externality correcting taxes and regulation externality correcting taxes and regulation in much of the literature on externalities taxes and direct regulation have been considered as alternative policy instruments both instruments might be imperfect in practice reflecting informational deficiencies and other limitations we analyse the use of taxes and regulation in combination to control externalities arising from individual consumption behaviour we consider the cases either where taxes are imperfectly differentiated to reflect individual differences in externalities or where some consumption escapes taxation in both cases we characterize the optimal instrument mix and we show how changing the level of direct regulation alters the optimal externality tax

endogenous timing in games of commercial policy this paper analyzes various equilibria associated with intervention in trade in the context of noncooperative policy games with endogenous timing it is shown that while the subgame perfect equilibria in quota games always involve sequential play that is not necessarily the case in tariff games one implication of the analysis is that in contrast to existing theory trade is not eliminated in quota games another implication is that quotas are not necessarily inferior to tariffs the paper also examines the ways policy leaders and followers differ in their preferences over instruments and allows the choice over instruments to be determined endogenously this paper analyses various equilibria associated with intervention in trade in the context on non cooperative policy games with endogenous timing it is shown that while the subgame perfect equilibria in quota games always involve sequential play that is not necessarily the case in tariff games one implication of the analysis is that in contrast to existing theory trade is not eliminated in quota games another implication is that quotas are not necessarily inferior to tariffs the paper also examines the ways policy leaders and followers differ in their preferences over instruments and allows the choice over instruments to be determined endogenously

down with mne centric theories market entry and expansion as the bundling of mne and local assets both anderson and gatignon and the uppsala internationalization model see the initial mode of foreign market entry and subsequent modes of operation as unilaterally determined by multinational enterprises mnes arbitraging control and risk and increasing their commitment as they gain experience in the target market oli and internalization models do recognize that foreign market entry requires the bundling of mne and complementary local assets which they call location or country specific advantages but implicitly assume that those assets are freely accessible to mnes in contrast to both of these mne centric views i explicitly consider the transactional characteristics of complementary local assets and model foreign market entry as the optimal assignment of equity between their owners and mnes by looking at the relative efficiency of the different markets in which mne and complementary local assets are traded and at how these two categories of assets match i am able to predict whether equity will be held by mnes or by local firms or shared between them and whether mnes will enter through greenfields brownfields or acquisitions the bundling model i propose has interesting implications for the evolution of the mne footprint in host countries and for the reasons behind the emergence of dragon mnes

the institutional causes of china s great famine 1959 1961 this paper studies the causes of china s great famine during which 16 5 to 45 million individuals perished in rural areas we document that average rural food retention during the famine was too high to generate a severe famine without rural inequality in food availability that there was significant variance in famine mortality rates across rural regions and that rural mortality rates were positively correlated with per capita food production a surprising pattern that is unique to the famine years we provide evidence that an inflexible and progressive government procurement policy where procurement could not adjust to contemporaneous production and larger shares of expected production were procured from more productive regions was necessary for generating this pattern and that this policy was a quantitatively important contributor to overall famine mortality

cap and trade a sufficient or necessary condition for emission reduction influenced by the success of emission trading in the us for sulphur dioxide so 2 some economists have argued for an upstream economy wide cap and trade scheme as the primary tool for achieving the required reduction in greenhouse gas ghg emissions this paper addresses that argument and concludes that cap and trade will need to be accompanied by complementary regulatory measures while it is a necessary component in a climate mitigation programme it is unlikely to be sufficient by itself to accomplish the desired emission reductions the paper reviews the evidence on how so 2 emissions were reduced and the extent to which actual emission trading was responsible for the reduction as opposed to other innovations it also identifies differences between the past regulation of so 2 and other air pollutants and the challenges presented by the regulation of ghg emissions what actually happened in the us with so 2 emission trading deviated in several significant respects from what would be predicted based on the conventional theoretical analysis while there was a dramatic reduction in so 2 emissions it occurred because of several factors some of which are unlikely to apply for ghg emissions and others of which argue for an activist regulatory policy by the government as a complement to the functioning of an emissions market for ghgs copyright 2010 oxford university press

environmental policy government and the market environmental policy is made in a context of both market failure and government failure on the one hand leaving environmental protection to the free market relying on notions of corporate social responsibility and altruistic consumer and shareholder preferences will not deliver optimal results on the other hand nationalizing the delivery of environmental protection is likely to fail because nation states rarely have the depth and quality of information required to instruct all the relevant agents to make appropriate decisions thus as for many areas of policy appropriate models of environmental intervention will lie between these two extremes while it is impossible to specify general rules concerning the precise form of intervention in part because the type of intervention depends upon value judgements this paper sets out some of the considerations that are particular to environmental policy and explores several principles for policy design including information coordination and principal agent problems with a particular focus on the international context

equilibrium price dynamics of emission permits this article presents a stochastic equilibrium model for environmental markets that allows us to study the characteristic properties of emission permit prices induced by the design of today s cap and trade systems we characterize emission permits as highly nonlinear contingent claims on economy wide emissions and reveal their hybrid nature between investment and consumption assets our model makes predictions about the dynamics and volatility structure of emission permit prices the forward price curve and the implications for option pricing in this market empirical evidence from existing emissions markets shows that the model explains the stylized facts of emission permit prices and related derivatives

sulfur allowance trading and the regional clean air incentives market a comparative design analysis of two major cap and trade permit programs this paper investigates in detail the design parameters of the two mostprominent us cap and trade permit program the us epa sulfur allowancetrading program and the south californian regional clean air incentivesmarket reclaim in contrast to expectations the two programs turn out to be rather different in several important design parameter choices common elements emerge primarily in the existence of an ambitious quantifiedenvironmental target mandatory use of stringent emission monitoring methodsand stiff penalties for non compliance coexisting command and controlregulations the creation of a competitive permit market structure andsome distributional concessions in the initial permit allocation generalizing from these common features we find that provisions to assurepolitical acceptance functional interdependencies and overlapping regulation are the most important influences on the design of applied cap and trade permit programs

