submarkets and the evolution of market structure we construct a model of industry evolution in which the central force for change is the creation and destruction of submarkets firms expand when they are able to exploit new opportunities that arrive in the form of submarkets they contract and ultimately exit when the submarkets in which they operate are destroyed this simple framework can transparently explain a wide range of well known regularities about industry dynamics most notably the subtle relationships between size age growth and survival data on the laser industry where submarkets are prominent further illustrate the ability of the model to explain distinctive patterns in the evolution of industries and firms

are emissions permits regressive grandfathered emissions permits redistribute income to wealthy households by creating firm rents that ultimately accrue to shareholders consequently they can be highly regressive even if the poor do not have large budget shares for polluting goods using an analytical model this paper estimates the burden of emissions permits borne by different income groups under control of power plant emissions of carbon so2 and nox we also compare the burden borne by poor households under permits with that under emissions taxes performance standards technology mandates and input taxes and we show how the social costs of policies differ from efficiency costs when society has aversion to inequality

on forchheimer s model of dominant firm price leadership abstract we show that in a simple price setting game with one large firm and many small firms the large firm does not accept the role of the price leader

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

measuring the damages of air pollution in the united states abstract this paper measures the damages due to emissions of air pollution in the united states an integrated assessment model is used to calculate the marginal damage associated with emitting an additional ton of pollution from nearly 10 000 sources in the u s the total damage produced by a source is the marginal damage of an emission its shadow price times the total tons emitted from a specific source adding total damages across all sources yields gross annual damages gad which is a green accounting parallel to gross domestic product gdp gad in 2002 varies between 71 billion and 277 billion 0 7 2 8 of gdp the range of values depends largely on the value of health and the concentration response function relating exposures to fine particulate matter pm 2 5 to adult mortality rates source location also matters urban emissions constitute 52 of total emissions by weight yet they cause nearly three quarters of the gad

firm dynamics and financial development abstract using comprehensive firm level datasets this paper studies the impact of cross country variation in financial market development on firms financing choices and growth in less financially developed economies small firms grow faster and have lower leverage than large firms as financial development improves the growth difference between small and large firms shrinks while the leverage difference rises the paper then develops a quantitative model where financial frictions drive firm growth and debt financing through the availability of credit and default risk the model explains the observed cross country variations in firm size leverage and growth in response to changes in financial frictions

age effects leverage and firm growth abstract recent theories of firm dynamics emphasize the role of financial variables as determinants of firm growth empirically examining these relationships has been difficult since there is a lack of financial data on the small young and private firms using a unique administrative data set this paper considers the growth of new firms in canadian manufacturing from a financial perspective we find that financial factors such as leverage and initial financial size impact growth rates for new firms further the inclusion of leverage has little impact on the economic significance of the conditional age and size relationships with firm growth

environmental constituent interest green electricity policies and legislative voting abstract research in political economy has traditionally sought to disentangle the effects of legislative ideology and constituent interest in explaining policy decisions frequently proxy variables are used to measure constituent interest however these measures do not adequately reflect true constituent interest which is based upon the costs and benefits of the policies under consideration incorporating the scope of the policies using haiku a detailed model of the us electricity sector and taf an integrated assessment model of pollution pathways and valuation i construct economic measures of constituent interest at the state level as well as for federal policy i then use these measures to analyze state adoption of more stringent green electricity policies and congressional roll call voting on federal environmental policy previous studies that use proxy measures of constituent interest typically find that the legislator ideology matters more while my study shows that both ideology and constituent interest are significant factors

fiscal interactions and the costs of controlling pollution from electricity i quantify the costs of controlling so 2 carbon and nox emissions from power generation accounting for interactions between environmental policies and the broader fiscal system i distinguish a dirty technology coal that satisfies baseload demand and a clean technology gas that is used at peak period and i distinguish sectors with and without regulated prices estimated emissions control costs are substantially lower than in previous models of fiscal interactions that assume a single constant returns technology and competitive pricing the results are reasonably robust to alternative scenarios such as full price deregulation and market power in the deregulated sector

