estimating the economic impacts of power supply interruptions abstract the cost of power system rationing which is a crucial parameter for determining optimal resilience investments is usually estimated using reduced form linear models or ordinary input output analysis however such methods do not properly address either consumers rational reactions to rationing policy or policy design nonlinearities to solve this problem this paper estimates the effects of power system rationing using a general equilibrium model the model solution shows that the power cut distribution among industries is a critical variable for quantifying policy effects and provides insights into optimal policy design

development and application of a cost benefit framework for energy reliability using probabilistic methods in network planning and regulation to enhance social welfare the n 1 rule although electricity is crucial to many activities in developed societies guaranteeing a maximum reliability of supply to end users is extremely costly this situation gives rise to a trade off between the costs and benefits of reliability the dutch government has responded to this trade off by changing the rule stipulating that electricity networks must be able to maintain supply even if one component fails known as the n 1 rule even in maintenance situations this rule was changed by adding the phrase unless the costs exceed the benefits we have developed a cost benefit framework for the implementation and application of this new rule the framework requires input on failure probability the cost of supply interruptions to end users and the cost of investments a case study of the dutch grid shows that the method is indeed practicable and that it is highly unlikely that n 1 during maintenance will enhance welfare in the netherlands therefore including the limitation unless the costs exceed the benefits in the rule has been a sensible policy for the netherlands and would also be a sensible policy for other countries

preference heterogeneity and asset prices an exact solution abstract we introduce a general equilibrium model of a multi agent pure exchange economy and find a set of conditions that enable us to obtain explicit closed form solutions to the equilibrium interest rate stock price risk premium and stock market volatility when investors have heterogenous risk aversions because the market is dynamically complete full risk sharing obtains and a representative agent can be constructed though the risk aversion of this agent fluctuates over time with the state of the economy as the relative wealth distribution of the individual investors changes we show that preference heterogeneity can cause asset prices to be significantly more volatile than the underlying dividends and that it can lead to leverage like effects in volatility in the sense that volatility increases after stock market declines

estimating the economic costs of electricity deficit using input output analysis the case of brazil the objective of this article is to present a methodology to estimate the marginal cost of electric energy deficit in the long term using input output i o analysis we obtain a deficit marginal cost dmc curve that is not limited to a small number of levels such as the curve used currently in brazil which is limited to four levels the marginal cost of deficit is an important exogenous parameter used in the model s chain to calculate the operation s marginal cost and short term market pricing the electric energy deficit is a temporary lack of continuity in meeting demand which is usually predictable and involves prior notice to the consumer the cause of this deficit may be a lack of investment and or low water inflows that impact the production of hydroelectric power plants in this study the marginal cost of the deficit is obtained from restrictions on the provision of electricity for productive sectors and by calculating the corresponding impact on the gross domestic product the proposed metho

estimation of the inconvenience cost of a rolling blackout in the residential sector the case of south korea abstract south korea is experiencing a serious imbalance in electricity supply and demand which caused a blackout in 2011 the korean government has planned to perform a rolling blackout to prevent large scale blackouts when the electricity supply reserve margin reaches less than 1 million kw this study attempts to estimate the inconvenience cost of household customers from a rolling blackout by using survey data to this end we apply a contingent valuation method cvm to measure their willingness to pay wtp in order to avoid a rolling blackout i e the suspension of electricity supply in this study we estimate the inconvenience costs stemming from both an unannounced and an announced rolling blackout as a result we find that the inconvenience cost of a sudden rolling blackout is estimated at 3900 67 krw 3 56 usd per month per household while that of an announced rolling blackout stands at 3102 95 krw 2 83 usd this difference in costs shows that people place value in receiving prior notice of a blackout and that inconvenience costs of between 166 0 billion krw 151 6 million usd and 174 3 billion krw 159 2 million usd per year can be reduced nationwide by giving households advance notice of a planned rolling blackout

developing marginal costs for real time pricing the authors describe an approach for forecasting day ahead hourly costs for real time pricing of electricity marginal costs have two components marginal operating costs and marginal outage costs the approach for estimating marginal operating costs is a modification of techniques developed for security constrained dispatch the approach for marginal outage costs involves estimating the economic damages associated with outages as well as the load related probability that an outage will occur data problems and procedures required for model validation are also addressed

