the implications of brexit for the electricity sector in great britain trade offs between market integration and policy influence this paper examines the trade off between the economic gains to great britain gb from being integrated into the eu electricity market on the one hand and a loss of influence over policy and rule making on the other the aim is not to predict how this trade off will be resolved in practice but rather to lay out what is at stake on both sides of the equation since the late 2000s the electricity market in gb has become increasingly integrated with continental european markets through market coupling and increasing interconnection capacity with further integration expected up to the mid 2020s estimates of the economic benefits of this integration range up to the order of several 100 m to 1bn a year representing the economic cost of a reversal of such integration on the other hand maintaining and expanding electricity market integration would require the acceptance of electricity policies and regulations made in european institutions in which uk actors would have little if any voice an intermediate multilateral approach offering the possibility of retaining market integration with less cost in terms of influence is proposed

a regional energy hub for achieving a low carbon energy transition abstract the transition to a low carbon energy economy will remain a cornerstone of national energy policies of countries committed to the climate change accord for decades to come we think that transmission investment is one key policy instrument amongst other to help with this transition we propose an enhanced role for investing in transmission capacity for inter regional trade to allow effective fuel switching among countries through a physically connected market we develop a conceptual framework of regional energy hubs and propose a cost minimization model in support of a transmission investment strategy that integrates i a key geopolitical parameter for countries that are geographically close in a region but under different political jurisdictions judged as stable and receptive to firm trading arrangements ii an economic parameter related to the fuel mix where the differences in a country s supply and demand characteristics are significant enough for allow mutual benefits to be realized through cost reduction iii an environmental parameter linked to a country s carbon intensity that could benefit from the resources of a neighboring jurisdiction with lower intensities and iv a financial parameter for each country within a region capable of attracting investment capital a connected regional energy hub offers large economic and environmental benefit for transition to a low carbon energy economy

welfare analysis of uniform entry tax in a general equilibrium model with heterogeneous industries abstract this paper examines whether uniform entry taxes across all industries can improve welfare in a monopolistic competition model with multiple groups of differentiated goods which vary in parameters including their elasticity of substitution and taste for variety the results show that even if taste for variety is high and monopoly power is weak in some industries the uniform tax rate on entries across all industries can improve welfare when the weighted average of taste for variety over all industries is low and when the weighted average of the lerner index of monopoly power over all industries is high

electricity market integration decarbonisation and security of supply dynamic volatility connectedness in the irish and great britain markets abstract this study investigates the volatility connectedness between the irish and great britain electricity markets and how it is driven by changes in energy policy institutional structures and political ideologies we assess various aspects of this volatility connectedness including static unconditional vs dynamic conditional symmetric vs asymmetric characteristics between 2009 and 2018 we find that the volatility connectedness is time varying and it is significantly affected by important events policy reforms or market re designs such as brexit oil price slump an increasing share of renewables and fluctuations in the exchange rates our asymmetric analysis shows that magnitude of the good volatility connectedness is marginally larger than that of the bad volatility connectedness our result suggests that good volatility levels would be even higher once the irish market adopts the carbon price floor therefore supporting renewable generation by setting an appropriate price of carbon in interconnected wholesale electricity markets will improve market integration

the economic consequences of brexit energy in this paper we raise a number of issues that are important for the uk to consider in the light of its decision to leave the european union eu the first of these is the nature of the eu single market in electricity and gas and the uk s role within this the second is the nature of uk energy policy in the light of brexit and the opportunities for changing this and third we consider some of the key issues to be addressed in a negotiating position with the eu

when does elastic labor supply cause an inverted u effect of patents on innovation this study analyzes how patent protection affects innovation in an r d based growth model with elastic labor supply we find that increasing patent breadth may generate an inverted u effect on innovation depending on whether the model features the knowledge driven or lab equipment innovation process this result highlights an important interaction between elastic labor supply and the innovation process through which patent protection has an inverted u effect as documented in recent empirical studies