a generalized theorem for joint ventures and licensing negotiations traditional theory has viewed direct investment licensing and trade mainly as foreign market entry alternatives however a growing number of overseas ventures are being formed as a mix of the 3 methods where a joint venture partner may be compensated by a package involving some return on equity investment plus royalties plus margins on components or finished product traded with the joint venture corporation this paper presents an algebraic model for the negotiations position of each partner in a prospective venture the trade offs between the 3 compensation types are complex as they involve non zero sum games the methodology is extended to enable a host government to calculate for each alternative arrangement the foreign exchange cost tax revenues or other national costs and benefits the model makes some unconventional recommendations for corporate strategy and government policy

emissions variability in tradable permit markets with imperfect enforcement and banking abstract in this laboratory experiment on emissions trading subjects face exogenous random emissions shocks after making production and emission control plans in some sessions subjects can bank their unused permits for future use after a reconciliation trading period following the shock realization subjects report their emissions to the regulatory authority and are placed in different inspection groups depending on their compliance history we identify important interactions between banking compliance and enforcement banking smoothes out the price variability arising from imperfect emissions control price stability comes at a cost however since noncompliance and emissions are significantly greater when banking is allowed

voluntary compliance with market based environmental policy evidence from the u s acid rain program the u s acid rain program implemented a nationwide market for electric utilities sulfur dioxide so2 emissions and included voluntary compliance possibilities for nonaffected sources i observe significant voluntary participation albeit with small impact on the so2 market mostly from sources with counterfactual emissions below their allowance allocations an ex post analysis suggests that costs from the resulting higher emissions outweigh savings from shifts in emissions reductions from high cost affected sources to low cost nonaffected sources further utilities voluntary participation is well explained by economic variables which provides new evidence of cost effective compliance strategies and low transaction costs

strategic trade practices in the presence of a ver the authors investigate the choice of competing exporters to move simultaneously or sequentially when a voluntary export restraint has introduced both asymmetry and uncertainty amongst them a restrained and an unrestrained exporter choose price strategically under the threat of a voluntary export restraint on the latter given the choice firms adopt a sequential move strategy but which leads and which follows depends upon the threat of the second voluntary export restraint the restricted firm thus sells its full quota even if this threat is low copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

performance verifiability and output sharing in collaborative ventures this paper studies the problem of contracting between two firms when they try to exploit their complementary resources in a collaborative venture cv but their performance in the cv cannot be precisely verified by the other party or by a third party arbiter using a mathematical model that treats performance verifiability as a continuous variable the paper first establishes that a party whose performance cannot be perfectly verified has an incentive to shirk if it is paid only a flat fee and that this shirking problem is more severe as its performance is less verifiable then the paper shows in a general setting that a contract under which each party shares a fraction of the output is superior to a contract under which one of them is paid only a flat fee when performance verifiability is sufficiently low in addition with some specific assumptions about the forms of the revenue and cost functions the paper also shows that a party s share of the venture s residual output in the equilibrium is an increasing function of its productivity and a decreasing function of its opportunity cost finally the numerical examples constructed in the paper suggest that a contract which combines the self enforcing mechanism of output sharing with the third party enforcement mechanism of arbitration generally performs better than a contract that utilizes only one of these mechanisms

pricing monitoring uncertainty in climate policy this article assesses the environmental and economic efficiency of three different approaches to treat monitoring uncertainty in climate policy namely prescribing uncertainty setting minimum certainty thresholds and pricing uncertainty through a discount our model of the behavior of profit maximizing agents demonstrates that under the simplest set of assumptions the regulator has no interest in reducing monitoring uncertainty however in the presence of information asymmetry monitoring uncertainty may hamper the economic and environmental performance of climate policy due to adverse selection in a mandatory policy prescribing a reasonable level of uncertainty is preferable if the regulator has enough information to determine this level for voluntary mechanisms such as carbon offsets allowing agents to set their own monitoring uncertainty below a maximum threshold or discounting carbon revenues in proportion to monitoring uncertainty are the best approaches for the regulator to mitigate the negative effects of information asymmetry these conclusions are much more pronounced when agents do not accrue revenues from their mitigation action other than carbon our analysis of monitoring uncertainty under information asymmetry which results in heterogeneity in the agents benefits from abatement generalizes the classical trade off between production efficiency and information rents

designing economic instruments for the environment in a decentralized fiscal system when external effects are important markets will be inefficient and economists have considered several broad classes of economic instruments to correct these inefficiencies however the standard economic analysis has tended to neglect important distinctions and interactions between the geographic scope of pollutants the enforcement authority of various levels of government and the fiscal responsibilities of the levels of government for example externalities generated in a particular local area may be confined to the local area or may spill over to other jurisdictions also local governments may be well informed about how best to regulate or enforce pollution control within their jurisdiction but they may not consider the effects of their actions on other jurisdictions finally the existence of locally generated waste emissions affects the appropriate assignment of both expenditure and tax responsibilities among levels of government the standard analysis therefore focuses mainly upon an aggregate or national perspective it typically ignores the possibility that the externality may be created and addressed by local governments and it does not consider the implications of decentralization for the design of economic instruments targeted at environmental problems this paper examines the implications of decentralization for the design of corrective policies that is how does one design economic instruments in a decentralized fiscal system in which externalities exist at the local level and in which subnational governments have the power to provide local public services as well as to choose tax instruments that can both finance these expenditures and correct the market failures of externalities

population policy through tradable procreation entitlements one of the first tradable rights proposal is boulding s the meaning of the twentieth century london george allen and unwin ltd 1964 dealing with overpopulation we discuss both tradable procreation allowances and exemptions domestically and globally to address underpopulation as well we focus on three effects notably the rights tradability entails that whereas exemptions or expensive enough allowances benefit the poor cheap allowances benefit the rich a natalist policy also worsens the average education level of the next generation whereas population control enhances it also if procreation rights are grandfathered to countries the scheme redistributes further our analysis suggests that procreation entitlements may be efficient in controlling population without being necessarily anti redistributive

dynamic efficiency in experimental emissions trading markets with investment uncertainty this study employs a laboratory experiment to assess the performance of tradable permit markets on dynamic efficiency arising from cost reducing investment the permit allocation rule is the main treatment variable with permits being fully auctioned or grandfathered the experimental results show significant investment under both allocation rules in the presence of ex ante uncertainty over the actual investment outcome however auctioning permits generally provides stronger incentives to invest in r d leading to greater dynamic efficiency compared to grandfathering