think locally act locally spillovers spillbacks and efficient decentralized policymaking we analyze models with interjurisdictional spillovers among heterogeneous jurisdictions such as co 2 emissions that affect the global environment each jurisdiction s emissions depend upon the local stock of capital which is interjurisdictionally mobile and subject to local taxation in important cases decentralized policymaking leads to efficient resource allocation even in the complete absence of corrective interventions by higher level governments or coordination of policy through coasian bargaining in particular even when the preferences and production technologies differ among the agents the decentralized system can result in globally efficient allocation

competition in regional environmental policies when plant locations are endogenous abstract a two region model is presented in which an imperfectly competitive firm produces a good with increasing returns at the plant level production of the good causes local pollution the firm decides whether to maintain plants in both regions serve both regions from a single plant or shut down if the disutility of pollution is high enough the two regions will compete by increasing their environmental taxes standards until the polluting firm is driven from the market alternatively if the disutility from pollution is not as great the regions will usually compete by undercutting each other s pollution tax rates

fiscal federalism and interjurisdictional externalities new results and an application to us air pollution abstract the economics of fiscal federalism has identified two book end departures from first best provision of a public good local governments may respond to local conditions but ignore inter jurisdictional spillovers alternatively central governments may internalize spillovers but impose uniform incentives ignoring local heterogeneity we provide a simple model that demonstrates that the choice of pricing policy also depends crucially on a third factor the shape of marginal costs of providing the public good if marginal costs are convex then marginal abatement cost elasticities will be higher around the local policies this increases the deadweight loss of those policies relative to the centralized policy ceteris paribus if they are concave then the opposite is true using a detailed simulation model of the us electricity sector we then empirically explore these tradeoffs for us air pollution we find that us states acting in their own interest lose about 31 5 of the potential first best benefits whereas the second best uniform policy loses only 0 2 of benefits the centralized policy outperforms the state policy for two reasons first inter state spillovers are simply more important that inter state heterogeneity in this application second because of the convexity of the marginal cost functions elasticities are much lower over the range relevant to the centralized policy dampening the distortions

the political economy of deforestation in the tropics united states national aeronautics and space administration land cover and land use change and measures programs grant nng06gd95g

can decentralized planning really achieve first best in the presence of environmental spillovers abstract it is generally accepted that decentralized policy choice in the presence of interjurisdictional spillovers is inefficient strikingly ogawa and wildasin 2009 find that in a model with heterogenous jurisdictions interjurisdictional capital flows and interjurisdictional environmental damage spillovers decentralized planning outcomes are equivalent to that under a centralized planner we first show the critical importance of two key assumptions no retirement of capital fixed environmental damages per unit of capital in obtaining this result second we consider a more general model allowing for capital retirement and abatement activities and show that the outcome of a decentralized market generally differs from the solution of a centralized planner s social welfare maximizing problem

are there environmental benefits from driving electric vehicles the importance of local factors we combine a theoretical discrete choice model of vehicle purchases an econometric analysis of electricity emissions and the ap2 air pollution model to estimate the geographic variation in the environmental benefits from driving electric vehicles the second best electric vehicle purchase subsidy ranges from 2 785 in california to 4 964 in north dakota with a mean of 1 095 ninety percent of local environmental externalities from driving electric vehicles in one state are exported to others implying they may be subsidized locally even when the environmental benefits are negative overall geographically differentiated subsidies can reduce deadweight loss but only modestly

the relationship between firm growth size and age estimates for 100 manufacturing industries this study uses a sample of all firms operating in 100 manufacturing industries to examine some aspects of firm dynamics it finds that firm growth the variability of firm growth and the probability that a firm will fail decrease with firm age it also finds that firm growth decreases at a diminishing rate with firm size even after controlling for the exit of slow growing firms from the sample gibrat s law therefore fails although the severity of the failure decreases with firm size copyright 1987 by blackwell publishing ltd

bertrand edgeworth equilibrium large markets with non manipulable residual demand abstract in a model of price competition among capacity constrained firms with non manipulable residual demand we demonstrate that if the number of firms is large then the unique equilibrium yields the competitive price the result goes through even when firms produce to order