a general equilibrium model of portfolio insurance this article examines the effects of portfolio insurance on market and asset price dynamics in a general equilibrium continuous time model portfolio insurers are modeled as expected utility maximizing agents martingale methods are employed in solving the individual agents dynamic consumption portfolio problems comparisons are made between the optimal consumption processes optimally invested wealth and portfolio strategies of the portfolio insurers and normal agents at a general equilibrium level comparisons across economies reveal that the market volatility and risk premium are decreased and the asset and market price levels increased by the presence of portfolio insurance article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

investor heterogeneity asset pricing and volatility dynamics abstract we provide an explicit characterization of the equilibrium when investors have heterogeneous risk preferences given market completeness investors can achieve full risk sharing thus a representative agent can be constructed though this agent s risk aversion changes over time as the relative wealths of the individual investors change we show that volatility depends on the covariance of aggregate risk aversion and stock returns we find that heterogeneity increases volatility produces volatility clustering arch effects and leverage like effects option prices exhibit implied volatility skews there is predictability and we assess the magnitude of investors hedging demands and trading volume further diversity is beneficial to all agents and entails welfare gains that can be substantial

identifying deprivation profiles in spain a new approach usually an indirect approach for measuring deprivation or poverty is used with poverty lines however some studies have used a direct approach to measure deprivation or poverty the aim of this study is improving the identification of the poor people the central point of the concept of deprivation used is related to the opportunity to have or do something therefore deprivation means an inability to get the goods facilities and opportunities which are usual in the household environment since all of the needed variables are categorical the latent class model is used to solve this problem because it is the best model to achieve this objective

outage costs in chilean industry this paper estimates the cost of energy shortages to chilean industry the information was obtained from a sample survey carried out shortly after the 1989 electricity restriction the results obtained show that a 10 one month equiproportional restriction involves an average net outage cost of us 7 7 kw h 1 in the same scenario the average outage cost drops to us 3 2 kw h 1 when a limited selective restriction is applied we show that under current legislation the outage cost in fact lies between the costs of an equiproportional and a selective restriction however subtle modifications to legislation would make it possible to allocate the scarce supply efficiently

optimal electricity supply reliability using customer shortage costs abstract this paper describes an economic cost benefit method for determining the optimal power system capacity and reliability of electricity supply using customer shortage costs the approach is based upon identifying a system plan that simultaneously considers cost of service as well as value of service and maximizes the net economic benefits taking into account the interdependence between electricity reliability price and demand in contrast to the existing literature on this subject which considers only customer outage costs this paper argues that it is the related but considerably broader notion of customer shortage cost that is more relevant in the context of optimizing the reliability of electricity supply the paper develops a method for estimating shortage costs and sketches an integrated framework for optimizing reliability using such costs

the dynamics of the volatility skew a kalman filter approach abstract much attention has been devoted to understanding and modeling the dynamics of implied volatility curves and surfaces this is crucial for both trading pricing and risk management of option positions we suggest a simple yet flexible model based on a discrete and linear kalman filter updating of the volatility skew from a risk management perspective we assess whether this model is capable of producing good density forecasts of daily returns on a number of option portfolios we also compare our model to the sticky delta and the vega gamma alternatives we find that it clearly outperforms both alternatives given its ability to easily account for movements of different nature in the volatility curve

investment planning for hydro thermal power system expansion stochastic programming employing the dantzig wolfe decomposition principle this paper presents an application of the dantzig wolfe decomposition principle to the problem of investment planning in the electric power sector the formulation of the capacity planning problem incorporates uncertainties in long term load growth and in fuel supply availability in addition the formulation permits the inclusion of such demand side investment decisions as conservation as well as conventional and renewable supply investments and it allows flexibility in modeling system reliability reliability targets can be incorporated as constraints or reliability can be optimized by minimizing customer outage costs in addition to investment costs and operating costs results of an application to the pacific northwest involving problem sizes up to 30 000 rows and 54 000 columns are reported

investor heterogeneity market segmentation leverage and the equity premium puzzle abstract financial economists for the past two decades have attempted to explain why the equity premium is so high now known as the equity premium puzzle epp we model investor heterogeneity market segmentation and optimal leverage using the time separable standard power utility market completeness and ignoring transaction costs to explain the epp we explain both the epp and the related risk free rate puzzle without resorting to preference modification furthermore we show a unique interior equilibrium for the debt ratio contrary to the work by f modigliani m h miller the cost of capital corporation finance and the theory of investment american economic review 48 1958 261 297 corporate income taxes and the cost of capital american economic review 53 1963 433 443 and s c myers presidential address the capital structure puzzle journal of finance 39 1984 575 592 our simulations show the relevance of our models