strategic eurasian natural gas market model for energy security and policy analysis formulation and application to south stream abstract the mathematical formulation of a strategic eurasian natural gas market model is presented the model represents horizontal oligopolistic relationships among producers bilateral market power between producer russia and transit ukraine countries detailed transport constraints and operation decisions over a 20 year time horizon to demonstrate the model s capabilities a financial and market analysis of the proposed south stream gas pipeline from russia via the black sea to south europe is summarized insights obtained include the following first expectations of high demand growth in europe and or transit risks do not justify the construction of the south stream pipeline because under all demand and ukraine transit interruption scenarios the net benefits to the south stream participants are negative the npv ranges from 1 9 billion bn to 7 4 bn second ukraine s perception of high transit market power vis a vis russia may trigger the construction of the otherwise unprofitable south stream project thus under ukraine s high transit market power scenario the npv of south stream ranges between 2 4 bn and 24 5 bn third we find that the south stream investment increases the efficiency of the european gas market under the following conditions i when gas demand in europe grows 2 per year up to 2030 ii when ukraine poses high transit market power or iii under a combination of severe transit risks through ukraine and low demand scenarios in europe it should be noted that the value of south stream to both its project sponsors and the market as a whole is much higher when ukraine exercises transit market power than under the high demand scenario therefore whether ukraine is likely to wield market power is crucial to the success of the south stream project because that is the only scenario in which the project yields both a positive expected npv to its sponsors and the highest value to the market as a whole

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

investment options and bargaining power the eurasian supply chain for natural gas we use cooperative game theory to analyze how the architecture of the pipeline network determines the power structure in the supply chain for russian gas if the assessment is narrowly focused on the abilities to obstruct flows in the existing system the main transit countries belarus and ukraine appear to be strong if investment options are accounted for however russia achieves clear dominance we show that options to bypass one of the transit countries are of little strategic importance compared to russia s direct access to its customers through the baltic sea comparing the results of our calibrated model with empirical evidence obtained from transit and import agreements we find that the shapley value explains the power of major transit countries better than the core and the nucleolus

assessing the impact of electricity interconnectors on the great britain s power supply in 2030 abstract the transition from the current co2 emitting power production to a renewable rich power system requires various types of energy storage options to capture the surplus renewable energy and or increasing the interconnection capacity to trade power and secure electricity supply during peak demand times in addition to export surplus power at low demand periods in this study the function of power interconnectors between great britain gb and the neighboring countries within 2030 is investigated two interconnection links with a total capacity of 17 7 gw were assumed i e a one way import only interconnector ic1 and a two way trade link between gb and france ic2 the ic2 link was assumed to transmit power from cheaper country to the more expensive one a linear programming lp merit order dispatch model was used to find the economic power production over 2030 the results indicate that the share of generating technologies in 2030 depends on the ic1 import price and the ic2 capacity the capacity factor of the ic2 link reduces as the ic2 capacity goes up at constant ic1 import price in addition at constant ic2 capacity the capacity factor of the ic2 link increases as the ic1 import price increases for each ic1 import price increasing the ic2 capacity reduces the percentage of times that ic2 is fully loaded and the load of ic1 is zero the ic1 import price affects the quantity of electricity trade between gb and france for example assuming an ic1 electricity import price of 20 mwh results in about 9 twh electricity export to france and 88 twh electricity import to gb which is over 7x of the total electricity traded in 2016 at a fixed ic1 electricity import price the power import via the ic2 link with capacity of 11 gw is ca 5 times higher than the case with ic2 capacity of 2 gw at any ic1 import price higher ic2 capacities reduce the number of occasions that the ic1 is loaded for the case that the ic1 import price is 20 mwh and ic2 capacity is 2 gw there will be 990 half hours that gb acts as an electricity corridor