a change point analysis of the impact of environmental federalism on aggregate air quality in the united states 1940 98 i introduction a major purpose of this article is to examine three important national air pollution series nitrogen oxides nox sulfur dioxides so2 and volatile organic compounds vocs for change points in their trends and in so doing determine to what extent president ronald reagan s environmental federalism economic report of the president 1982 p 44 had any effect on the trends of these series did his devolution of environmental policy from federal control to state and local control positively or negatively affect the trends in these series did the reagan devolution provide the impetus for the beneficial trends in these series that we currently observe might the aggregate series we examine tell us anything about the current controversy concerning whether increased state and local competition in environmental decision making might give rise to a race to the bottom or race to the top with respect to the stringency of environmental standards see for example cumberland 1981 glazer 1999 list and gerking 2000 first to give proper context to these questions we must take a brief look at the history of environmental policy making in the united states before 1955 there was very little environmental policy making two major exceptions were the federal refuse act of 1899 and the federal food drug and cosmetic act of 1938 the first act prevented navigational obstruction of waterways and the second act set limits on the amount of pesticide residuals allowed in farm products however beginning in 1955 federal activism concerning the environment increased resulting in the enactment of several federal environmental laws the air pollution act of 1955 facilitated cross state air quality management the clean air act of 1963 provided permanent federal support for research on air pollution the motor vehicle air pollution control act of 1965 was aimed at decreasing the level of air pollution from vehicles and the air quality act of 1967 provided national auto emissions standards moreover the clean air act of 1970 established the environmental protection agency epa for the purpose of setting and enforcing national environmental quality standards in the following year the epa established the uniform national ambient air quality standards naaqs the clean air act was amended in 1977 primarily to set new goals for achieving the naaqs in contrast to the previous 1955 80 era of federal control of air quality standards much of the environmental decision making power was devolved from the federal level to the state and local levels under the presidential administrations of ronald reagan 1981 89 and george herbert walker bush 1989 93 this policy regime shift has been referred to as the shift to environmental federalism economic report of the president 1982 p 44 with respect to environmental federalism figures 1 and 2 display governmental expenditures for air pollution abatement and control obtained from vogan 1996 unfortunately the bureau of economic analysis of the commerce department discontinued their pollution abatement and control survey with the vogan article and more recent abatement and control data are unavailable to extend the series in figures 1 and 2 beyond 1994 figures 1 2 omitted in figure 1 we have plotted total governmental expenditures for air pollution abatement and control in 1992 chain weighted dollars obviously from 1972 90 total real governmental expenditures oscillated at or below 1 trillion 1992 dollars and there was no discernible trend in total governmental commitment to environmental policy however beginning in 1991 real expenditures on abatement and control doubled to approximately 2 trillion 1992 dollars with respect to the federal to state and local devolution figure 2 displays the proportion of state and local expenditures to total governmental expenditures both in current and real 1992 dollars

interest rates and credit risk this paper explores the effects of shifts in interest rates on corporate leverage and default we develop a dynamic model in which the relationship between firms and their outside financiers is affected by a moral hazard problem and entrepreneurs initial wealth is scarce the link between leverage and default risk comes from the lower incentives of overindebted entrepreneurs to guarantee firm survival the need to finance new investment with outside funding pushes firms leverage ratio above some state contingent target towards which they gradually adjust through earnings retention the dynamic response of leverage and default to interest rate rises and cuts is both asymmetric and heterogeneously distributed across firms both rises and cuts increase the aggregate default rate in the short run however a higher interest rate reduces firms target leverage and hence produces lower default rates in the longer run this helps rationalize some evidence regarding the risk taking channel of monetary policy

rationing rules and bertrand edgeworth equilibria in large markets abstract in a market with concave downward sloping demand and symmetric firms which compete in prices with constant marginal costs and capacity limits it is shown that the supports of the symmetric mixed strategy nash equilibria converge to the unique competitive price provided that unsatisfied demand is allocated according to the surplus maximizing rationing rule

