efficient and durable decision rules with incomplete information we compare six concepts of efficiency for economies with incomplete information depending on the stage at which individuals welfare is evaluated and on whether incentive constraints are recognized an example is shown in which an incentive efficient decision rule may be unanimously rejected by the individuals in the economy we define durable decision rules which can resist such unanimous rejection and show that efficient durable decision rules exist

reciprocal relationships and mechanism design we study an incomplete information game in which players can coordinate their actions by contracting among themselves we model this relationship as a reciprocal contracting procedure where each player has the ability to make commitments contingent on the other players commitments we differ from the rest of the literature on reciprocal contracting by assuming that punishments cannot be enforced in the event that cooperation breaks down we fully characterize the outcomes that can be supported as perfect bayesian equilibrium outcomes in such an environment we use our characterization to show that the set of supportable outcomes with reciprocal contracting is larger than the set of outcomes available in a centralized mechanism design environment in which the mechanism designer is constrained by his inability to enforce punishments against non participants the difference stems from the players ability in our contracting game to convey partial information about their types at the time they offer contracts we discuss the implications of our analysis for modelling collusion between multiple agents interacting with the same principal

occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

multidimensional mechanism design for auctions with externalities abstract in an auction with externalities a buyer s type is multidimensional and specifies the payoff he would get for each of the n 1 possible outcomes the seller keeps the object or buyer i i 1 n gets the object we provide a characterization of multidimensional incentive compatible mechanisms similar to that for one dimensional mechanisms although reservation utilities are endogenous and type dependent the participation constraint is binding for only one critical type a main difficulty in a multidimensional setting is the integrability condition we present a geometric characterization for discontinuous conservative vector fields in auctions where the buyers submit scalar bids and the seller transfers the object to one of the buyers for sure a second price auction maximizes revenue with two buyers this auction remains optimal even if the seller can set a reservation price journal of economic literature classification numbers c7 c72

lobbying by capital and labor over trade and labor market policies abstract this paper uses the common agency approach to analyze the joint determination of product and labor market distortions in a small open economy capital owners and union members lobby the government on both tariffs and minimum wages while other factors of production are not organized the paper shows that product and labor market distortions always move in the same direction and that their level is not modified by social pacts between capital and labor it also shows that labor market distortions are second best hence conditionality by foreign organizations should target distortions in product markets but not in labor markets

determination of network rental components in a competitive electricity market the locational marginal pricing lmp based settlement results in a surplus collected by the system operator from the consumers the nonlinear transmission losses and the constrained operation of the power system due to operating limits such as power flow limits on transmission lines cause the accumulation of this surplus this accumulated revenue referred to as the network rental in this paper has two main components loss rental and constraint rental this paper develops a method to calculate these different rental components paid by each consumer by combining the power flow tracing and kkt optimality conditions this yields quantitative determination of how each consumer has overpaid in the form of loss rental and constraint rental which in turn can be used to get a better insight of how the rental is accumulated simple three and four bus systems are used to demonstrate the proposed method

revealing rival marginal offer prices via inverse optimization we consider a strategic producer that trades its energy in a multi period network constrained electricity pool and for strategic reasons is interested in identifying its rival producers offer prices considering industry practice we assume that the strategic producer has knowledge of the daily market outcomes i e energy quantities sold bought and resulting locational marginal prices lmps for each time period and all nodes of the network using this information we formulate an inverse optimization problem that allows estimating the rival producers offer prices that have been marginal at any of the time periods under study such problem is well behaved effectively identifies rival offer prices and can be efficiently solved the effectiveness of the proposed technique is illustrated through a simple example and a realistic case study

optimal alliance strategies among retailers under energy deviation settlement mechanism in china s forward electricity market an energy deviation settlement eds mechanism has been proposed to settle the deviation between consumption and energy contracts in china s forward electricity market due to high eds costs of electricity retailers a deviation mutual insurance dmi mechanism is put forward representing an option for electricity retailers to reduce the deviation through contract transfer given this background an optimal alliance strategy is proposed to maximize the utility of different types of individual electricity retailers the alliance income model considers the eds cost reduction and the cooperation cost analyzed based on transaction cost theory tct an improved income allocation method which considers distribution indexes selected by game theory and resource dependence theory rdt is proposed to ensure the comprehensive and reasonable allocation of alliance income considering the expected income and financial risk an evaluation model using conditional value at risk cvar as the financial risk assessment indicator is presented to measure the stability of alliances simulations based on data from a provincial electricity market in china illustrate that the eds costs of retailers can be reduced by selecting appropriate partners for alliance in addition the proposed alliance income allocation method is more reasonable and more targeted than the cooperative game based methods