project options valuation with net present value and decision tree analysis real options analysis roa has been developed to correctly value projects with inherent flexibility including the possibility to abandon defer expand contract or switch to a different project roa allows computing the correct discount rate using the replicating portfolio technique or risk neutral probability method we propose an alternative approach for valuing real options based on the certainty equivalent version of the net present value formula which eliminates the need to identify market priced twin securities in addition our approach can be extended to the case of multinomial trees a useful tool for modeling uncertainty in projects we introduce within decision tree analysis dta a method to derive the different discount rates that prevail at different chance nodes we illustrate the valuation method with an application presented in a scenario approach to capacity planning eppen g d martin r k schrage l e 1989 a scenario approach to capacity planning operations research 37 4 in which the authors state that for the capacity configuration investment decision studied at general motors there is no scientific way to determine the appropriate discount rate based on estimated demand our method allows deriving the scientifically correct discount rates a major result of the analysis is that the discount rates are endogenously derived from the project structure and its behavior in light of prevailing market conditions instead of being exogenously imposed c 2006 elsevier b v all rights reserved

the refoundation of the symmetric equilibrium in schumpeterian growth models abstract we provide a refoundation of the symmetric growth equilibrium characterizing the research sector of vertical r d driven growth models we argue that the usual assumptions made in this class of models leave the agents indifferent as to where targeting research hence the problem of the allocation of r d investment across sectors is indeterminate by introducing an contamination of confidence in the expected distribution of r d investment we prove that the symmetric structure of r d investment is the unique rational expectations equilibrium compatible with ambiguity averse agents adopting a maxmin strategy

greener more integrated and less volatile a quantile regression analysis of italian wholesale electricity prices abstract this paper provides estimates of quantile regression models of the relationship between italian day ahead electricity prices the supply of renewables and the inception of a new cable sapei linking sardinia with the italian peninsula in the 2006 2015 time window the results confirm the merit order effects detected in the existing literature both for photovoltaics and wind power more strongly in market conditions characterised by moderately low price levels and with some implied increase in volatility the new cable has apparently challenged the ability of power generating companies to extract value through price spikes has mitigated volatility and its effects have been complementary with those of renewables effects from photovoltaics are more sensitive to robustness checks differences across zonal markets are nonetheless detected

a preliminary assessment of the market coupling arrangement on the kontek cable this paper presents a preliminary assessment of the market coupling arrangement on the kontek kt cable between east denmark and germany and an assessment of the original auction mechanism kt the new spot price area was introduced in germany on october 5 2005 to facilitate a market coupling arrangement on the kt cable between east denmark and germany we would expect the kt price to correlate more with the european energy exchange eex price because arbitrage normally levelizes the price however spot prices in late 2005 were both high and volatile because congestion management practices in sweden transferred internal bottlenecks to the cable between sweden and east denmark since spot prices were equal in east denmark and the kt area for a substantial time it implies that some hours had no congestion on the kt cable market players valued the previous monthly auctions for transmission capacity more than the daily auctions compared to the daily auctions market players received smaller payoffs on average for the market coupling arrangement and the smallest payoffs for the monthly auctions

valuation of project portfolios an endogenously discounted method abstract real options analysis roa has been developed to value assets in which managerial flexibilities create significant value the methodology is ideal for the valuation of projects in which frequent adjustments e g investment deferral project scope changes etc are necessary in response to the realization of market and technological uncertainties however roa has no practical application when valuing portfolios of multiple concurrent projects sharing resources as the size of the problem grows exponentially with the number of projects and the length of the time horizon in this paper an extension of roa suitable for the valuation of project portfolios with substantial technological uncertainty e g r d portfolios is proposed the method exploits the distributed decision making strategy encountered in most organizations to decompose the portfolio valuation problem into a decision making sub problem and a set of single project valuation sub problems that can be sequentially solved discrete event simulation is used for the first sub problem while a tailored roa based strategy is used for the set of valuation sub problems a case study from the pharmaceutical industry is used to compare the decision tree analysis dta method and the proposed method