the tragedy of the commons in international fisheries an empirical examination abstract historically all capture fisheries have proven hard to manage internationally shared stocks face an additional impediment to effective management previous fisheries studies estimate gains from cooperation for particular species or locations but evidence is lacking on the wider effect that international sharing has in relation to other variables that affect stock status this paper is an attempt to shed a broader light on the effect of sharing by identifying whether shared fish stocks are systematically more exploited i compile exploitation status biological and economic data into a unique two period panel of more than 200 fish stocks from around the globe with which i test the theoretical implications of sharing the empirical results from ordered category estimation suggest that shared stocks are indeed more prone to overexploitation

international spillovers and water quality in rivers do countries free ride transboundary spillovers may degrade environmental quality if countries free ride this paper examines the extent of such degradation in water quality in international rivers using data from river monitoring stations in the un s global emissions monitoring system gems it compares pollution levels in international and domestic rivers the results suggest that free riding may substantially increase pollution in international rivers but the estimates are sensitive to the inclusion of country effects this abstract was borrowed from another version of this item

the net benefits of incentive based regulation a case study of environmental standard setting economists interested in environmental safety and health regulation have long argued that decentralized incentive based or ib policies are more efficient than centralized command and control or cac approaches see charles schultze 1977 for instance these arguments generally have been based on the assumption that ib policies will accomplish the same goals as their cac counterparts but at less cost to society however some of those touting ib policies have overlooked an important point environmental workplace or even productsafety standards typically take the form of maximum permissible concentrations of harmful substances so that compliance only requires that all monitoring points or samples register readings below these critical levels for this reason ib policies typically assign a shadow price of zero to improvements that exceed the standard s while more crude cac policies generally result in overcontrol beyond the standards if there is no value to this overcontrol cac policies will not improve at all on ib approaches and will indeed be more expensive if however reduced concentrations below the level of the standards bring with them further improvements in health or the environment cac approaches will produce greater benefits than ib approaches thus a fair comparison between the two necessitates that any additional benefits associated with cac policies be offset against the cost advantages enjoyed by their ib counterparts although this possibility has been recognized by others scott atkinson and t h tietenberg 1982 for instance it is little appreciated and its empirical significance has never been ascertained that is our purpose here we do so by developing data on the costs and benefits of controlling a common air pollutant total suspended particulates or tsp in baltimore by comparing the tsp levels likely under both ib and cac approaches we are able to estimate the marginal costs and benefits associated with a variety of alternative air quality standards which take the form of maximum permissible concentrations this in turn allows us to determine the net benefits arising from the two kinds of regimes in the next section we present a simple conceptual framework for our analysis section ii describes the estimation of the costs and benefits of our hypothesized air pollution controls in baltimore section iii presents our somewhat surprising findings and section iv discusses those findings and their potential significance for regulation in the real world

controlling opportunism in vertical contracting when production precedes sales in a make to stock vertical contracting setting with private contracts when retailers do not observe each other s stocks before choosing their prices an opportunism problem always exist in contract equilibria but public market wide resale price maintenance rpm can restore monopoly power however other widely used tools which do not fall under antitrust scrutiny and require only private bilateral contracts such as buyback contracts also allow the producer to fully exercise his monopoly power we conclude that a more lenient policy toward rpm is unlikely to affect the producer s ability to control opportunism

approximate bertrand equilibria in a replicated industry this paper considers the existence and properties of approximate bertrand equilibria in a replicated industry price setting firms produce a homogeneous product with weakly convex costs the main results are that a given e 0 an e equilibrium exists if the industry is large enough b if the e is small enough and the industry large enough any e equilibrium is approximately competitive these results depend on how contingent demand is specified

bertrand edgeworth equilibria with unobservable output uncoordinated consumers and large number of firms abstract we examine a bertrand edgeworth model of price competition where the output levels of the firms are unobservable and consumers are uncoordinated we show that if the number of firms is large enough then any price greater than the competitive one can be sustained as a pure strategy nash equilibrium

the existence of mixed strategy equilibria in a price setting oligopoly with convex costs this paper shows that a mixed strategy equilibrium will exist in an industry producing a homogeneous product with perfectly informed consumers if firms are identical and have weakly convex costs this generalises an earlier result by dasgupta and maskin