political economy of income distribution dynamics abstract income distribution varies considerably across countries it tends to become more equal with development in some countries but just the opposite occurs in other countries this paper provides a theoretical investigation of the persistent differences in income distribution across countries over time motivated by the relationship between income distribution and public spending at different school levels for a broad range of countries over the past 30 years the analysis centers on the role of public education where specific investments interact with political involvement by different socio economic groups socio economic groups may form lobbies to influence education policy making the formation of lobbies is endogenous persistent inequality is caused by persistent lobbying efforts of the wealthy that lead to an allocation of public education spending more biased toward them

the tragedy of the commons and economic growth why does capital flow from poor to rich countries we analyze a differential game in which all interest groups have access to a common capital stock we show that the introduction of a technology that has inferior productivity but enjoys private access may ameliorate the tragedy of the commons we use this model to analyze capital flight in many poor countries property rights are not well defined since safe bank accounts in rich countries the inferior technology are available to citizens of these countries they engage in capital flight we show that the occurrence of capital flight does not imply that opening the capital account reduces growth and welfare

collusion under asymmetric information when applied to groups the revelation principle postulates a bayesian nash behavior between agents their binding agreements are unenforceable or the principal can prevent them at no cost we analyze instead a mechanism design problem in which the agents can communicate between themselves and collude under asymmetric information we characterize the set of implementable collusion proof contracts both when the principal offers anonymous and nonanonymous contracts after having isolated the nexi and the stakes of collusion we proceed to a normative analysis perform some comparative statics discuss our concept of collusion proofness and provide some insights about transaction costs in side contracting

marginal loss modeling in lmp calculation this paper discusses the pricing of marginal transmission network losses in the locational marginal pricing approach recently deployed in the iso new england iso ne standard market design smd project implemented by alstom s t d energy automation and information eai business the traditional loss model is studied and a new model is proposed the new model achieves more defendable and predictable market clearing results by introducing loss distribution factors to explicitly balance the consumed losses in the lossless dc power system model the distributed market slack reference is also introduced and discussed the lmp components produced by the two models are studied and compared under changes in slack reference numerical examples are presented to further compare the two models

how not to sell nuclear weapons we consider situations where a sale affects the ensuing interaction between potential buyers these situations are modeled by assuming that an agent who does not acquire the object for sale incurs an identity dependent externality we construct a revenue maximizing auction for the seller we observe that 1 outside options and participation constraints are endogenous 2 the seller extracts surplus also from agents who do not obtain the auctioned object 3 the seller is better off by not selling at all while obtaining some payments if externalities are much larger than valuations

ratifiable mechanisms learning from disagreement in a mechanism design problem participation constraints require that all types prefer the proposed mechanism to some status quo if equilibrium play in the status quo mechanism depends on the players beliefs then the inference drawn if someone objects to the proposed mechanism may alter the participation constraints we investigate this issue by modeling the mechanism design problem as a two stage process consisting of a ratification state followed by the actual play of the chosen game we develop and illustrate a new concept ratifiability that takes account of inferences from a veto in a consistent way

analyzing the impacts of constraint relaxation practices in electric energy markets reliable and economic deployment of a generation fleet to satisfy demand is a complex problem independent system operators isos and regional transmission operators rtos solve complex unit commitment and economic dispatch models to determine appropriate resources to deploy at various time stages due to the complexity of power systems several approximations are made within optimization models including approximations of the transmission network with a linearized formulation known as the direct current optimal power flow dcopf instead of the more realistic formulation known as the alternating current optimal power flow acopf furthermore approximations occur in these models by relaxing specific constraints in the model i e the constraint is allowed to be violated based on a predetermined penalty price by doing so the iso rto receives several benefits including the ability to manage prices clear the market as well as the potential to obtain gains in social welfare market surplus this paper describes the constraint relaxation practices of isos in their unit commitment models and analyzes the corresponding market implications based on these practices

information aggregation through costly political action information about various policy alternatives is dispersed among the individual members of a society prior to a vote over the alternatives some people take costly political action to signal their private information to voters by informing voting decisions political action has potential to decrease the likelihood that voters cast mistaken votes perhaps surprisingly preelection communication may be counterproductive the dispersed information is partially aggregated by the vote and political action may contribute noise to the voting process in some cases the voting mechanism is more likely to implement the full information voting outcome in the absence of preelection political action copyright 1994 by american economic association

the principal agent relationship with an informed principal ii common values in many circumstances a principal may have relevant private information when she proposes a contract to an agent we analyze such a principal agent relationship as a noncooperative game the principal proposes a contract which is accepted or rejected by the agent who for most of our analysis has no private information the contract is executed if accepted otherwise the reservation allocation takes effect this allocation may be determined by a pre existing contract which the principal by her proposal is attempting to renegotiate or it may simply be the no trade point in this paper we assume that the principal s information directly affects the agent s payoff before solving the game we discuss pareto efficiency with asymmetric information we define an incentive compatible allocation to be weakly interim efficient wie if there exists no alternative incentive compatible allocation that both parties prefer for all possible beliefs that the agent might have about the principal s private information type we show that any wie allocation is interim efficient ie for some beliefs the rothschild stiglitz wilson rsw allocation relative to the reservation allocation l is the allocation that maximizes the payoff of each type of principal within the class of incentive compatible allocations that guarantee the agent at least the utility he gets from a irrespective of his beliefs about the principal s type the equilibrium set of the contract proposal game consists of the allocations that weakly pareto dominate the rsw allocation thus there is a unique equilibrium outcome if and only if the latter is ie and the equilibrium outcome is the rsw allocation itself after characterizing the equilibrium allocations we study those that are renegotiation proof when either the principal or the agent leads the renegotiation we then compare our contract proposal game which is a signaling model with its screening counterpart we conclude by extending our results to the case in which the agent as well as the principal has private information under the assumption of quasi linear preferences