options in the real world lessons learned in evaluating oil and gas investments many firms in the oil and gas business have long used decision analysis techniques to evaluate exploration and development opportunities and have looked at recent development in option pricing theory as potentially offering improvements over the decision analysis approach unfortunately it is difficult to discern the benefits of the options approach from the literature on the topic most of the published examples greatly oversimplify the kinds of projects encountered in practice and comparisons are typically made to traditional discounted cash flow analysis which unlike the option pricing and decision analytic approaches does not explicitly consider the uncertainty in project cash flows in this paper we provide a tutorial introduction to option pricing methods focusing on how they relate to and can be integrated with decision analysis methods and describe some lessons learned in using these methods to evaluate some real oil and gas investments

the welfare cost of one size fits all patent protection to analyze the welfare gain from allowing for differentiated patent protection across sectors this study develops a two sector quality ladder growth model in which patent breadth is a policy variable and derives optimal patent breadth under two patent regimes we show that a uniform optimal patent breadth is a weighted average of sector specific optimal patent breadth and b sector specific optimal patent breadth is larger in the sector that has a larger market size and more technological opportunities to derive the optimal policy we allow for an arbitrary path of patent breadth and derive the optimal path by solving a stackelberg differential game we find that the optimal path of patent breadth under each patent regime is stationary time consistent and subgame perfect finally we perform a numerical investigation and find that even a moderate degree of asymmetry across sectors can generate a significant welfare cost of uniform patent protection

speculative trading of electricity contracts in interconnected locations abstract we derive an investor s optimal trading strategy of electricity contracts traded in two locations joined by an interconnector the investor employs a price model which includes the impact of her own trades the investor s trades have a permanent impact on prices because her trading activity affects the demand of contracts in both locations additionally the investor receives prices which are worse than the quoted prices as a result of the elasticity of liquidity provision of contracts furthermore the investor is ambiguity averse so she acknowledges that her model of prices may be misspecified and considers other models when devising her trading strategy we show that as the investor s degree of ambiguity aversion increases her trading activity decreases in both locations and thus her inventory exposure also decreases finally we show that there is a range of ambiguity aversion parameters where the sharpe ratio of the trading strategy increases when ambiguity aversion increases

interpreting concentration indices in the secondary market for natural gas transportation the implication of pipeline residual rights abstract in 1992 the u s federal energy regulatory commission created a secondary market for natural gas transportation whereby shippers holding firm transportation capacity on interstate natural gas pipelines can compete with the pipeline in the provision of transportation services however if a shipper does not use some of its contracted firm transportation capacity the pipeline can resell that capacity as interruptible transportation that is the pipeline has residual rights with respect to firm transportation capacity contracted for by shippers we demonstrate that these residual rights can have a significant effect on the competitiveness of the secondary market for natural gas transportation a consequence of these residual rights is that the secondary market for natural gas transportation may be considerably more competitive than indicated by measures of concentration like the widely used herfindahl hirschman index

welfare and competition effects of electricity interconnection between ireland and great britain this study analyzes the effects of additional interconnection on welfare and competition in the irish electricity market i simulate the wholesale electricity markets of the island of ireland and great britain for 2005 i find that in order for the two markets to be integrated in 2005 additional interconnection would have to be large the amount of interconnection decreases for high costs of carbon since this causes the markets to become more similar this suggests that in the absence of strategic behavior of firms most of the gains from trade derive not from differences in size between countries but from technology differences and are strongly influenced by fuel and carbon costs social welfare increases with interconnection although at a decreasing rate as the amount of interconnection increases there are also positive effects on competition in ireland the less competitive of the two markets finally it is unlikely that private investors will pay for the optimal amount of interconnection since their returns are significantly smaller than the total social benefit of interconnection

the benefits of integrating european electricity markets this paper builds on and extends work under contract ener b1 491 1 2012 published as newbery et al 2013

multimarket contact and collusive behavior traditional analyses of industrial behavior typically link the exercise of market power in an industry to internalfeatures such as demand conditions concentration and barriers to entry nevertheless some economists have remained concerned that external factors such as contact across markets may also play a significant role in determining the level of competitiveness in any particular industry in this article we examine the effect of multimarket contact on the degree of cooperation that firms can sustain in settings of repeated competition we isolate conditions under which multimarket contact facilitates collusion and show that these collusive gains are achieved through modes of behavior that have been identified in previous empirical studies of multimarketfirms