value of service reliability the authors present the value of service vos reliability evaluation approach which explicitly incorporates into the planning process customer choices regarding reliability worth and service costs using the least cost planning framework and taking advantage of the recent advances in the quantification of outage costs this approach determines the optimal level of reliability for the utility and its customers the approach considers system operational measures the so called emergency actions that the operators invoke in times of dwindling reserves information on customer outage costs associated with such actions is incorporated using a probabilistic framework this approach permits utilities to plan for levels of reliability commensurate with the customers willingness to pay the application of this methodology to planning problems is discussed numerical results for a large utility are presented

role of targeted policies in mainstreaming renewable energy in a resource constrained electricity system a case study of karnataka electricity system in india india is aggressively pursuing its renewable energy capacity expansion goals targeted policies such as feed in tariff fit renewable purchase obligation rpo and renewable energy certificate rec are introduced to stimulate renewable energy capacity expansion as well as generation currently indian power utilities treat rpo targets as a cost burden and therefore there is prevalence of non compliance even other policies such as fit and recs in their present form have failed to influence increase in renewable electricity supply this has lead us to raise an important question whether these policies are adequate for building a cost effective renewable energy based low carbon electricity system for india in this paper we discuss the impact of above targeted policies in increasing the share of renewable electricity generation in the case of karnataka state electricity system various scenarios are developed and analysed using mixed integer programming model to study the impacts the results suggest that optimally managed fit and rec schemes can provide opportunities for utilities to benefit from reduced costs overall the above policies are inadequate and introduction of market based incentives which expand the scope of trading in renewable energy certificates are essential to achieve the desired objectives

optimal blackouts empirical results on reducing the social cost of electricity outages through efficient regional rationing abstract the demand and supply of electricity must always balance if supply falls short of demand then price increases or voluntary demand reductions might help to maintain the balance in the system should these prove insufficient then rationing is necessary rationing means interrupting the electricity delivery to certain areas or specific electricity users in order to preserve system stability since the cost of an interruption differs among electricity users the social cost of different rationing mechanisms varies this paper explores the cost difference between efficient regional rationing minimizing social costs by rationing regions with low costs first and random rationing not taking into account social costs for this the value of lost load calculations of de nooij et al de nooij m bijvoet c c koopmans c c 2007 the value of supply security the costs of power interruptions economic input for damage reduction and investment in networks energy economics 29 2 277 295 are refined for the netherlands it is shown that efficient rationing can reduce social costs by 42 to 93

multidimensional approaches to poverty measurement an empirical analysis of poverty in belgium france germany italy and spain based on the european panel this article has three goals first we wish to compare three multidimensional approaches to poverty and check to what extent they identify the same households as poor second we aim at better understanding the determinants of poverty by estimating logit regressions with five categories of explanatory variables size of the household age of the head of the household her gender marital status and status at work third we introduce a decomposition procedure proposed recently in the literature the so called shapley decomposition in order to determine the exact marginal impact of each of the categories of explanatory variables our empirical analysis is based on data made available by the european community household panel echp we used its third wave and selected five countries belgium france germany italy and spain

the information content of implied volatilities and model free volatility expectations evidence from options written on individual stocks abstract we measure the volatility information content of stock options for individual firms using option prices for 149 us firms and the s p 100 index we use arch and regression models to compare volatility forecasts defined by historical stock returns at the money implied volatilities and model free volatility expectations for every firm for 1 day ahead estimation a historical arch model outperforms both of the volatility estimates extracted from option prices for 36 of the firms but the option forecasts are nearly always more informative for those firms that have the more actively traded options when the prediction horizon extends until the expiry date of the options the option forecasts are more informative than the historical volatility for 85 of the firms however at the money implied volatilities generally outperform the model free volatility expectations

optimal production with uncertain interruptions in the supply of electricity abstract in this paper we develop a model to measure expected electricity outage costs in the industrial and commercial sectors four sources contribute to the costs of outage in these sectors foregone profits output possible reduction in productivity due to the outage damage to materials and payments to labor during the outage the beginning and duration of the electricity outage are random variables with known distribution functions thus the business customer maximizes his expected profits taking into account his ability or lack of ability to respond to the random electricity outage the model is applied assuming a quadratic production function to eleven industrial branches in israel the estimates indicate a large variation in customer preferences for reliability

