Karl M. Aspelund

Market mechanisms aim to reduce environmental degradation at low cost, but they are undermined when participants' conservation actions are not marginal to the incentive — or "additional" — as the lowest-cost participants may not offer the highest social value. We investigate this challenge in the Conservation Reserve Program’s auction mechanism for ecosystem services, linking bids to satellite-derived land use. Three-quarters of marginal auction winners are not additional. The heterogeneity in counterfactual land use introduces adverse selection. We develop a model of bidding and additionality to quantify welfare implications. Alternative auctions increase efficiency by using scoring rules that incorporate expected land use impacts.

Regulators often impose trade restrictions in environmental permit markets, lowering gains from trade in order to redistribute to groups that do not directly benefit from permit trade, such as labor in regulated firms. I evaluate the efficiency and distributional impacts of two common trade restrictions in Iceland’s fisheries permit market: segmented trading by firm size and individual production requirements. Using detailed harvest and permit trading data linked to administrative records on worker employment and earnings, I conduct a difference-in-differences analysis showing that permit trade increases the harvest share of productive boats by 15 percentage points, shifts income from lower- to higher-income workers, and reduces aggregate labor demand by 12%. I further demonstrate that the trade restrictions, designed to counteract these labor impacts, are binding and lower productivity. To quantify the trade-offs from each restriction, I develop a model of fishery production and permit trading to simulate profits, labor demand, and worker earnings in permit market equilibria without the restrictions. The comparison reveals distinct benefits for each restriction: Per dollar of foregone profit, segmentation increases labor demand 20 times more than the production requirement, while the production requirement redistributes 14% more income to low-income workers than segmentation. Implementing both restrictions creates more jobs and higher-paying ones and even outperforms the production requirement alone.

We study spatial environmental regulation under uncertainty, and in particular how ecological and economic shocks change what leakage costs. Leakage of activity occurs whenever profits are not separable across space, whether because of fixed factors, constraints the regulator imposes, or price changes. In a model of firms choosing activity across areas that share an environmental benefit, the marginal welfare cost of leakage depends on three things: where displaced activity goes, the gap between the private and social value of conservation there, and how the two move together under shocks. When shocks are independent across places, substitution lets activity move to wherever conditions are good, so leakage can act as a hedge. We take the model to spatial closures in the U.S. Northeast scallop fishery. Matching trip-level harvest locations to biomass surveys, we recover the marginal cost and benefit of conservation at each ground from a structural model of location choice and size-structured biology. The regulation is too lax, and the marginal value of conservation is dominated by the precautionary value of insuring against biomass collapse. At the same time, the shared days-at-sea budget drives substitution that offsets 17% of the closures’ conservation value. We then ask how warming oceans have changed these results. Greater variability raises the precautionary value of conservation and calls for tighter limits. Shocks have also become more correlated across space, so displaced activity now lands on grounds just as stressed as the ones it left, and leakage no longer hedges. Much of the regulation’s failure to keep pace can be explained by a regulator still using growth expectations from a decade ago, before substitution stopped hedging and the precautionary value of conservation grew.