enforcing transferable permit systems in the presence of market power we derive an enforcement strategy for a transferable permit system in the presence of market power that achieves complete compliance in a cost effective manner we show that the presence of a firm with market influence makes designing an enforcement strategy more difficult than enforcing a perfectly competitive system we also re consider hahn s 1984 suggestion that a firm with market influence should be allocated permits so that it chooses to not participate in the permit market when enforcement and its costs are taken into account hahn s suggestion does not hold except in a very special case the presence of market power will limit the extent to which transferable emissions permit systems can fulfill their theoretical promises hahn 1984 was the first to show that permit trading in the presence of market power cannot be expected to result in a distribution of emissions that minimizes aggregate abatement costs furthermore the distribution of emissions will never be completely independent of the initial allocation of permits modeling a transferable permit system in which one firm has market power while the rest are perfect competitors a dominant firm competitive fringe model hahn demonstrated that aggregate abatement costs are minimized only when the dominant firm is allocated exactly the number of permits it will choose to hold in equilibrium simply aggregate abatement costs are minimized only when a firm that can manipulate the permit price does not because it chooses to not trade permits like most of the theoretical literature on transferable permit systems hahn ignored the fact that compliance in a permit system must be enforced recognizing this important omission van egteren and weber 1996 extended hahn s work to

revenue raising vs other approaches to environmental protection the critical significance of pre existing tax distortions using analytical and numerical general equilibrium models we show that preexisting factor taxes produce a tax interaction effect that increases the costs of pollution taxes and quotas under policies that raise revenue and recycle it through cuts in marginal factor tax rates this effect is partially offset by a revenue recycling effect grandfathered pollution quotas such as those used under the 1990 clean air act amendments to regulate electric utilities so2 emissions do not benefit from this offset preexisting taxes raise this regulation s cost by over 70 more than half of this additional cost could be avoided by auctioning quotas and exploiting the revenue recycling effect

externalities and corrective policies in experimental markets this paper reports on the behaviour of simple laboratory markets which have an externality experiences with these markets provide some help in answering two broad questions 1 do markets with externalities behave in accordance with the law of supply and demand 2 how do the pollution tax pollution standard and pollution licenses compare as methods for correcting the externality

prices vs quantities technology choice uncertainty and welfare technological improvements have proven essential in mitigating environmental problems such as climate change depletion of the ozone layer and acid rain while it is well known that price and quantity based regulatory instruments provide different investment levels the effects on the choice between different technologies have received scant attention this paper expands on the prices versus quantities literature by investigating firms technology choice in the face of demand and supply side uncertainty i show that the regulator can not design tradable emissions permits and an emissions tax such that the two regimes are equivalent even in terms of expected values moreover a tax encourages the most flexible abatement technology if and only if stochastic costs and the equilibrium permit price have sufficiently strong positive covariance compared with the variance in consumer demand for the good produced finally the firms technology choices are socially optimal under tradable emissions permits but not under an emissions tax

carbon prices and fuel switching a quasi experiment in electricity markets within the pennsylvania new jersey maryland electricity market delaware and maryland participate in the regional greenhouse gas initiative rggi but other states do not providing a quasi experimental setting to study the rggi program using a difference in difference framework we find that overall the rggi program led to 6 22 million short tons of co2 reduction per year in delaware and maryland or about 19 10 of the average total potential annual emissions in these two states from 2009 to 2013 counterintuitively however the reduction is mainly achieved through reduction of coal inputs and emission leakage instead of fuel switching from coal to natural gas or from fossil fuel coal and natural gas to non fossil fuel

reprint of price and quantity collars for stabilizing emission allowance prices laboratory experiments on the eu ets market stability reserve abstract we report on laboratory experiments with financially motivated participants comparing alternative proposals for managing the time path of emission allowance prices in the face of random firm specific and market level structural shocks market outcome measures such as social surplus and price variability are improved by the use of a price collar auction reserve price and soft price cap comparable performance enhancements are not observed with the implementation of a quantity collar that adjusts auction quantities in response to privately held inventories of unused allowances in some specifications the quantity collar performed worse than no stabilization policy at all the experiment implemented a specific set of structural elements and extrapolation to other settings should be done with caution nevertheless an examination of the observed behavioral patterns and deviations from optimal behavior suggests that a price collar has an important although perhaps not exclusive role to play in constructing an effective market stability policy

on the option to invest in pollution control under a regime of tradable emissions allowances optimal decisions of a firm facing the option of retrofitting its plant to reduce pollution and thereby eliminate the need to purchase emissions allowances are analysed the decision is treated as a real option with the price of pollution permits following a known stochastic process the model is formulated as a set of one dimensional partial differential equations at discrete points in time the firm owner makes optimal decisions about the retrofit including whether to mothball temporarily the model is used to analyse a firm s decision to instal a scrubber as a result of the 1990 u s clean air act jel classification q25 d81 g31 sur la possibilite d investir dans le controle de la pollution dans un regime de permis d emission de pollution echangeables commercialement ce memoire examine les decisions optimales d une entreprise face a la possibilite d adapter ses installations pour reduire la pollution et ce faisant d eliminer le besoin de se procurer des permis d emission de pollution sur le marche le decision est traitee comme une option reelle ou le prix des permis resulte d un processus stochastique connu le modele est formule sous forme d un ensemble d equations differentielles partielles a une dimension a des points discontinus dans le temps le proprietaire de l entreprise prend des decisions optimales de mise a niveau des installations y compris la possibilite de les fermer temporairement le modele est utilise pour analyser une decision d installer un epurateur suite a la mise en place de la loi americaine de 1990 clean air act

a symmetric safety valve abstract how to set policy in the presence of uncertainty has been central in debates over climate policy concern about costs has motivated the proposal for a cap and trade program for carbon dioxide with a safety valve that would mitigate against spikes in the cost of emission reductions by introducing additional emission allowances into the market when marginal costs rise above the specified allowance price level we find two significant problems both stemming from the asymmetry of an instrument that mitigates only against a price increase one is that most important examples of price volatility in cap and trade programs have occurred not when prices spiked but instead when allowance prices collapsed second a single sided safety valve may have unintended consequences for investment we illustrate that a symmetric safety valve provides environmental and welfare improvements relative to the conventional one sided approach

