Abstract
Environmental Economics typically studies the problem of internalizing externalities using uniform (price or quantity) instruments. However, uniform regulations seem not well suited in heterogeneous contexts and when abatement efforts are complementary. This arises when farmers with neighboring plots make efforts to protect biodiversity (e.g. pollinators).Incentive contracts are a potential useful instrument for regulating heterogeneous externalities. The theoretical literature on the subject shows that the scheme of optimal subsidies may be non-uniform when externalities are positive. Moreover, the optimal scheme is discriminatory when the efforts are complementary, in other words, two identical agents obtain differentiated subsidies. Two important aspects have received little attention in this literature: the role of private benefits and behavioral aspects.This thesis contributes to the literature in analyzing the role of these two dimensions in the design of optimal contracts when agents generate heterogeneous externalities: Chapter 2 investigates the role of private benefits in a model of contracting with externalities. We study the efficiency of the optimal contract outcome. We show that private benefits may lead the principal to induce efficient contributions. When reaching efficiency is not optimal, we characterize the structure of spatial effects that lead to inefficiency. Specifically, we show that the principal tends to induce agents characterized by high levels of private benefits and moderate levels of externalities to make inefficient contributions. In Chapter 3, we focus on the acceptability of the optimal contract with externalities using lab experiments. We study how subjects play a coordination game that is derived from the optimal solution of a model of contracting with heterogeneous externalities. This coordination game involves a trade-off between efficiency and equity in the sense that the most efficient equilibrium is the more unequal one. We find that subjects play the more unequal equilibrium more frequently. Using two treatments that differ in the level of equity at the efficient equilibrium, we find evidence which is consistent with subjects having social welfare motivations. Finally, Chapter 4 analyzes the role of inequality-aversion preferences when the objective of the principal is to induce participation of two agents in a project. The agents generate positive externalities for each other when they both participate. We study the role of inequality aversion in this context and we find that advantageous inequality aversion has a first order effect: if the agents are not averse to advantageous inequality, then the optimal contract does not depend on the agents' disadvantageous inequality aversion.