the principal agent relationship with an informed principal the case of private values we analyze the principal agent relationship when the principal has private information as a three stage noncooperative game contract proposal acceptance refusal and contract execution we assume that the information does not directly affect the agent s payoff private values equilibrium exists and is generically locally unique moreover it is pareto optimal for the different types of principal the principal generically does strictly better than when the agent knows her information equilibrium allocations are the walrasian equilibria of an economy where the traders are different types of principal and exchange the slack on the agent s individual rationality and incentive compatibility constraints

two stage stochastic programming model for market clearing with contingencies planning for contingencies typically results in the use of more expensive facilities before disruptions it leads to different prices and energy availability at various network locations depending on how the contingency analysis is performed in this paper we present a two stage stochastic programming model for incorporating contingencies the model is computationally demanding and made tractable by using an interior point log barrier method coupled with benders decomposition the second stage optimal recourse function rf defines the most economically efficient actions in the post contingency state for returning the system back to normal operating conditions the approach is illustrated with for two examples small with 8 buses 11 branches and ieee medium scale with 300 buses 411 branches

demand side management for regulation service provisioning through internal pricing we develop a market based mechanism that enables a building smart microgrid operator smo to offer regulation service reserves and meet the associated obligation of fast response to commands issued by the wholesale market independent system operator iso who provides energy and purchases reserves the proposed market based mechanism allows the smo to control the behavior of internal loads through price signals and to provide feedback to the iso a regulation service reserves quantity is transacted between the smo and the iso for a relatively long period of time e g a one hour long time scale during this period the iso follows shorter time scale stochastic dynamics to repeatedly request from the smo to decrease or increase its consumption we model the operational task of selecting an optimal short time scale dynamic pricing policy as a stochastic dynamic program that maximizes average smo and iso utility we then formulate an associated nonlinear programming static problem that provides an upper bound on the optimal utility we study an asymptotic regime in which this upper bound is shown to be tight and the static policy provides an efficient approximation of the dynamic pricing policy equally importantly this framework allows us to optimize the long time scale decision of determining the optimal regulation service reserve quantity we demonstrate verify and validate the proposed approach through a series of monte carlo simulations of the controlled system time trajectories

experience with pjm market operation system design and implementation this paper outlines the fundamental features of the pjm day ahead energy market and real time energy market the day ahead market is based on a voluntary least cost security constrained unit commitment and dispatch with several fundamental design features that ensure the market is robust and competitive this market offers market participants the option to lock in energy and transportation charges at binding day ahead prices the flexibility of the day ahead market rules provide all participants with equal access to the day ahead market through consistent price signals and by providing all participants with the ability to submit virtual demand bids and virtual supply offers these mechanisms promote liquidity in the markets economic incentives drive the convergence of the day ahead and real time market prices the real time energy market is based on security constrained economic dispatch and is cleared based on the actual system operating conditions the lmp based markets support reliable grid operations through efficient price signals

standard auctions with financially constrained bidders we develop a methodology for analyzing the revenue and efficiency performance of auctions when buyers have private information about their willingness to pay and ability to pay we then apply the framework to scenarios involving standard auction mechanisms in the simplest case where bidders face absolute spending limits first price auctions yield higher expected revenue and social surplus than second price auctions the revenue dominance of first price auctions over secondprice auctions carries over to the case where bidders have access to credit these rankings are explained by differences in the extent to which financial constraints bind in different auction formats

resilient allocation rules for bilateral trade abstract in decision problems where agents hold private information an uninformed central planner may be unable to identify pareto improvements that each agent himself could identify we examine allocation rules in a simple bilateral bargaining problem which are resilient in the sense that no improvements could be both identified and collectively achieved when the traders themselves can bargain over the mechanism specifically recursively resilient rules are status quo sequential equilibrium outcomes of any finite game of offers and counter offers of alternative mechanisms these rules can survive regardless of the order in which the traders speak the main result gives a simple characterization of recursively resilient rules showing that interim efficient rules are recursively resilient but there is a nonnull set of interim inefficient recursively resilient rules as well since certain allocation rules can only result when one or the other trader speaks first recursively resilient rules are a natural choice for a planner who does not possess the precise details of the negotiation process between the traders journal of economic literature classification numbers c70 c72 c78 d82