market efficiency and the u s market for sulfur dioxide allowances focusing on the u s sulfur dioxide so2 allowance market from its inception in 1994 to 2009 we model allowance prices to determine the influence of market fundamentals on allowance price level and volatility we find evidence that the so2 market operates in ways that are not inconsistent with an efficient market prices that reflect marginal abatement costs after the first few years of the program but before a court decision that introduced significant uncertainty into the market in mid 2008 our empirical analysis finds that the so2 market similar to other emission markets studied in the literature can remain relatively inefficient for several years after launch we also find that market volatility increases in response to all types of communications from the administrator suggesting that the development of a formal communication strategy possibly similar to that used by central banks would reduce price volatility and increase the efficiency of the market

emissions trading and transaction costs analyzing the flaws in the discussion abstract although emissions trading lowers the costs of climate change mitigation transaction costs e g to find a trading partner may reduce its cost effectiveness some economists claim that transaction costs for joint implementation ji and clean development mechanism cdm projects will be higher than for international emissions trading iet transfers arguing that projects require advance approval whereas permit transfers can be automatically registered and checked annually however this article demonstrates the incompleteness of their views by both analyzing empirical data and discussing the theoretical conditions under which transaction costs decrease for ji and cdm and increase for iet

when to pollute when to abate intertemporal permit use in the los angeles nox market we study intertemporal trading of nitrogen oxides permits in southern california s reclaim program we model reclaim s distinct intertemporal features two overlapping permit cycles and two overlapping compliance cycles in the model competitive equilibrium is cost effective and firms have an incentive to delay abatement from 1994 to 2006 reclaim facilities traded intertemporally by using permits of the opposite cycle we test two theoretical propositions delayed abatement and trading across cycles with a difference in differences estimator and show weak though inconclusive support of the theory the theoretical and empirical results are relevant to cap and trade programs with potential for overlapping permit cycles jel q58

market design in cap and trade programs permit validity and compliance timing abstract cap and trade programs have considerable heterogeneity in permit validity and compliance timing for example permits have different validities across time e g banking borrowing and seasons and space e g zonal restrictions and compliance timing can be annual in overlapping cycles or in multi year periods we discuss nine prominent cap and trade programs along these dimensions and construct a general model of permit validity and compliance timing we derive sufficient conditions under which abatement is invariant to compliance timing i e compliance timing cannot smooth abatement cost shocks under these conditions i expected compliance costs are invariant ii the variance of compliance costs increases with the delayed compliance iii equilibrium prices may not be unique and iv the delayed compliance equilibrium may rely on degenerate prices not determined by marginal abatement costs we demonstrate the model s broad applicability by illustrating different types of temporal permit validity

the effect of transport policies on car use evidence from latin american cities abstract in an effort to reduce air pollution and congestion latin american cities have experimented with different policies to persuade drivers to give up their cars in favor of public transport this paper looks at two of such policies the driving restriction program introduced in mexico city in november of 1989 hoy no circula hnc and the public transport reform carried out in santiago in february of 2007 transantiago ts based on hourly concentration records of carbon monoxide which comes primarily from vehicles exhaust we find that household responses to both hnc and ts have been not only ultimately unfortunate more cars on the road and higher pollution levels but also remarkably similar in two important aspects on how policy responses vary widely among income groups and on how fast households adjust their stock of vehicles when they do

the political economy of market based environmental policy the u s acid rain program the u s acid rain program enacted in 1990 gave valuable tradable sulfur dioxide emissions permits called allowances to electric utilities we examine the political economy of this allocation though no senate or house votes were ever taken hypothetical votes suggest that the actual allocation would have beaten plausible alternatives while rent seeking behavior is apparent statistical analysis of differences between actual and benchmark allocations indicates that the legislative process was more complex than simple models suggest the coalition of states that produced and burned high sulfur coal both failed to block acid rain legislation in 1990 and received fewer allowances than in plausible benchmark allocations some of these states may have received additional allowances to cover 1995 99 emissions by giving up allowances in later years and some major coal producing states seem to have focused on benefits for miners and on sustaining demand for high sulfur coal

allowance price drivers in the first phase of the eu ets abstract in the first phase of the eu emissions trading scheme eu ets the price per ton of co 2 initially rose to over 30 the price then collapsed to essentially zero by mid 2007 by deriving a structural model of the allowance price under the assumption of efficient markets i examine the extent to which this variation in price can be explained by marginal abatement costs i then gradually relax the model by allowing for delayed adjustment of price to fundamentals as well as by introducing lagged lhs variables the pattern of results suggests that while prices were not initially driven by marginal abatement costs this inefficiency was largely corrected after the accounting of 2005 emissions in april 2006

auction design for the allocation of emission permits in the presence of market power to the extent that emission permits have been allocated using market mechanisms this has been done using a sealed bid auction design typically with discriminatory prices however several authors have recommended the ascending auction format basically two competing ascending auction designs have been suggested the standard ascending auction with clock or demand schedules or an alternative ascending clock implementation of vickrey pricing the latter design was introduced as a response to problems of bid shading under the sealed bid and the standard ascending auction format the purpose of this paper is to investigate the allocation of permits under these two alternative mechanisms the auction process and the resulting market outcome in the presence of oligopolistic competition are simulated in this setting it is not obvious that bid shading is the optimal strategy under the standard design nor is it obvious that sincere bidding is the optimal strategy under the alternative ascending auction design the alternative auction format makes it less costly to pursue a strategy to increase market shares through the acquisition of emission permits thus increasing the competitor s costs leading to overbidding as the optimal strategy

tradeable carbon permit auctions how and why to auction not grandfather abstract an auction of carbon permits is the best way to achieve domestic carbon caps designed to limit global climate change to minimize administrative costs permits would be required at the level of oil refineries natural gas pipe lines natural gas liquid sellers and coal processing plants to maximize liquidity in secondary markets permits would be fully tradable and bankable the government would conduct quarterly auctions a standard ascending clock auction in which price is gradually raised until there is no excess demand would provide reliable price discovery an auction is preferred to grandfathering giving companies permits based on historical output or emissions because it allows reduced tax distortions provides more flexibility in distribution of costs provides greater incentives for innovation and reduces the need for politically contentious arguments over the allocation of rents

emissions trading ercs or allowances emissions trading takes place from two alternative baselines 1 emission reduction credits ercs in which the baseline is existing regulations which are often activity based or 2 cap and trade which specifies the total allowable emissions this paper examines the effects of these two tradable permit systems on marginal and average costs for the firm using electricity generation as an example the erc system subsidizes the activity level to which it is tied and fails to incorporate the full cost of external harm into the product price if the permit limit is chosen ef ficiently the cap and trade system is more effi cient