locational choices of firms and decentralized environmental policy with various instruments abstract suppose there exists a federation with a given number of mobile firms generating waste emissions in the jurisdiction in which they locate this paper demonstrates that if jurisdictions use emission taxes or marketable emission rights to control pollution within their boundaries and distribute the revenues captured by these instruments in a socially efficient way firms locate efficiently taking their pollution externalities into account decentralized environmental policy relying on direct controls however prevents locational efficiency of mobile firms furthermore if jurisdictions are small decentralized environmental policy with emission taxes and marketable pollution rights also support an efficient environmental quality while a policy using direct controls sets too high emission standards

iterated elimination of dominated strategies in a bertrand edgeworth model we consider a bertrand edgeworth model of price competition firms have identical and constant marginal costs and finite exogeneous capacities firms choose prices our interest is in the set of those prices which are left over after the iterated elimination of dominated strategies we show that in two circumstances this set will be close to the set containing only the marketclearing walrasian price i if any n 1 out of n firms assumed to be in the market have sufficient capacity to cover demand at marginal costs ii if any given total capacity is owned by a very large number of very small firms

cost effectiveness of renewable electricity policies we analyze policies to promote renewable sources of electricity a portfolio standard rps raises electricity prices and primarily reduces gas fired generation a knee of the cost curve exists between 15 and 20 goals for 2020 in our central case and higher natural gas prices lower the cost of greater reliance on renewables a renewable energy production tax credit lowers electricity price at the expense of taxpayers which limits its effectiveness in reducing carbon emissions and it is less cost effective at increasing renewables than a portfolio standard neither policy is as cost effective as a cap and trade policy for achieving carbon emission reductions

valuing morbidity an integration of the willingness to pay and health status index literatures placing dollar values on human health has long been a controversial aspect of policy analysis and remains difficult given the relatively small number of morbidity valuation studies available by combining both the economic and health literature this paper offers an alternative approach to morbidity valuation and provides estimates for a wide range of short term health conditions

optimal lending contracts and firm dynamics we develop a general model of lending in the presence of endogenous borrowing constraints borrowing constraints arise because borrowers face limited liability and debt repayment cannot be perfectly enforced in the model the dynamics of debt are closely linked with the dynamics of borrowing constraints in fact borrowing constraints must satisfy a dynamic consistency requirement the value of outstanding debt restricts current access to short term capital but is itself determined by future access to credit this dynamic consistency is not guaranteed in models of exogenous borrowing constraints where the ability to raise short term capital is limited by some prespecified function of debt we characterize the optimal default free contract which minimizes borrowing constraints at all histories and derive implications for firm growth survival leverage and debt maturity the model is qualitatively consistent with stylized facts on the growth and survival of firms comparative statics with respect to technology and default constraints are derived borrowing constraints are an important determinant of firm growth and survival 1 such constraints may arise in connection to the financing of investment opportunities faced by firms or temporary liquidity needs such as those required to survive a recession this paper develops a theory of endogenous borrowing constraints and studies its implications for firm dynamics in our model debt is constrained by the firm s limited liability and option to default a lending contract specifies an initial loan size future financing and a repayment schedule the choice of these variables in turn determines future growth the firm s future borrowing capacity and its ability and willingness to repay hence borrowing constraints and firm dynamics are jointly determined we study this dynamic design problem our model builds on thomas and worral s 1994 model of foreign direct investment at time zero a risk neutral borrower firm or entrepreneur has a project which requires a fixed initial set up cost every period the project yields revenues that increase with the amount of 1 there is considerable evidence suggesting that financing constraints are important determinants of firm dynamics gertler and gilchrist 1994 argue that liquidity constraints may explain why small manufacturing firms respond more to a tightening of monetary policy than do larger manufacturing firms perez quiros and timmermann 2000 show that in recessions smaller firms are more sensitive to the worsening of credit market conditions as measured by higher interest rates and default premia evans and jovanovic 1989 show that the liquidity constraints are essential in the decision to become an entrepreneur fazzari hubbard and petersen 1988 among others view financial constraints as an explanation for the dynamic behaviour of aggregate investment and cabral and mata 1996 are able to fit reasonably well the size distribution of portuguese manufacturing firms by estimating a simple model of financing constraints for surveys see hubbard 1998 and stein 2003