improving an unjustified common practice in ex post lmp calculation a common practice for the ex post lmp calculation at a number of u s isos uses a small constant range typically from 2 0 to 0 1 mw as each generator s lower and upper bounds this paper shows that this is an unjustified practice as the marginal units and lmp may change if the bounds are changed a simple yet effective improvement is proposed

energy and reserve market designs with explicit consideration to lost opportunity costs the primary goal of this work is to investigate the basic energy and reserve dispatch optimization cooptimization in the setting of a pool based market of particular interest is the modeling of lost opportunity cost introduced by reserve allocation the authors derive the marginal costs of energy and reserves under a variety of market designs they also analyze existence algorithm and multiplicity of optimal solutions the results of this study are used to support the reserve market design and implementation in iso new england control area

unequal societies income distribution and the social contract this paper develops a theory of inequality and the social contract aiming to explain how countries with similar economic and political fundamentals can sustain such different systems of social insurance fiscal redistribution and education finance as those of the united states and western europe with imperfect credit and insurance markets some redistributive policies can improve ex ante welfare and this implies that their political support tends to decrease with inequality conversely with credit constraints lower redistribution translates into more persistent inequality hence the potential for multiple steady states with mutually reinforcing high inequality and low redistribution or vice versa

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

inefficient lobbying populism and oligarchy this paper analyses the efficiency consequences of lobbying in a production economy with imperfect commitment we first show that the pareto efficiency result found for truthful equilibria of common agency games in static exchange economies no longer holds under these more general conditions we construct a model of pressure groups where the set of efficient truthful common agency equilibria has measure zero second we show that under fairly general assumptions the equilibrium will be biased against the group with the highest productivity of private capital reflecting the fact that on the margin less productive groups find lobbying relatively more rewarding finally as an application if lobbies representing the poor and the rich have identical organizational capacities we show that the equilibrium is biased towards the poor who have a comparative advantage in politics rather than in production if the pressure groups differ in their organizational capacity both pro rich oligarchic and pro poor populist equilibria may arise all of which are inefficient with respect to the constrained optimum

deliverable robust ramping products in real time markets the increasing penetration of variable energy resources has led to more uncertainties in power systems flexible ramping products frp have been adopted by several electricity markets to manage the uncertainties we reveal that neglected line congestion for frp may not only cause infeasibility but also result in a failure of cost recovery to address the deliverability issues on frp this paper proposes a new concept deliverable robust ramping products drrp in real time markets the drrp includes generation ramping reserve and generation capacity reserve the drrp is deliverable and immunized against any predefined uncertainty it also fully addresses the bid cost recovery issue caused by the line congestion in existing frps the prices of drrp are derived within the affine adjustable robust optimization aaro framework these prices can be used to identify valuable reserves among available reserves and quantify the values of flexible resources that provide reserves this paper also proposes a general approach to obtaining the time decoupled prices for drrp and generation which can be used for the market settlement of the first interval only in real time markets simulations on a 3 bus system and the ieee 118 bus system are performed to illustrate the concept of drrp and the advantages of drrp compared to existing frp

political equilibrium income distribution and growth this paper analyzes the impact of income distribution on growth when investment in human capital is the source of growth and individuals vote over the degree of redistribution in the economy the model has three main features first very different patterns of income distribution are conducive to high growth at different levels of per capita income second growth is associated with an externality whereby investment in human capital by one group increases the productivity of other groups thus potentially enabling them to invest in human capital third the initial pattern of income distribution and the resulting political equilibrium are crucial in determining whether the transmission of this externality is promoted in which case growth is enhanced or prevented in which case growth is stopped using a non overlapping generations model with voting i derive several empirical implications in particular the model implies an inverted u relation between levels of inequality and levels of income in cross sections but not necessarily in time series a result that seems consistent with a number of empirical studies

interim third party selection in bargaining abstract third party intervention can reduce the risk of conflict in situations where the bargaining failure is due to asymmetric information in this paper i consider the selection of a third party in a two person bargaining problem where each disputant has private information about its relative strength or weakness for a class of problems i find that the disputants choose the third party that is best for the strong type but worst for the weak type due to the incentive of each disputant to avoid seeming weak to their adversary the selected third party s intervention entails a higher ex ante chance of conflict than intervention by any other alternative this paper shows how the process of interim third party selection can have important consequences for the outcome of a third party intervention in bargaining

cooperation in community interaction without information flows we study cooperative behaviour in communities where the flow of information regarding past conduct is limited or missing players are initially randomly matched with no knowledge of each other s past actions they endogenously decide whether or not to continue the repeated relationship there is incomplete information regarding player types a subset of the population is myopic while the remainder have discount factors that permit cooperation in principle we define social equilibrium in such communities such equilibria are characterized by an initial testing phase followed by cooperation if the test is successful it is precisely the presence of myopic types that permit cooperation by raising barriers to entry into new relationships we examine the implications of increased patience which takes two forms an increase in the number of non myopic types and an increase in the discount factor of non myopic types these two notions turn out to have strikingly different implications for the degree of cooperation that can be sustained