the transaction costs theory of joint ventures an empirical study of japanese subsidiaries in the united states this paper offers the first large sample empirical study of the factors which influence the choice of japanese firms between full or partial ownership of their u s manufacturing subsidiaries it studies for the first time the ownership policies of investors of a single home country in a single host country thus keeping variations within home and host countries constant one methodological improvement over previous studies is the use as independent variables of the relevant characteristics of the investing firms these had been proxied in previous studies by data on u s industries entered the results suggest that the degree of ownership taken by japanese manufacturing investors in their american subsidiaries is driven by the same general transaction costs variables that determine the choices made by their u s counterparts japanese parents joint venture when they need to combine with other firms intermediate inputs which are subject to high market transaction costs an intriguing result however is the lack of significance of two variables which in the u s case strongly push towards full control of foreign subsidiaries in this study neither the japanese parent s r d nor its advertising intensities had any significant impact on their ownership policies

profitability of export restraint this paper analyzes the effect of quotas or voluntary export restraints upon each producer s profits in the case of an oligopoly with one foreign producer in this oligopoly all producers including the foreign producer can get greater profits under some protective quotas than under no restraints furthermore the optimal export restraint for the foreign producer with a low marginal cost is smaller than his optimal export under no restraints accordingly export restraints may be sought by the foreign producer as a strategic behavior to increase profits

tell the truth or not the montero mechanism for emissions control at work abstract we experimentally test the truth telling mechanism proposed by montero 2008 for eliciting firms abatement costs we compare this mechanism with two well known alternative allocation mechanisms free and costly allocation of permits at the pigouvian price controlling for the number of firms and the firms maximal emissions we find that in line with the theoretical predictions firms over report their maximal emissions under free allocation of permits and under report these under costly allocation of permits under montero s mechanism by contrast firms almost always report their maximal emissions truthfully however in terms of efficiency the difference between montero s mechanism and costly allocation disappears with industries including more than one firm

governance of the commons a role for the state the paper examines property regimes and common pool resources using examples and case studies the relative merits of private community and state based rights are detailed the insights from the case studies and an analysis of institution costs provide a tentative framework for understanding the role of the state in the governance of the commons

import quotas and vers a comparative analysis in a three country framework abstract because a ver is inherently discriminatory the traditional two country analysis comparing it to a quota is inadequate this paper adopts a general equilibrium three country approach to compare tariffs quotas and vers a quota equivalent ver is defined alternatively in terms of quantity or price the welfare of the importing country is higher under a quota and that of the non restricted exporter is higher under a ver the welfare comparison for the ver restricted country is ambiguous a result which is at variance with conventional wisdom

ex post evaluation of an earmarked tax on air pollution in this paper we do an ex post evaluation of the french tax on air pollution the revenues of this tax were redistributed to polluters in the form of subsidies to abatement technologies and the policy is a typical example of an earmarked tax we use a two stage estimation procedure on an unbalanced panel data set of 226 plants from three industrial sectors that are some of the main contributors to nitrogen oxide and sulfur dioxide emissions the results indicate that the overall environmental effectiveness of this particular tax subsidy scheme can be questioned

competition cooperation and innovation organizational arrangements for regimes of rapid technological progress abstract discussions of the link between firm size and innovation are outmoded because the boundaries of the firm have become fuzzy in recent decades strategic alliances constellations of bilateral agreements among firms are increasingly necessary to support innovative activities such alliances can facilitate complex coordination beyond what the price system can accomplish while avoiding the dysfunctional properties sometimes associated with hierarchy antitrust law and competition policy need to recognize that these new organizational forms are often the functional antithesis of cartels though they may have certain structural similarities a more complete understanding of bilateral contracts and agreements ought to reveal when and how cooperation can support rather than impede innovation and competition

pollution markets with imperfectly observed emissions i study the advantages of pollution permit markets over uniform emission or technology standards when the regulator has incomplete information on firms emissions and costs of production and abatement e g air pollution in large cities because the regulator observes only each firm s abatement technology but neither its emissions nor its output there are cases in which standards can lead to lower emissions and hence welfare dominate permits if permits are optimally combined with standards in many cases this hybrid policy converges to the permits alone policy but almost never to the standards alone policy

designing economic instruments for the environment in a decentralized fiscal system designing economic instruments for the environment when external effects are important markets will be inefficient and economists have considered several broad classes of economic instruments to correct these inefficiencies however the standard economic analysis has tended to neglect important distinctions and interactions between the geographic scope of pollutants the enforcement authority of various levels of government and the fiscal responsibilities of the levels of government for example externalities generated in a particular local area may be confined to the local area or may spill over to other jurisdictions also local governments may be well informed about how best to regulate or enforce pollution control within their jurisdiction but they may not consider the effects of their actions on other jurisdictions finally the existence of locally generated waste emissions affects the appropriate assignment of both expenditure and tax responsibilities among levels of government the standard analysis therefore focuses mainly upon an aggregate or national perspective it typically ignores the possibility that the externality may be created and addressed by local governments and it does not consider the implications of decentralization for the design of economic instruments targeted at environmental problems this paper examines the implications of decentralization for the design of corrective policies that is how does one design economic instruments in a decentralized fiscal system in which externalities exist at the local level and in which subnational governments have the power to provide local public services as well as to choose tax instruments that can both finance these expenditures and correct the market failures of externalities

repeated partnership games with imperfect monitoring and no discounting in a partnership game each player s utility depends on the other players actions through a commonly observed consequence e g output profit price which is itself a function of the players actions and an exogenous stochastic environment if a partnership game is repeated infinitely and each player s payoff in the infinite game supergame is the long run average of his expected one period utilities then efficient combinations of one period actions can be sustained as nash equilibria of the supergame even if the players cannot observe other players actions or information but can only observe the resulting consequences

voluntary export restraints and expectations an analysis of export quotas in oligopolistic markets the frequency of export quotas imposed as voluntary export restraints has been increasing this tends to create the expectation that similar export quotas will be imposed in the future even if free trade is allowed now the author analyzes the effect of such an expectation he demonstrates that if a quota is expected to be imposed on foreign exporting firms it intensifies the exporting firms competition in the prequota period this offsets the protection which the export quota as a voluntary export restraint will provide for domestic import competing firms in the future quota period copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