elecxit the cost of bilaterally uncoupling british eu electricity trade abstract the uk s withdrawal from the european union could mean that it leaves the eu s internal energy market for electricity elecxit this paper develops methods to study the longer term consequences of this electricity market disintegration especially the end of market coupling before european electricity markets were coupled different market closing times forced traders to commit to cross border trading volumes based on anticipated market prices interconnector capacity was often under used and power sometimes flowed from high to low price areas a model of these market frictions is developed empirically verified on 2009 data before french and british market coupling and applied to estimate the costs of market uncoupling in 2030 a less efficient market and the abandonment of some planned interconnectors would raise generation costs by 700 m a year 2 compared to remaining in the internal energy market this result is sensitive to how the british and french electricity systems develop over the coming decades economic losses are four times greater 2700 m a year if france retains substantial nuclear capacity due to its low marginal costs conversely losses are reduced by two thirds if uk weakens its decarbonisation ambitions as lower carbon prices subsidise british fossil fuel generation allowing electricity prices to converge with those in france a hard elecxit would make british prices rise and french prices fall in three of our four scenarios with the opposite movements in the fourth scenario

option valuation of claims on real assets the case of offshore petroleum leases this paper extends financial option theory by developing a methodology for the valuation of claims on a real asset an offshore petroleum lease several theoretical and practical problems not present in applying option pricing theory to financial assets are addressed most importantly we show the necessity of combining option pricing techniques with a model of equilibrium in the market for the underlying asset petroleum reserves the advantages of this approach over conventional discounted cash flow techniques are emphasized the methodological development provides important insights for both company behavior and government policy promising empirical results are reported

valuing risky projects option pricing theory and decision analysis in the academic literature and professional practice there are a number of alternative and apparently competing methods for valuing risky projects in this paper we compare and contrast three different approaches risk adjusted discount rate analysis option pricing analysis and decision analysis focusing on the last two we show that in contrast to some of the claims made in the real options literature when both option pricing and decision analysis methods are correctly applied they must give consistent results we also explore ways in which option pricing and decision analysis methods can be profitably integrated in particular we show how option pricing techniques can be used to simplify decision analysis when some risks can be hedged by trading and conversely how decision analysis techniques can be used to extend option pricing techniques to problems with incomplete securities markets

a review of balancing costs in italy before and after res introduction abstract the massive introduction of res in electricity markets is recognized to have induced a merit order effect on wholesale prices while day ahead prices are likely to decline as res e production increases the effects on balancing market sessions are more ambiguous taking into account the northern italian zone characterized by a high solar pv and hydro penetration we provide empirical evidence that balancing quantities decreased while costs increased between two samples associated with low 2006 08 and high 2013 15 res levels we estimate balancing costs for different technologies and compare their dynamics across specific hours we find evidence of increasing balancing prices in particular market conditions that we interpret as a signal of strategic use of real time sessions by conventional producers prone to the merit order effect in the day ahead market we compare our results to those obtained in the german market where on the contrary balancing costs have decreased and postulate that the different market designs may explain these results our findings suggest that the italian policy makers should carefully monitor all trading sessions especially those close to real time to avoid the exercise of market power by few operators allowed to guarantee system security and additionally to promptly adopt a capacity market

shifting load through space the economics of spatial demand side management using distributed data centers demand side flexibility dsf in the electricity grid has become an active research area in recent years while temporal flexibility e g load shedding load shifting is already discussed intensively in literature spatial load migration still is an under researched type of dsf spatial load migration allows us to instantly migrate power consuming activities among different locations data centers dcs are power intensive and process information goods since information goods are easily transferable through communication networks power intensive processing of information goods is not necessarily tied to a specific location consequently geographically distributed dcs inherit in theory a considerable potential to globally migrate load we analyze the economics of spatially migrating load to provide balancing power using geographically distributed dcs we assure that neither of the participating electricity grids will be burdened by this mechanism by using historical data to evaluate our model we find reasonable economic incentives to migrate positive as well as negative balancing power in addition we find that current scenarios favor the migration of negative balancing power our research thus reveals realistic opportunities to virtually transfer balancing power between different market areas worldwide