innis lecture equity and equality is horizontal equity he the most widely accepted principle of equity or does it stand in opposition to the advancement of human welfare this paper argues that the case for the he principle is not as straightforward as is usually thought and that it requires advanced notions of justice and well being the most likely ethical basis for he appears to combine a rawlsian maximin principle and a view of well being that allows for relative local comparison effects the paper also explores some of the dimensions of equality and well being along which the he principle can be applied and presents a number of examples showing how he considerations can provide an important input into policy analysis le principe d d equite horizontale he constitue t il le principe ethique le plus largement admis ou est il un frein a l avancement du bien etre cet article explique pourquoi les assises ethiques du principe d eh ne sont pas aussi claires qu il est parfois suggere et demontre que ce principe fait plutot appel a des notions avancees de justice et de bien etre les assises morales les plus susceptibles d appuyer le principe d eh semblent combiner un argument de type maximin rawlsien et une perspective du bien etre qui tient compte des effets locaux relatifs de comparaison le papier explore egalement certaines des dimensions de l egalite et du auxquelles le principe d eh peut etre applique et presente un certain nombre d exemples montrant en quoi de considerations de type eh peuvent influencer l analyse de politiques

ex post pricing in the co optimized energy and reserve market this paper discusses an alternative to the ex post pricing model currently under development within iso new england s iso ne ancillary service market since iso ne s real time ancillary service market co optimizes both energy and reserve products ex post pricing is needed for both energy and reserve a co optimization approach for ex post pricing requires defining complex pricing rules and implementing heuristics to ensure consistent binding constraints with the ex ante dispatch in order to avoid complexity and uncertainty of required heuristics a new ex post pricing schema is proposed to calculate the ex post energy and reserve prices in a decoupled way while recognizing the coupling effect of energy and reserve in the proposed approach ex post energy prices are first computed by incorporating the ex ante marginal opportunity cost of reserve in the energy offer the ex post reserve prices are then calculated by considering the ex post marginal opportunity cost of energy this approach simplifies the implementation of ex post pricing rules in the iso ne market numerical examples are presented to further demonstrate the validity of this approach

the effect of contingency analysis on the nodal prices in the day ahead market we look at the effect of modeling branch outage contingencies on locational marginal prices to model contingencies in the day ahead auction we formulate a two stage stochastic program rather than follow the current practice of including a list of possible contingencies that must be satisfied we incorporate a larger set of contingencies in the model and allow contingencies to result in load reductions outages at a cost the model can be used and interpreted in two ways one is to look at the tradeoff between reliability and outage costs another is to consider the load losses resulting from a contingency to be consumer offers of load reductions in response to line outages as part of the day ahead auction in analyzing the model structure we find that the prices in the model closer in definition to those currently used in the day ahead auction do not maximize expected surplus because the day ahead auction produces prices that assume shortages will never occur this raises issues with the design of auctions with important stochastic elements in the market we present results for a 68 node grid with 86 branches lines and transformers to illustrate how prices and expected values change as the costs of outages are varied

cheap talk and burned money we augment the standard crawford sobel 1982 econometrica 50 1431 1451 model of cheap talk communication by allowing the informed party to use both costless and costly messages the issues on which we focus are the consequences for cheap talk signaling of the option to burn money and the circumstances under which both cheap talk and burned money are used to signal information

pricing energy and ancillary services in integrated market systems by an optimal power flow a detailed ac opf based formulation for procuring pricing and settling energy and ancillary service in simultaneous auctions by integrated market systems is presented the paper provides clear definitions of locational marginal prices for energy and ancillary service marginal prices in terms of lagrange multipliers the characteristics of the prices are analyzed especially when economic substitution among ancillary services is required the paper also evaluates the conditions under which opportunity costs are incurred to units that provide ancillary services it is particularly shown that the intuitive belief that the provision of regulation down service does not incur opportunity cost to the provider in general is not true

corruption and development a review of issues in this paper we start with a discussion of some of the different denotations of the problem of corruption we then consider the ways in which the damaging consequences of corruption operate in a developing economy while not ignoring its possible redeeming features in some cases we pursue the question of why corruption is perceptibly so different in different societies and also persistent finally we examine the feasible policy issues that arise in this context

conflict and distribution abstract we develop a behavioral model that links the level and pattern of social conflict to the societywide distribution of individual characteristics the model can be applied to groups that differ in characteristics such as wealth ethnicity religion and political ideology we settle questions of existence and uniqueness of conflict equilibrium conflict is seen to be closely connected with the bimodality of the underlying distribution of characteristics however in general the conflict distribution relationship is nonlinear and surprisingly complex our results on conflict patterns also throw light on the phenomena of extremism and moderation journal of economic literature classification numbers d63 d72 d74