financial determinants of firm dynamics evidence from a european panel i use a panel of large european firms for the period 1999 2007 to study scale dependence in firm dynamics i find that scale dependence is much more pronounced when focusing on within firm rather than between firm variation and that scale dependence is a decreasing function of financial development

on interjurisdictional competition and environmental federalism herein we construct a competitive interjurisdictional model that reconciles two recent exceptions to the race to the bottom j publ econ 35 1988 333 354 j urban econ 37 1995 290 310 our results suggest that since environmental rents from local production are likely not captured 100 percent by local residents devolved command and control environmental regulation is inefficient moreover faced with the reality of fiscal constraints local governments adopt property tax structures that serve to compound inefficiencies within such a second best setting if a jurisdiction underprovides non environmental public goods and jurisdictional capital productivity and emissions are strong complements a race to the bottom equilibrium is supported

efficient pollution regulation getting the prices right this paper argues for efficient environmental regulations that equate the mar ginal damage of pollution to marginal abatement costs across space the paper estimates the source specific marginal damages of air pollution and calculates the welfare gain from making the current sulfur dioxide allowance trading pro gram for power plants more efficient the savings from using trading ratios based on marginal damages are between 310 and 940 million per year the potential savings from setting aggregate emissions efficiently and from includ ing more sources of air pollution are many times higher jel h23 q53 q58

bertrand edgeworth equilibrium with a large number of firms abstract we examine a model of price competition with strictly convex costs where the firms simultaneously decide on both price and quantity are free to supply less than the quantity demanded and there is discrete pricing if firms are symmetric then for a large class of residual demand functions there is a unique equilibrium in pure strategies whenever for a fixed grid size the number of firms is sufficiently large moreover this equilibrium price is within a grid unit of the competitive price the results go through to a large extent when the firms are asymmetric or they are symmetric but play a two stage game and the tie breaking rule is weakly manipulable

bertrand edgeworth oligopoly in large markets the relation between perfectly competitive and monopolistically competitive equilibria is analysed for a bertrand edgeworth model of a single market in which capacity constrained firms choose prices as strategies the market always has a nash equilibrium in pure or mixed strategies as the number of firms increases the corresponding equilibria converge in distribution to a perfectly competitive price this result provides a justification for perfect competition that is based on an explicit account of price formation however monopoly prices persist with a positive but vanishing probability regularity or well defined inverse demand functions are not required

optimal departures from marginal cost pricing focuses on departures from marginal cost pricing optimal allocation or resources level of tax revenue that will be collected by the government theorems developed for resource allocation ebsco

the costs of charging plug in electric vehicles pevs within day variation in emissions and electricity prices abstract the social costs of charging plug in electrical vehicles pevs that vary by times of day and by levels of emissions in electricity production are investigated using data available for the sacramento area in the united states for 2013 we estimate marginal emission rates of electricity and marginal price of electricity provided for charging pevs at different times of the day as the marginal emission rates and wholesale electricity price have different daily patterns there is a trade off between emission and charging cost moreover the estimates in the literature of the social costs for the most important emission co2 vary substantially implying that the social cost of charging pevs vary with the assumed cost simulations show that the charging time of lowest social costs for pevs is found to be at midnight if the social cost of co2 is not very high

does gibrat s law hold evidence from canadian retail and manufacturing firms this paper investigates the validity of gibrat s law holding for firms in manufacturing and retail trade sectors the object is to expand our knowledge of gibrat s law to include non manufacturing firms a unique longitudinal firm level database which contains information on canadian incorporated establishments enables the inter industry comparison the findings of the analysis are that gibrat s law is violated in both manufacturing and retail sectors violations of gibrat s law for both sectors include i growth rates that depend on firm size ii growth variability that depends on firm size and iii a negative persistence of firm growth finally age effects or selection effects are not the causes of these violations