a strategic model of european gas supply gasmod abstract this paper presents a model of the european natural gas supply gasmod which is structured as a two stage game of successive natural gas exports to europe upstream market and wholesale trade within europe downstream market and which explicitly includes infrastructure capacities we compare three possible market scenarios cournot competition in both markets perfect competition in both markets and perfect competition in the downstream with cournot competition in the upstream market eu liberalization we find that cournot competition in both markets is the most accurate representation of today s european natural gas market where suppliers at both stages generate a mark up at the expense of the final customer double marginalization our results yield a diversified supply portfolio with newly emerging lng exporters gaining market shares enforcing competition in the european downstream market would lead to lower prices and higher quantities by avoiding the welfare reducing effects of double marginalization binding infrastructure capacity restrictions strongly influence the results and we identify bottlenecks mainly for intra european trade relations whereas transport capacity in the upstream market is globally sufficient in the cournot scenario

the struggle to survive in the r d sector implications for innovation and growth by allowing for investment activities by research and development r d firms to prevent product obsolescence we show that if legal patent protection is too strong a higher r d subsidy rate delivers insufficient investments for survival in the r d sector depressing innovation and growth in the long run

uncertainty and stepwise investment we analyze the optimal investment strategy of a firm that can complete a project either in one stage at a single freely chosen time point or in incremental steps at distinct time points the presence of economies of scale gives rise to the following trade off lumpy investment has a lower total cost but stepwise investment gives more flexibility by letting the firm choose the timing individually for each stage our main question is how uncertainty in market development affects this trade off the answer is unambiguous and in contrast with a conventional real options intuition higher uncertainty makes the single stage investment more attractive relative to the more flexible stepwise investment strategy

on the trade growth and welfare effects of intellectual property rights protection to examine how intellectual property rights protection affects trade growth and welfare i develop a two country r d based growth model in which final goods firms in both countries determine the range of imported varieties in the overall use of intermediate inputs i show that strengthening patent protection in either country increases the range of imported varieties of intermediate goods and stimulates economic growth in the country that strengthened patent protection moreover i also show that the nash equilibrium level of patent protection is stronger than the globally optimal level of patent protection i

patents r d subsidies and endogenous market structure in a schumpeterian economy this study explores the different implications of patent breadth and r d subsidies on economic growth and endogenous market structure in a schumpeterian growth model we find that when the number of firms is fixed in the short run patent breadth and r d subsidies serve to increase economic growth as in previous studies however when market structure adjusts endogenously in the long run r d subsidies increase economic growth but decrease the number of firms whereas patent breadth expands the number of firms but reduces economic growth therefore in accordance with empirical evidence r d subsidy is perhaps a more suitable policy instrument than patent breadth for the purpose of stimulating long run economic growth

an assessment of the danish german cross border auctions abstract this paper presents an analysis of the auction prices at the cross border auction between west denmark and germany and between east denmark and germany the kontek cable monthly and annual transmission capacities appear to be more highly valued than daily transmission capacity on average the two cross border auctions show different trends the auctions between west denmark and germany exhibit a higher level of prices in the southbound direction and between east denmark and germany higher prices in the northbound direction we find a relatively strong correspondence in the pricing of products over different time frames daily monthly and annual auctions between west denmark and germany and a weak correspondence for the products between east denmark and germany in the daily auctions market players can decide whether to use their capacity after the clearing of the day ahead market while in the monthly and annual auctions they must decide whether to use their capacity prior to clearing if they choose not to use their capacity the use it or lose it principle applies the capacity is then subsequently released to the daily market since the daily cross border auctions are free of commitment they should be valued as options likewise in the monthly and annual auctions market players can choose not to nominate their capacity but as this must occur before the clearing of the day ahead market they will not know the directions of the power flows a priori if they nominate the capacity they must use it if the direction turns out to be wrong it is then possible to purchase capacity in the opposite direction in the daily auctions if market players can accurately predict the outcome of the spot markets day ahead the value of monthly and annual capacity should more closely reflect the value of an option thus one would expect the value of the monthly and annual capacity to be between the value of an option and an obligation although this suggests that the average price of daily capacity should be greater than monthly and annual capacity our data do not support this hypothesis the daily monthly and annual capacity auctions do not reflect the value of the underlying asset as specified by the appropriate valuation of the energy price differentials between west denmark and germany and east denmark and germany therefore market players are exposed to substantial variation in fees for congestion management on the cross border we study whether arbitrage improves over time and discern no obvious trend since the explicit auction procedure has not been cost efficient a better approach appears to be the new market coupling arrangement introduced on the kontek cable and on the border between west denmark and germany with the result that market players will pay a congestion management fee i e area price difference equal to the energy price differential resulting from the market coupling mechanism