emissions trading with profit neutral permit allocations this paper examines the impact of an emissions trading scheme ets on equilibrium emissions output price market concentration and profits in a generalized cournot model we develop formulae for the number of emissions permits that have to be freely allocated to firms to neutralize the profit impact of the ets we show that its profit impact is usually limited in a cournot oligopoly with constant marginal costs total industry profits are preserved so long as freely allocated permits cover a fraction of initial emissions that does not exceed the industry s herfindahl index

an interim evaluation of sulfur dioxide emissions trading ide iv of the 1990 clean air act amendments established the first large scale long term environmental program to rely on tradable emissions permitscalled allowances in this program to control pollution this program was designed to cut acid rain by reducing sulfur dioxide so2 emissions from electric generating plants to about half their 1980 level beginning in 1995 it is of interest both as a response to an important environmental issue and as a landmark experiment in environmental policy this experiment comes at a particularly important time since emission trading is under serious consideration with strong u s backing for use to deal with global climate change by curbing emissions of carbon dioxide co2 the economic stakes in climate change surpass those in acid rain by several orders of magnitude intergovernmental panel on climate change 1996 this article summarizes the results to date of our ongoing empirical analysis of compliance costs and allowance market performance under the u s acid rain program

the economics of joint ventures in less developed countries the paper examines the microeconomic partial equilibrium behavior of joint ventures established between transnational corporations and domestic partners in less developed countries it focuses on issues relating to resource allocation and profit distribution under various institutional scenarios the analysis places special emphasis on the role of bargaining power transfer pricing stock ownership and profit shares of the parties and the responsiveness of joint ventures to national development goals some of the results apply to wholly owned subsidiaries of transnational corporations local firms and licensing arrangements which emerge as special cases

irreversible abatement investment under cost uncertainties tradable emission permits and emissions charges abstract a major concern with tradable emission permits is that stochastic permit prices may reduce a firm s incentive to invest in abatement capital or technologies relative to other policies such as a fixed emissions charge however under efficient permit trading the permit price uncertainty is caused by abatement cost uncertainties which affect investment under both permit and charge policies we develop a rational expectations general equilibrium model of permit trading and irreversible abatement investment to show how cost uncertainties affect investment under permits we compare the resulting investment incentive with that under charges after controlling for the assumption that random shocks affect the abatement cost linearly we find that firms investment incentive decreases in cost uncertainties but more so under emissions charges than under permits therefore tradable permits in fact may help maintain firms investment incentive under uncertainty

price controls and banking in emissions trading an experimental evaluation we present results from laboratory emissions markets designed to investigate the effects of price controls and permit banking on limiting permit price risk while both instruments reduce between period price volatility and within period price dispersion combining price controls and permit banking yields important benefits banking alone produces high permit prices in earlier periods that fall over time but the combined policy produces lower initial prices and lower volatility however banking price controls and the combination all produce higher between period emissions volatility hence for emissions markets that seek to control flow pollutants with strictly convex damages efforts to limit permit price risk can result in higher expected damage

income distributional effects of using market based instruments for managing common property resources in this article the authors show the trade offs between efficiency and equity that arise from the application of market based instruments to a heterogenous population of agents drawing from a natural resource pool using the example of groundwater they find that there are overall losses in allocative efficiency when the centralized planner is constrained by equity considerations and that the distribution of gains or losses to management becomes skewed asymmetrically across agents these results demonstrate the importance of considering both efficiency gains and disparities in distributional inequity when designing policy instruments that create winners and losers with potentially serious sociopolitical ramifications

a dynamic model of the choice of mode for exploiting complementary capabilities this paper examines the choice of mode for a multinational enterprise and a local firm to exploit their complementary capabilities we develop a combined real options and game theoretic model of modal choice by incorporating a range of factors drawn from the dynamic capabilities theory and transaction cost or organizational economics the factors scrutinized in the model include the parties absorptive capacities frictions in knowledge and asset markets and associated incentive problems cost of switching from one mode to another and cost associated with power jockeying the model uses simulation to examine how these factors interact to influence the choice of mode the results identify a number of conditions for one factor to dominate another and help to reconcile different theories that have made contradicting predictions with regard to the effects of such factors as uncertainty and capability divergence on the optimal choice of mode

entitling the pollutee liability versus standard under private information this paper considers and compares two different legal means full liability and standard to reduce and to regulate pollution at a local level accounting for private information about benefits and costs the familiar polluter pays principle makes the polluter liable for any damage since the courts lack information about the true damage the pollutee can and presumably will overstate this damage nevertheless voluntary arrangements bypassing the courts exist e g for coasean reasons however such out of court arrangements fail to improve in many cases the inefficient allocation of pollution due to agency costs given these unsatisfactory consequences of the polluter pays principle even after allowing for contracts around the law we propose a modification of standards the pollutee is entitled that a certain standard is satisfied yet can trade this right for financial compensations contracts induced by this legal rule are countervailing the optimal mechanism switches between subsidies and payments and first best efficiency holds at both ends and this characteristic allows such a privatized standard to track the first best quite well and often better than the polluter pays principle this relative ranking under private information is the opposite of the one that holds under uncertainty here liability dominates the standard

product warranties and double moral hazard this article explores a model of warranties in which moral hazard problems play a key role the goal is to understand the important characteristics of warranties including their provision of incomplete insurance and the relationship between product quality and coverage we analyze a model in which buyers and sellers take actions that affect a product s performance since these actions are not cooperatively determined an incentives problem arises we characterize the optimal warranty contract and undertake comparative statics to determine the predicted correlation of warranty coverage and product quality

an experimental investigation of the seller incentives in the epas emission trading auction the clean air act requires the epa to conduct annual auctions of emission allowances under the discriminative auction rules sellers with the lowest asking prices receive the highest bids this paper studies an inverted version of this auction in which buyers face the same incentives as sellers in the epa auction consistent with theoretical predictions buyers bid above their valuation auction outcomes are inefficient and increasing the number of buyers increases bids buyers facing human opponents compete more aggressively than the risk neutral prediction but bids do not differ systematically from this prediction when buyers face computerized nash robots copyright 1995 by american economic association