negotiating bilateral contracts in electricity markets in mixed pool bilateral electricity markets participants can sign forward bilateral contracts several months in advance of its delivery in addition generators may sell to and loads may buy from the pool at the spot price through the day ahead or balancing markets forward bilateral contracts have the advantage of price predictability in comparison with the uncertain spot price however the risk is that such a contract commits the partners to a price that may be disadvantageous compared to the spot price here we propose a systematic negotiation scheme through which a generator and load can reach a mutually beneficial and risk tolerable forward bilateral contract either physical or financial under this approach the generator and load respond rationally to a stream of bilateral bids counter bids and offers counter offers considering their respective benefits while accounting for the risks incurred by the prediction uncertainty in the pool spot price and other market parameters over the length of the contract each negotiating party can choose its own definition of risk which can be influenced by regret value at risk or dispersion from the mean numerical tests show that this flexible negotiating approach can be readily put into practice

the rise of mass consumption societies this paper studies mechanisms behind the rise of mass consumption societies the development process depicted follows the flying geese pattern in which a series of industries take off one after another as productivity improves in these industries each consumer good becomes affordable to an increasingly large number of households which constantly expand the range of goods they consume this in turn generates larger markets for consumer goods which leads to further improvement in productivity for such virtuous cycles of productivity gains and expanding markets to occur income distribution should be neither too equal nor too unequal with too much equality the economy stagnates in a poverty trap with too much inequality the development stops prematurely

wealth constraints lobbying and the efficiency of public allocation abstract in esteban and ray 1999 inequality public allocation and development mimeo we formalize a model in which individuals lobby before the government in order to benefit from some productivity enhancing government action infrastructures direct subsidies permissions in short the government honestly tries to allocate these permissions to the agents that will make the best use of them as revealed by the intensity of their lobbying if the marginal cost of resources varies with wealth the amount of information transmitted through lobbying will depend on the degree of inequality in this paper we summarize the main approach and examine the special case of equal wealth we show that the nature of signaling equilibria is critically affected by per capita wealth

volatility of power grids under real time pricing the paper proposes a framework for modeling and analysis of the dynamics of supply demand and clearing prices in power systems with real time retail pricing and information asymmetry characterized by passing on the real time wholesale electricity prices to the end consumers real time pricing creates a closed loop feedback system between the physical layer and the market layer of the system in the absence of a carefully designed control law such direct feedback can increase sensitivity and lower the system s robustness to uncertainty in demand and generation it is shown that price volatility can be characterized in terms of the system s maximal relative price elasticity defined as the maximal ratio of the generalized price elasticity of consumers to that of the producers as this ratio increases the system may become more volatile since new demand response technologies increase the price elasticity of demand and since increased penetration of distributed generation can also increase the uncertainty in price based demand response the theoretical findings suggest that the architecture under examination can potentially lead to increased volatility this study highlights the need for assessing architecture systematically and in advance in order to optimally strike the trade offs between volatility robustness and performance metrics such as economic efficiency and environmental efficiency

inequality lobbying and resource allocation this paper describes how wealth inequality may distort public resource allocation a government seeks to allocate limited resources to productive sectors but sectoral productivity is privately known by agents with vested interests in those sectors they lobby the government for preferential treatment the government even if it honestly seeks to maximize economic efficiency may be confounded by the possibility that both high wealth and true economic desirability create loud lobbies broadly speaking both poorer economies and unequal economies display greater public misallocation the paper warns against the conventional wisdom that this is so because such governments are more corrupt jel d72 d78 d82 016 in this paper we propose a particular channel through which wealth inequality distorts the resource allocation process our analysis rests on four premises

inequality as a determinant of malnutrition and unemployment policy this paper explores the policy implications that are obtained once it is recognized that at low nutrition intakes a person s productivity is an increasing function of intake in the context of a fully general equilibrium model it is shown that if aggregate assets in an economy are neither large nor small certain patterns of lorenz improving asset redistributions or nutrition transfers increase aggregate output and reduce the volume of involuntary unemployment and the incidence of undernourishment copyright 1987 by royal economic society

an agent based simulation of power generation company behavior in electricity markets under different market clearing mechanisms deregulated electricity markets are expected to provide affordable electricity for consumers through promoting competition yet the results do not always fulfill the expectations the regulator s market clearing mechanism is a strategic choice that may affect the level of competition in the market we conceive of the market clearing mechanism as composed of two components pricing rules and rationing policies we investigate the strategic behavior of power generation companies under different market clearing mechanisms using an agent based simulation model which integrates a game theoretical understanding of the auction mechanism in the electricity market and generation companies learning mechanism results of our simulation experiments are presented using various case studies representing different market settings the market in simulations is observed to converge to a nash equilibrium of the stage game or to a similar state under most parameter combinations compared to pay as bid pricing bid prices are closer to marginal costs on average under uniform pricing while gencos total profit is also higher the random rationing policy of the iso turns out to be more successful in achieving lower bid prices and lower genco profits in minimizing gencos total profit a combination of pay as bid pricing rule and random rationing policy is observed to be the most promising

