing and the maintenance costs of EVs negatively influence the uptake of EVs despite the positive environmental attitudes of consumers. The cost-benefit analysis, in turn, implies that the EV transition will accelerate with rising petrol prices and falling battery costs. The study concludes with some implications for sustainability based on the adoption of EVs.

The purpose of this study is to analyze the effect of financial development (FD) on the share of renewable energy (RE) usage in Japan. The existing theoretical literature and empirical analyses covering different country cases reveal that FD might have positive, negative, or insignificant effect on RE use. Since there is no empirical investigation of the issue for Japan, the study aims to contribute to the literature. To that end, we used several time-series techniques to detect the association between RE usage and FD in Japan over the 1970–2020 period. The results obtained from the ARDL, Hatemi-J, Maki, Tsong et al. and NARDL cointegration tests showed that there is a significant cointegrated relationship between the share of RE use, FD, GDP per capita and trade openness. As for the long-run coefficients obtained from the ARDL, FMOLS, CCR and NARDL estimators revealed that increases in FD and trade openness raise the share of RE usage while increases in GDP per capita reduce it. Briefly, for the Japan case, we may suggest that improving the financial market structure of the country will bear fruit in terms of the share of cleaner and sustainable energy usage.

Singapore’s rapidly aging population poses significant challenges to the government’s long-term fiscal sustainability as it structurally affects government revenue and expenditure. Amidst the demographic trends, total government spending has skyrocketed to unprecedented amounts in 2020 in response to the COVID-19 pandemic. This paper evaluates Singapore’s fiscal sustainability and intergenerational fiscal impacts through the lens of generational accounting and actuarial analyses, before and after COVID-19. Our model predicts a pre-COVID absolute intergenerational gap of S$512 thousand between future generations and current newborns, implying that there is considerable intergenerational inequity. This gap increases by a further S$67 thousand after factoring in COVID-19’s impact on government net spending and short-term fertility rates. Fiscal balance can be restored in the short term and intergenerational equity in the long term, after incorporating key policy changes such as Goods and Services Tax (GST) hike and carbon tax increases.

This study examines the impact of aging on the effectiveness of various fiscal expenditures, including government consumption, one-time government transfers to households, public investment and R&D spending, using a dynamic stochastic general equilibrium model. Our findings reveal that (1) Aging enhances the effects of the transfer on augmenting GDP. (2) Regardless of aging, R&D expenditure consistently stands out over all time spans, with younger society benefiting more. (3) Public investment ranks second among for different fiscal policies in the long run, while shows bigger impact in younger society. (4) One-time transfer has only a temporary effect and is the least effective in boosting GDP in both young and old societies. (5) Multipliers for public investment and R&D expenditure increase with the accumulation of public capital and TFP. Their multiplier of young society is larger than old society because impact on consumption is much more effective.

This paper presents an integrated model of household behavior, in which households derive utility not only from flow choices (of goods and leisure activities) but also from stock variables representing the status in health, psychological stress, social standing/reputation, political affiliation, religious identity, and any other status deemed relevant for their well-being. To attain the status in any of these dimensions, proper investment is necessary in accordance with a suitable mediating function that connects flow choices to the status in question. We depart from the position that statuses activate motivation, thereby affecting the efficiency of activities including working time. In particular, health not only yields utility of its own kind but also affects the productivity of households, thereby expanding their budget sets and raising the utility they attain now and in the future. Health, however, must be attained and maintained, and this has to be accomplished in accordance with a plausible health-production function defined on the space of goods and leisure activities. The same can be said about knowledge and skill acquisition, which requires investment of certain activities and goods through an appropriate mediating function. Similar relationships also hold for social, psychological, and other statuses, which can only be acquired through proper mediating functions. While the utility calculus appears complex, we demonstrate that the optimum choice of goods and leisure activities is guided by the rationality principle that requires that the composite marginal utility, defined as the total of all marginal utilities from the entire sources of utility, direct or mediated, be balanced with properly measured cost of acquiring it, which is shown to equal, the price or the wage rate on the market adjusted for a change in the efficiency of working time mediated through health enhancement and/or an increase in the productive efficiency of working hours due to knowledge and technology acquisition. Because our model includes utility arising from status-orientation in multiple dimensions, and because the extent and the range of such utility are socio-cultural-regime-specific while also being shaped by the household-specific receptivity and orientation to this regime, our model can potentially explain a diverse range of choice behavior some of which appear anomalous or even counter-intuitive to the rationality principle in the traditional sense. This added explanatory power helps close a gap between economics and other social sciences.