optimal consumption and portfolio policies when asset prices follow a diffusion process abstract we consider a consumption portfolio problem in continuous time under uncertainty a martingale technique is employed to characterize optimal consumption portfolio policies when there exist nonnegativity constraints on consumption and on final wealth we also provide a way to compute and verify optimal policies our verification theorem for optimal policies involves a linear partial differential equation unlike the nonlinear partial differential equation of dynamic programming the relationship between our approach and dynamic programming is discussed we demonstrate our technique by explicitly computing optimal policies in a series of examples in particular we solve the optimal consumption portfolio problem for hyperbolic absolute risk aversion utility functions when the asset prices follow a geometric brownian motion the optimal policies in this case are no longer linear when nonnegativity constraints on consumption and on final wealth are included by these examples one can see that our approach is much easier than the dynamic programming approach

priority service pricing investment and market organization tingent forward delivery contracts offered by a seller each customer s selection of one contract from the menu determines the customer s service order or priority in each contingency the seller rations supplies by serving customers in order of their selected priorities until the supply is exhausted or all customers are served various forms of priority service are widely

economic costs of electricity supply interruptions us and foreign experience abstract this paper investigates the costs of interruptions in electricity service to customers this information is a key input in planning power system reliability using an economic cost benefit approach the paper reviews the literature from the perspective of identifying alternate methodological approaches used their strengths and weaknesses and potential for bias it presents and compares outage cost estimates found in the literature on a common denominator basis it attempts to explain the sources of the wide range of variation observed in different study estimates and it identifies the need for further work on this important topic

power shortages in developing countries impacts and policy implications abstract this paper is concerned with the short and long run economic impacts of power supply inadequacy in developing countries the paper provides an overview of the methodology for assessing the economic costs of power shortages and presents monetary estimates of some components of these costs for several developing countries particularly india and pakistan the final section discusses the policy implications of the problem including the need for significant changes in investment planning and resource mobilization strategies efficiency improvements pricing reforms and the integration of public and private power suppliers

intertemporal asset pricing with heterogeneous beliefs abstract we examine the behaviour of the interest rate asset prices and asset holdings in an economy with heterogeneous rationally updated beliefs about the expected rate of production growth the equilibrium interest rate is a weighted average of the interest rates that would prevail in economies populated by homogeneous agents with the beliefs of the respective agents in the heterogeneous model the weights are given by the fractions of total wealth held financial innovation affects the dynamics of allocations and prices but preserves the aggregate output process and the structure of equilibrium asset prices also display the wealth weighted average characterization journal of economic literature classification numbers c60 d52 d91 g12

the willingness to pay by households for improved reliability of electricity service in north cyprus abstract this research examines households willingness to pay wtp for an improved electricity service households wtp is estimated using the payment ladder contingent valuation cv data from 350 in person interviews in north cyprus in order to avoid the cost of outages households are willing to incur a 13 8 increase in their monthly electricity bill a cost benefit analysis cba indicates that the annualized economic benefits of improved reliability of the electricity service would be approximately usd 35 6 million for the residential sector this figure is more than enough to finance the investments needed to completely eradicate any electricity outages in addition the fuel savings from substituting the generation of the new plants for the old plants would yield about usd 32 9 million per year in fuel savings hence a change from the current low reliability policy to one of providing a high quality service would yield an economic net present value to the residents of north cyprus of twice the investment costs or usd 173 3 million within five years

flexible strategies for load demand management using dynamic pricing the need for and potential role of flexible pricing options which offer an efficient means for achieving a utility s load demand management objectives are discussed the focus is on dynamic tariffs by incorporating real time features within one or more key parameters of the tariff such pricing options can be tailored to offer the degree of flexibility that is necessary and cost effective for achieving the given demand management objective s

a note on capital asset pricing and heterogeneous taxes abstract in this paper we present a stylized model where we show how asset prices i e required expected rates of returns may be characterized in a world with heterogeneous asset taxes within a simple capm like framework we derive an after tax beta equal to the pre tax beta multiplied by a non obvious asset specific tax adjustment we further show in what sense the security market line here can be replaced by a security market fan well known capm relations are obtained as special cases and policy implications are analyzed

least cost energy strategies for power system expansion abstract this paper describes a theoretical framework and practical procedure for identifying least cost energy strategies for power system expansion under such a strategy the socially optimal decision is defined by a least cost combination of not only conventional supply side generating options but also conservation and renewable resource options such that the cost of providing an incremental unit of electricity from all resources is the same in addition under a least cost energy strategy the reliability of electricity supply is determined on an economically optimal basis results of an actual case study of the pacific northwest region of the usa are presented