on time inconsistency a technical issue in stackelberg differential games abstract stackelberg differential games are useful settings in which optimal government policies can be studied this paper argues that the analysis of these games involves a key technical issue in particular we question the necessity for optimality of one boundary condition invoked in existing literature the issue is of key interest because the boundary condition is largely responsible for the time inconsistency results previously obtained we show that the boundary condition is not necessary in some cases as a result our finding undermines the credibility of the existing conclusions journal of economic literature classification numbers c61 e62 h21

international protection of intellectual property we study the incentives that governments have to protect intellectual property in a trading world economy we consider a world economy with ongoing innovation in two countries that differ in market size and in their capacities for innovation after describing the determination of national patent policies in a non cooperative regime of patent protection we ask why is intellectual property better protected in the north than in the south we also study international patent agreements by deriving the properties of an efficient global regime of patent protection and asking whether harmonization of patent policies is necessary or sufficient for global efficiency jel o34 f13 during the 1980 s and early 1990 s the united states and several european countries expressed strong dissatisfaction with what they deemed to be inadequate protection of intellectual property in many developing countries the developed countries made the upgrading of intellectual property rights iprs one of their highest priorities for the uruguay round of trade talks their efforts bore fruit in the agreement on traderelated aspects of intellectual property rights trips which was approved as part of the final act of the uruguay round trips establishes minimum standards of protection for several categories of intellectual property for example in the area of new technology it essentially harmonizes

technical note equivalence of different profitability criteria with the net present value abstract net present value has long been regarded in academic circles as the best criterion for project appraisal however several alternative complementary methods remain popular with practitioners this paper demonstrates that if properly applied several of these standard criteria such as net final value internal rate of return benefit cost ratio profitability index equivalent annuity discounted payback period and average payback period lead to the same investment decision as net present value moreover the paper proves that when choosing between two mutually exclusive projects the application of these criteria to the difference project provides the same ranking as net present value therefore although net present value is regarded as a superior investment criterion any of these popular criteria properly applied serve as well

third degree price discrimination and consumer surplus this paper considers the effects of monopoly third degree price discrimination on aggregate consumer surplus discrimination is likely to reduce surplus relative to that obtained with a uniform price but surplus can rise under reasonable conditions if the ratio of the pass through coefficient to the price elasticity at the uniform price is higher in the market with the higher price elasticity then surplus is larger with discrimination for a large set of demand functions the relatively high pass through coefficient implies a large price reduction in this market with logit demand functions surplus is higher with discrimination if pass through is above 0 5

ideas institutions and interests in the politics of cross border electricity interconnection greenlink britain and ireland abstract increasing electricity interconnection is necessary for both closer market integration and facilitating more renewable generation across the european union however progress on the ground has been slow this paper adds to the literature on the politics of interconnection through a case study of a proposed link between ireland and great britain we analyse how the institutional setting for investment has evolved at eu and member state level and how the influence of stakeholders is mediated by the ability of actors to define their interests and by institutional points of entry using this framework we examine the greenwire greenlink project we find first that developments in the institutional context especially the adoption of a new cap and floor regime for merchant investment by the gb regulator have had both positive and negative impacts on the project second we find that regulators and governments in the two markets have found it hard to define their interests in the project and its net social benefit due to informational complexities and changes in information over time third the project has met with local public opposition that is strong but which has little leverage due to a lack of institutional entry points