() obtain a very important result “that consumer choice data alone are sufficient … [to] provide a microfoundation for a weighted utilitarian social welfare function that reflects common moral intuitions about interpersonal comparisons of utilities”. This paper compares this result with my 1975 Review of Economic Studies paper and examines the sense in which consumer data alone are sufficient. A way to dispense with interpersonal comparisons of utility in specific issues by following efficiency supremacy is also discussed. The suspicion of interpersonal comparison and utilitarianism may be based on misunderstandings.

This study explores how emotion expression (EE) can help promote positive indirect reciprocity while also breaking chains of negative indirect reciprocity. We report data from a two-stage dictator game and compare the decisions subjects make towards a third party both with and without the chance to express emotion. Standard economic models suggest opportunities to express emotion should have no impact on behavior. In sharp contrast to these predictions, we find that subjects who are treated unkindly behave more generously towards others in subsequent interactions if they have the opportunity to convey their emotions to a third party. Our findings have important welfare implications. In particular, they suggest that opportunities to express emotion can break negative reciprocity chains and promote generosity and social well-being even among those who have not themselves been previously well-treated. We argue that reference-dependent valuations can help to explain our results.

In this paper, we characterize dynamic trading in a voting model. We show that a dynamic trading process, called the Pivot algorithm, may converge from an initial vote allocation to an allocation which (though Pareto optimal) is not individually rational even in the weakest sense. Then, we propose an intuitive dynamic process which, unlike the Pivot algorithm, always converges from any initial vote allocation to an individually rational Pareto optimal allocation, is Condorcet consistent, and avoids unnecessary vote trading (i.e. trading that does not change the outcome). From a policy perspective, our analysis implies that a vote trade may be permitted only if no voter has objection to the trade. Without such a policy, myopic voters may participate in vote trades that are either unnecessary or eventually make them worse-off.

The COVID-19 pandemic brought the need to quickly deploy non-pharmaceutical measures like facemasks to reduce transmission rates into sharp focus. Factors influencing this behavior are examined through the classic attitude–behavior lens of Fishbein and Ajzen [Belief, Attitude, Intention, and Behavior: An Introduction to Theory and Research. Reading, MA: Addison-Wesley] cast in the language of property rights and social norms. Behavior is operationalized as wearing a facemask (or not) and attitude in terms of supporting a mandatory mask mandate. This yields targetable segments of the population as they are referred to in a marketing context: wearing/supporting, wearing/not supporting, not wearing/supporting, not wearing/not supporting [Kim, D, RT Carson, D Whittington and WM Hanemann (2022). Support for regulation versus compliance: Face masks during COVID-19. Public Health in Practice, 5, 100324]. Membership in each segment is predicted using a generalized structural equation modelling (GSEM) approach focused on three broad factors. The first includes political and demographic variables, which represent exogenous taste parameters. The second is a set of knowledge variables characterizing the COVID-19 information a person possesses. These are potentially influenceable by health officials. The third relates to risk cast in the form of knowing someone who had tested positive for COVID-19, been hospitalized or died from it. The GSEM results paint a rich picture of how our factor sets interact with the four targetable segments of the population in a critical situation where high but not perfect compliance is needed.

The fundamental methodologies of machine learning and econometrics are reviewed. We also discuss the challenges of integrating the data-driven and model-based causal approaches and conjecture how it may yield new insights to empirical economic studies.