imperfect observability of emissions and second best emission and output taxes abstract this paper studies the second best tax design problem when emissions are publicly unobservable but can be discovered through costly monitoring a representative firm in industry chooses its emissions and declarations to maximize its expected profits the paper shows the pigouvian rule of equating the marginal private benefit of emissions in production to the marginal social damage of emissions is modified to take account of the resource costs of monitoring and enforcement emissions from different sectors must be taxed at different rates every polluting good must face an effective emission tax that is less than the full marginal social damage of emissions emission taxes do not reflect standard optimal tax objectives output taxes have a pigouvian role so that the targeting principle fails

heterogeneity irreversible production choices and efficiency in emission permit markets abstract this paper investigates a class of market mechanisms for environmental regulation based on the clean air act tradable discharge permit program laboratory market experiments capture some of the more salient institutional features and focus on issues of firm technological heterogeneity and irreversible investment regarding the operation of the permit market experimental results suggest that higher degrees of abatement cost heterogeneity may lead to reduced trade volume while the implications of increased cost heterogeneity regarding price volatility are mixed finally increased cost heterogeneity appears to result in decreased laboratory efficiency

tradable deficit permits efficient implementation of the stability pact in the european monetary union tradable deficit permits efficient implementation of the stability pact borrowing from the experience of environmental markets this paper proposes a system of tradable deficit permits as an efficient mechanism for implementing fiscal constraints in the european monetary union having chosen an aggregate target for the union and an initial distribution of permits emu countries could be allowed to trade rights to deficit creation the scheme exploits countries incentives to minimize their costs is transparent and flexible in accommodating idiosyncratic shocks and allows for adjustments in case of europe wide recessions in addition it need not treat all countries identically and can be designed to penalize countries with higher debt to gdp ratios finally the scheme rewards countries for reducing their deficit below the initial allowance lending credibility to the stability pact s goal of a balanced budget in the medium run alessandra casella

attitudes toward risk and compliance in emission permit markets we investigate the effects of uncertainty and concomitant risk aversion as they impact the incentive structure and subsequent operation of an emissions permit market modeled after the u s s02 market our theoretical results suggest that uncertainty dulls incentives to achieve cost savings through permit trading and inhibits efficient allocation of abatement efforts by firms we test hypotheses in an experimental laboratory setting and find that the irreversibility of investment in abatement technology may present countervailing incentives for potential sellers of permits resulting in a wait and see attitude toward adoption of efficient levels of abatement technology

applying and advancing internalization theory the multinational enterprise in the twenty first century internalization theory has provided a resilient analytical framework that explicitly or implicitly underlines much of international business scholarship internalization theory is not a monolithic body of knowledge instead it has devolved into several streams each of which focuses on the interests of particular epistemic communities while also acting as a more generic organizing framework for those more broadly interested in its application to real world challenges following a review of the various streams we trace the frontiers of current research of the broader internalization framework and identify emerging themes raised by the papers in the special issue these include transaction cost considerations in the bundling and recombination of assets across diverse contexts the growing relevance of quasi internalization the theoretical challenges of bounded rationality for internalization theory and the increasing disconnect between ownership control and responsibility these developments point to new research frontiers for scholars looking to apply or advance internalization theory

market equilibrium under the threat of a ver abstract this paper characterizes market equilibrium under oligopoly when a ver has introduced both asymmetry amongst exporters and uncertainty a restrained and an unrestrained exporter choose price strategically under the threat of a ver on the latter a pure strategy equilibrium is shown to result only when the probability of the ver is high otherwise a unique mixed strategy equilibrium results as the probability of the ver rises the expected domestic price rises even if the ver is not imposed

cap and trade policy challenges a tale of three markets cap and trade policy instruments have been applied to a number of environmental problems with varying success this article examines cap and trade programs for so2 allowances fishery quotas and water rights design and implementation of cap and trade mechanisms involves challenging policy tradeoffs accommodating equity concerns balancing use levels with resource conditions facilitating transactions accounting for externalities assuring adequate monitoring and documenting welfare gains efficient trading mechanisms are more readily implemented when there is a strong political or legal mandate to cap resource use and trades are perceived as a means to ease adjustment to use limits

can double auctions control monopoly and monopsony power in emissions trading markets abstract we conduct a laboratory experiment to investigate whether the double auction institution can suppress market power in emissions trading markets we study 24 markets with varying market structure in a aba crossover design which controls for subject effects we find clear evidence of successful use of market power average prices rise under monopoly and fall under monopsony opening prices are affected much more than closing prices profits are redistributed in favor of the agent with power efficiency is not affected significantly analysis of convergence trends suggests that this is not a transitory phenomenon we interpret our results as evidence of successful price discrimination within a double auction market

optimal environmental regulation under asymmetric information abstract a market model of environmental regulation with interdependent production and pollution abatement costs and heterogeneous firms is developed firms have private information about costs which have a quadratic form firms pursue bayes nash strategies in communication with the regulator the full information optimum cannot be attained unless gains from trade in the product market net of external damages exceed the information rents earned by firms aggregate output and externality levels are lower at the regulated equilibrium than at the full information social optimum

a simple auction mechanism for the optimal allocation of the commons efficient regulation of the commons requires information about the regulated firms that is rarely available to regulators e g cost of pollution abatement this paper proposes a simple mechanism that implements the first best for any number of firms a uniform price sealed bid auction of an endogenous number of transferable licenses with a fraction of the auction revenues given back to firms paybacks which rapidly decrease with the number of firms are such that truth telling is a dominant strategy regardless of whether firms behave non cooperatively or collusively the mechanism also provides firms with incentives to invest in socially optimal r d jel d44 d62 d82 q28 regulatory authorities generally find that part of the information they need for implementing an efficient regulation is in the hands of those who are to be regulated regulating externalities such as access to common resources e g clean air water streams fisheries etc is a good example environmental regulators for example know little about firms pollution abatement costs so without communicating with firms they would be unable to establish the efficient level of pollution a number of mechanisms have been proposed for inducing firms to reveal their private information but for different reasons

partner contributions as predictors of equity share in international joint ventures the type of expertise that a company contributes to a joint venture may affect the amount of equity that it owns this research observes the ownership patterns associated with four common combinations of partner expertise in international joint ventures the results rank company assets with respect to the contributor s ability to negotiate majority ownership in the original joint venture contract and that company s tendency to buy up equity from the partner later on