competitive energy storage in the presence of renewables a large fraction of new distributed generation will use renewable sources and cannot be treated as conventional generators due to high variability energy storage is a natural mechanism for absorbing variability and hence minimizing costly reliance on generator reserves we consider a simple scenario in which energy imbalances are allocated to energy storage representing either cooperation with a renewable producer or competitive operation in markets the optimal storage scheduling strategy is shown to be an inventory control like policy which through mild approximation yields affine relationships with the state variables we develop and numerically evaluate suboptimal policies that approximately incorporate the effects of correlation further approximation enables us to characterize the nash equilibria arising between generation and storage which we use to analyze strategic effects specifically we find that inefficient storage can lead to non socially optimal behavior

strong formulations for multistage stochastic self scheduling unit commitment with the increasing penetration of renewable energy into the power grid system the volatility of real time electricity prices increases significantly this brings challenges for independent power producers to provide optimal bidding strategies the traditional approaches of only attending the day ahead market might not be profitable enough without taking advantage of real time price volatility in this paper we study the optimal bidding strategies for the independent power producers utilizing self scheduling strategies to participate in the real time market considering real time electricity price volatility with the objective of maximizing the total expected profit considering the correlations of renewable energy generation outputs among different time periods the correlations of real time prices are captured in our modeling framework in which we explore a multistage stochastic scenario tree to formulate the price uncertainties accordingly the derived multistage stochastic self scheduling unit com

impact of data quality on real time locational marginal price the problem of characterizing impacts of data quality on real time locational marginal price lmp is considered because the real time lmp is computed from the estimated network topology and system state bad data that cause errors in topology processing and state estimation affect real time lmp it is shown that the power system state space is partitioned into price regions of convex polytopes under different bad data models the worst case impacts of bad data on real time lmp are analyzed numerical simulations are used to illustrate worst case performance for ieee 14 and ieee 118 networks

pricing electricity in pools with wind producers this paper considers an electricity pool that includes a significant number of wind producers and is cleared through a network constrained auction one day in advance and on an hourly basis the hourly auction is formulated as a two stage stochastic programming problem where the first stage represents the clearing of the market and the second stage models the system operation under a number of plausible wind production realizations this formulation co optimizes energy and reserve and allows deriving both pool energy prices and balancing energy prices these prices result in both cost recovery for producers and revenue reconciliation a case study of realistic size is used to illustrate the functioning of the proposed pricing scheme

a theory of misgovernance this paper tries to explain why government bureaucracies are often associated with red tape corruption and lack of incentives the paper identifies two specific ingredients that together can provide an explanation the fact that governments often act precisely in situations where markets fail and the presence of agency problems within the government we show that these problems are exacerbated at low levels of development and in bureaucracies dealing with poor people we also argue that we need to posit the existence of a welfare oriented constituency within the government in order to explain red tape and corruption

energy and reserve dispatch in a multi zone electricity market competitive bidding for ancillary services a s in addition to bidding for energy is increasingly recognized as an important part of electricity markets in this paper an lp based approach is presented for solving the multi product i e energy and a s products multi zone area physical market dispatch problem the approach can explicitly represent various constraints such as reserve requirement constraints network security limits and sharing of constrained resource capacity e g maximum unit generation between energy and reserve the joint dispatch method which dispatches energy and reserve market concurrently is extended to allow inter zonal reserve trading in a multi zone competitive pool numerical examples are included to demonstrate the salient characteristics of the joint dispatch solution

assigning resources to budget constrained agents this article studies different methods of assigning a good to budget constrained agents schemes that assign the good randomly and allow resale may outperform the competitive market in terms of utilitarian efficiency the socially optimal mechanism involves random assignment at a discount an in kind subsidy and a cash incentive to discourage low valuation individuals from claiming the good copyright oxford university press

cartel enforcement with uncertainty about costs what cartel agreements are possible when firms have private information about production costs in order for a cartel agreement to work it must take into account the incentives for firms to misrepresent their cost information and it must provide sufficient reward so that no firm wishes to defect for private cost uncertainty we characterize the set of cartel agreements with side payments that can be supported as bayesian nash equilibria we show that if defection results in either cournot or bertrand competition the incentive problems in large cartels are severe enough to prevent the cartel from achieving the monopoly outcome in contrast with common cost uncertainty the incentive problems become less severe in large cartels allowing perfect collusion