equilibrium analysis of portfolio insurance a martingale approach is used to characterize general equilibrium in the presence of portfolio insurance insurers sell to noninsurers in bad states and general equilibrium requires that the risk premium rises to induce noninsurers to increase their holdings we show that portfolio insurance increases price volatility causes mean reversion in asset returns raises the sharpe ratio and volatility in bad states and causes volatility to be correlated with volume we also explain why out of the money sp that is the demand for an absolute level of price protection is equivalent to a demand for put options 1 we show that a similar argument can be used in a

financial intermediation in the theory of the risk free rate abstract this paper constructs a general equilibrium model of the interaction between financial intermediaries and financial markets that sheds some light on the short term volatility of real interest rates the main findings of the paper are as follows when financial intermediaries issue contingent non contingent liabilities an increase in the consumers relative risk aversion coefficient decreases increases the interest rate also the interest rate rises when capitalists are less risk averse and financial intermediaries are hit by a liquidity shock

customer preferences for reliable power supply using data on actual choices of back up equipment this paper empirically examines customer preferences for the reliable sources of electricity using data obtained from a survey of back up systems owned by large computer users in japan the empirical results based on probabilistic discrete choice models indicate that 1 customers face a trade off between the price and the reliability of the power supply and 2 customer characteristics such as types of business and levels of electricity usage have significant impacts on the choice of back up apparatuses the estimates of cost changes that would offset reliability changes imply that the financial and communications sectors are more concerned about reliability than are other sectors copyright 1994 by mit press

assessing energy supply security outage costs in private households abstract the objective of this paper is to contribute to the topic of energy supply security by proposing a monte carlo based and a survey based model to analyze the costs of power interruptions outage cost estimations are particularly important when deciding on investments to improve supply security e g additional transmission lines in order to compare costs to benefits but also other policy decisions on measures that have direct or indirect consequences for the supply security e g a phasing out of nuclear energy need to be based on results from outage cost estimations the main focus of this paper lies with residential consumers but the model is applied to commercial industrial and governmental consumers as well there are limited studies that have approached the problem of evaluating outage cost when comparing the results of these studies they often display a high degree of diversification as consumers have different needs and dependencies towards the supply of electricity because of varying circumstances and preferences a great diversity in outage cost is a logical consequence to take the high degree of uncertainties into account a monte carlo simulation was conducted in this study for the case of private households in germany

evaluation of the marginal outage costs of generating systems for the purposes of spot pricing this paper describes a methodology based on quantitative power system reliability evaluation for calculating the marginal outage costs of generating systems the proposed method involves the calculation of the incremental expected unserved energy at a given operating reserve level and lead time and the multiplication of this value by the interrupted energy assessment rate of the system the method is illustrated in this paper by calculating the marginal outage cost profile of the ieee reliability test system and by examining the effect of various modeling assumptions on that profile

estimating the willingness to pay for reliable electricity supply a choice experiment study abstract this research examines households willingness to pay wtp for an improved electricity service households stated wtp is estimated using the choice experiment ce method the data used in the estimations come from 350 in person interviews conducted during the period 5 22 august 2008 in north cyprus compensating variation cv estimates for a zero outage scenario are calculated using the parameter estimates from the mixed logit ml model these are 6 65 ytl turkish lira per month 3 02 usd for summer and 25 83 ytl per month 11 74 usd for winter in order to avoid the cost of outages households are willing to incur a 3 6 and a 13 9 increase in their monthly electricity bill for summer and winter respectively the wtp per hour unserved is 0 28 ytl 0 13 usd for summer and 1 08 ytl 0 49 usd for winter a preliminary cost benefit analysis indicates that the annualized economic benefits are approximately 42 7 million ytl 19 4 million usd for the residential sector this would justify an investment in additional generation capacity of approximately 268 mw which is far more than that which is needed to eliminate the service reliability problem

optimal portfolios when volatility can jump abstract we consider an asset allocation problem in a continuous time model with stochastic volatility and jumps in both the asset price and its volatility first we derive the optimal portfolio for an investor with constant relative risk aversion the demand for jump risk includes a hedging component which is not present in models without volatility jumps we further show that the introduction of derivative contracts can have substantial economic value we also analyze the distribution of terminal wealth for an investor who uses the wrong model either by ignoring volatility jumps or by falsely including such jumps or who is subject to estimation risk whenever a model different from the true one is used the terminal wealth distribution exhibits fatter tails and in some cases significant default risk