implicit auctioning on the kontek cable third time lucky implicit auctioning in europe is about eliminating cross border trade inefficiencies by internalizing crossborder trade into the day ahead auction procedures of the power exchanges that are already organizing trade nationally on the kontek cable implicit auctioning has first been implemented with no coupling between the relevant power exchanges followed by a volume coupling implementation and finally a one way price coupling implementation that is still operational today the main contribution of this paper is to compare the theoretical properties of these three implementations and to analyze their performance empirically we find that the third implementation is significantly outperforming the previous two implementations but in this third implementation stakeholders partly abandoned the volume coupling approach they initially believed to be a viable alternative and institutionally easier to implement

from micro to macro via production networks amodern economy is an intricately linked web of specialized production units each relying on the flow of inputs from their suppliers to produce their own output which in turn is routed towards other downstream units in this essay i argue that the structure of this production network is key in determining whether and how microeconomic shocks affecting only a particular firm or technology along the chain propagate throughout the economy and shape aggregate outcomes therefore understanding the structure of this production network can better inform both academics on the origins of aggregate fluctuations and policy makers on how to prepare for and recover from adverse shocks that disrupt these production chains two recent events have brought to the forefront the importance of interconnections between firms and sectors in aggregate economic performance consider first the 2011 earthquake in japan while the triple tragedy of the earthquake the ensuing tsunami and the near nuclear meltdown at fukushima surely resulted in a significant destruction of human and physical capital its effects would have been largely restricted to the affected areas were it not for the disruption of national

does size matter simulating electricity market coupling between colombia and ecuador since the beginning of the liberalization era the integration of electricity markets has been promoted in many regions arguing that this will bring benefits in terms of security of supply and efficiency however little progress has been made in the last decades in most regions with some successful exceptions such as the nordpool and more research is needed to determine under which circumstances those benefits are achievable we develop a system dynamics model to analyze the potential benefits and risks of market coupling and to improve the understanding of its implications on policy design this model allows us to simulate the long term behavior of two interconnected countries under different interconnection scenarios and different policies regarding capacity payments the analysis is focused on colombia and ecuador which have been trading electricity for more than 10 years and offer an interesting case study given their complementarity in terms of hydropower supply however the results of the simulations show that this complementarity is not necessarily exploited while the relative size of the countries determines the magnitude of the potential benefits of integration the interconnector capacity plays a key role in achieving those benefits additionally both factors significantly affect the outcome of policies such as the implementation of capacity payments we conclude that capacity policies and integration policies need to be coordinated

valuing oil properties integrating option pricing and decision analysis approaches there are two major competing procedures for evaluating risky projects where managerial flexibility plays an important role one is decision analytic based on stochastic dynamic programming and the other is option pricing theory or contingent claims analysis based on the no arbitrage theory of financial markets in this paper we show how these two approaches can be profitably integrated to evaluate oil properties we develop and analyze a model of an oil property either a developed property or a proven but undeveloped reserve where production rates and oil prices both vary stochastically over time and at any time the decision maker may terminate production or accelerate production by drilling additional wells the decision maker is assumed to be risk averse and can hedge price risks by trading oil futures contracts we also describe extensions of this model that incorporate additional uncertainties and options discuss its use in exploration decisions and in evaluating a portfolio of properties rather than a single property and briefly describe other potential applications of this integrated methodology

innovation by heterogeneous leaders we develop a schumpeterian growth model in which leaders and followers conduct research and development rd this result is consistent with the actual behaviors of some previous leader firms such as sony and eastman kodak moreover we show that subsidizing the r d of followers can promote the aggregate r d of leaders because promotion of followers r d decreases increases the number of leaders with larger smaller quality leads and smaller larger r d investments