Essays on Environmental Economics: Two Approaches

Environmental concerns are increasingly becoming one of the most difficult challenges society faces during this century. From an economics perspective, this imposes the need to incorporate the environment as a relevant factor in the decision-making pro- cess in order to achieve the necessary efficiency that supports a sustainable future. This dissertation encompasses two essays that tackle environmental economic prob- lems using two different approaches, which ultimately complement each other in their outcomes. First, using a fully theoretical approach, I study how environmental cam- paigns from firms can impact their environmental reputation measured by the belief that consumers have about how clean their production technology is. I found that environmental campaigns can work as effective signals, fully revealing the firm’s type and allowing for novel reputation dynamics. Second, I take an empirical/quantitative approach to study how different types of water rights generate differences in the de- mand for water rights in Colorado. Using the most comprehensive data on water rights transactions in the US West, I can leverage a property of water rights to use the seller’s characteristics as instrumental variables to estimate the demand for water rights differentiated by type of water right. I provide, to the best of my knowledge, the first comparison of different water rights regimes within one overarching water market. I found that, as hypothesized in previous literature, more flexible water rights have higher demand thus moving more water at a given price. Taken together, these two essays show how relevant environmental topics are in a wide range of situations, providing new evidence on the incentives to build reputation once environmental ac- tions are taken into account, and also on how the demand for a natural resource is impacted by the rules that governs its usage and tradability.