permit price dynamics in the u s so2 trading program a cointegration approach the aim of this paper is to study empirically the determination and the dynamic behavior of the so2 permit prices previous research focused on ex post market price analysis without taking weather conditions into account therefore this study attempts to fill a gap in the literature by providing new empirical evidence on the so2 price evolution and its interactions with macroeconomic variables microeconomic variables and climate variables using monthly data from january 1995 to december 2006 our estimation results indicate the existence of a long term relationship between so2 permit price scrubbing costs industrial production and weather conditions in the short run so2 permit price is affected by scrubbing costs energy prices and weather conditions policy makers and private investors could benefit from the findings of this study that provides useful information on the characteristics of the so2 market and may plan their strategy

seller incentive properties of epa s emission trading auction abstract the new clean air act amendments instruct the environmental protection agency epa to conduct annual sealed bid offer auctions of emission allowances the auction pricing rules are discriminative and sellers with the lowest asking prices receive the highest bids this paper assesses the seller incentives of this auction and demonstrates that the auction rules cause sellers to choose asking prices that under reveal their cost of emission control furthermore increasing the number of sellers intensifies this misrepresentation if the number of buyers remains fixed the epa s rules can therefore generate significantly biased price signals and reduce the efficiency of the allowance trading market

almost efficient information transmission in elections abstract we study a model in which two parties compete by announcing their policies after receiving conditionally independent private signals about the true state of the world parties are both office and policy motivated our model can explain radically different policy positions even when parties receive identical signals and have unbiased preferences this holds in an asymmetric equilibrium in which both parties reveal their private information to the voters and the implemented policy is almost first best for all possible realizations of parties signals in this equilibrium one party adopts extreme and the other one moderate policy positions

trade restrictions as facilitating practices abstract the effect of quantitative restrictions in oligopolistic markets is shown to depend on whether imports are substitutes or complements for domestic products in the former case they have profound effects even when set at free trade levels because they impede the ability of the foreign firm to compete in the domestic market thereby acting to facilitate collusion and raise prices and profits for this reason tariffs and quotas are fundamentally non equivalent with substitute goods when goods are complements a voluntary export restriction ver at the free trade level has no effect and tariffs and quotas are equivalent

an efficient ascending bid auction for multiple objects when bidders exhibit multi unit demands standard auction methods generally yield inefficient outcomes this article proposes a new ascending bid auction for homogeneous goods such as treasury bills or telecommunications spectrum the auctioneer announces a price and bidders respond with quantities items are awarded at the current price whenever they are clinched and the price is incremented until the market clears with private values this dynamic auction yields the same outcome as the sealed bid vickrey auction but has advantages of simplicity and privacy preservation with interdependent values this auction may retain efficiency whereas the vickrey auction suffers from a generalized winner s curse

the market for sulfur dioxide emissions the 1990 clean air act amendments initiated the first large scale use of the tradable permit approach to pollution control the theoretical case for this approach rests on the assumption of an efficient market for emission rights the authors empirical analysis shows that the emission rights market created by the 1990 amendments had become reasonably efficient by mid 1994 they also show that the auctions specified in the amendments to jump start trading had become a small part of the overall market finally the authors demonstrate that the strategic bidding behavior discussed in the literature has had no effect on market prices copyright 1998 by american economic association

a two level dynamic game of carbon emission trading between russia china and annex b countries this paper proposes a computable dynamic game model of the strategic competition between russia and developing countries dcs mainly represented by china on the international market of emission permits created by the kyoto protocol the model uses a formulation of i a demand function for permits from annex b countries and ii marginal abatement costs mac in russia and china provided by two detailed models gemini e3 is a computable general equilibrium model that provides the data to estimate annex b demand for permits and macs in russia poles is a partial equilibrium model that is used to obtain mac curves for china the competitive scenario is compared with a monopoly situation where only russia is allowed to play strategically the impact of allowing dcs to intervene on the international emission trading market is thus assessed

fishing quota markets abstract in 1986 new zealand responded to the open access problem by establishing the world s largest individual transferable quota itq system using a 15 year panel dataset from new zealand that covers 33 species and more than 150 markets for fishing quotas we assess trends in market activity price dispersion and the fundamentals determining quota prices we find that market activity is sufficiently high in the economically important markets and that price dispersion has decreased we also find evidence of economically rational behavior through the relationship between quota lease and sale prices and fishing output and input prices ecological variability and market interest rates controlling for these factors our results show a greater increase in quota prices for fish stocks that faced significant reductions consistent with increased profitability due to rationalization overall this suggests that these markets are operating reasonably well implying that itqs can be effective instruments for efficient fisheries management

do transaction costs influence firm trading behaviour in the european emissions trading system this study is one of the first to empirically investigate firm trading behaviour and the importance of permit trading transaction costs such as information costs and search costs in the first phase of the european union s emissions trading system eu ets the signs and significance of our constructed transaction costs proxy variables indicate for a presence of these costs in the initial years of the eu ets in particular this paper shows that ets firms with the smaller number of installations and with less trading experience were less likely to participate in the european emissions trading market and traded the lower quantities of permits furthermore these firms chose to trade permits indirectly via third parties this study also supports the concerns that transaction costs could be excessive for smaller participants and firms operating in the new eu member states

protecting the environment when costs and benefits are privately known in this survey i analyze different approaches for protecting the environment when stakeholders are privately informed about the costs and benefits of pollution reduction the presence of asymmetric information calls for some important departures from the textbook prescriptions of marketable permits and emission taxes for controlling pollution for instance it may no longer be optimal to equate the social marginal benefits to the marginal cost of cleanup in determining appropriate abatement levels i conclude this review with some suggestions for future research in this area

u s equity markets and environmental policy the case of electric utility investor behavior during the passage of the clean air act amendments of 1990 we examine electric utilityinvestor reaction surrounding twenty twomilestones associated with the passage of theclean air act amendments of 1990 resultssuggest that investors did not react sharply tothe passage of the amendments to the extentthat statistically significant effects wereobserved we interpret the results as moreindicative of investor concern over resolutionof uncertainty surrounding the politicalprocess and resulting provisions than ofconcern over the expected costs of compliancefollowing passage of the amendments weobserved little if any difference betweenutilities subject to phase i restrictions andthose not subject to phase i finally changesin monthly excess returns appear to haveresulted from changes in u s interest ratesand investor concern over power industryderegulation we view our results as importantbecause any wealth effects due to environmentalregulations represent a real economic costassociated with their implementation in thissense we view the results as good news foru s environmental policy makers