strategic transmission of costly information it is ofren the case that an individual s decision is at least partly based on information received from another and when the agents payoffs depend on both the former s decision and on the latter s information there is an incentive for the informed individual to attempt to bias the decision maker s decision in his or her favor by strategically manipulating the information transmitted in a seminal paper crawford and sobel 1982 hereafter c s study such strategic information transmission in the context of an abstract sender receiver game variants of the crawford and sobel model have been applied widely and as the application varies so often does the interpretation of type in some cases type refers to a preference parameter given by nature as for example in bargaining theory e g farrell and gibbons 1989 matthews 1989 whereas in other settings for instance legislative decision making or expert testimony type refers to more or less technical information concerning how decisions map into final consequences and as such is acquired information e g gilligan and krehbiel 1987 milgrom and roberts 1986 when the information has to be acquired it is natural to suppose the acquisition is costly for otherwise there is no reason why such information is asymmetrically distributed so long as the receiver can observe surely or at least accurately infer whether the sender is informed and so long as messages are cheap talk there is no issue here for strategic information transmission save whether to become informed at all however there are many circumstances when it is inappropri ate to assume the receiver has such knowledge one possibility is that a receiver may know that a sender has some relevant informa tion but be uncertain of the quality of this information a second perhaps more important possibility is that a receiver is unable to tell whether a potential sender is uninformed inter alia this problem constitutes the rationale for ignorance of the law being inadmissible as a legal defense were it admissible then informed miscreants would mimic uninformed transgressors leads voters to be skeptical of politicians claiming ignorance of illegal arms deals and makes the sec sensitive to problems in distinguishing insider trading from legitimate good judgement so there is an intrinsic asymmetry in that it is generally possible for say senders to verify possession of at least some information but it is typically prohibitively difficult to verify any lack of knowledge

overcoming adverse selection how public intervention can restore market functioning as illustrated by liquidity support equity injections and asset repurchases in financial crises and by imf credit lines to countries authorities often intervene in orderto revive markets that have dried up or to create newones in suchsituations agents participate only if they receive from the governmental scheme more than in the marketplace while the market outcome depends on who joins the scheme the paper provides a first analysis of market jumpstarting and its two way interaction between mechanism design and participation constraints in the model sellers in need of cash have private information about the value of their legacy asset the absence of buyer confidence forces authorities to intervene to jump start the market we characterize the optimal intervention and draw two main implications first the government should clean up the market through buybacks of the weakest assets and then through some equity injections and leave the agents with the strongest legacy assets to the market in particular authorities should not substitute fully for the market even when they have no comparative disadvantage in acquiring assets or shares thereof second the government creates its own competition by cleaning up the market from its most toxic pieces at the optimal intervention the government always strictly overpays for the legacy asset yet and unlike what would be suggested by coasian profit evasion the existence of a later market imposes no welfare cost while it is cast in a public intervention context the analysis of mechanismdependent reservation utilities also admits important private sector applications

economic underdevelopment the case of a missing market for human capital abstract this paper demonstrates that the coexistence of developed and underdeveloped countries can be a stationary equilibrium in a world economy with free trade in consumption goods and physical capital an underdeveloped country is characterized by a high ratio of unskilled workers in the labor force a small stock of physical capital a low gross national product a high rate of return on human capital and a corresponding large wage differential between skilled and unskilled workers the critical assumptions are that future labor earnings cannot serve as collateral on a loan and indivisibilities in education

an international review of the implications of regulatory and electricity market structures on the emergence of grid scale electricity storage abstract energy storage systems ess have the potential to make a significant contribution to planning and operation practises in power systems while ess can be used to provide multiple benefits in the power sector widespread use has been restricted by high technology costs lack of deployment experience and the barriers and uncertainties caused by the present electricity market and regulatory structures that were designed for conventional electricity systems this paper reviews countries with high renewable targets and with significant current or planned ess deployments to ascertain the common problems affecting the use of ess on the grid and to establish where changes have been made or proposed to the electricity market and regulatory frameworks three major problems were identified as the undetermined asset class for ess and unbundled electricity system limiting stakeholders from determining and realising multiple ess benefits low electricity market liquidity and changing market conditions and a lack of common standards and procedures for evaluating connecting operating and maintaining ess based on the established barriers recommendations to update or create policies regulation and market arrangements to increase the viability and wider use of grid level ess are discussed the three key regulatory and policy recommendations were identified as an alignment of renewable policies to that of ess creating a separate asset class for ess and associated rules for regulated and competitive operations and standardising assessment frameworks connection and operational procedures for the use of ess finally three main electricity market recommendations include updating rules to support simultaneous ess operation across wholesale ancillary services and capacity markets updating market rules to allow compensation for flexible and highly accurate responsive demand and generation technologies such as ess and updating market ancillary services energy requirements

consolidated dynamic pricing of power system regulation the cost and quality of regulation have been brought to the forefront of power system operations by renewable variability we propose a regulation pricing methodology based on an idea of berger and schweppe in the same manner that locational marginal prices are derived from the dual of economic dispatch let regulation prices be the dual multipliers or costate of an optimal control problem by specializing to the linear quadratic regulator we formulate a regulation pricing policy which in turn allows us to derive statistically correct payments such as imbalance fees we then construct a vickrey clarke groves mechanism to induce selfish agents to honestly report their private valuations and costs of regulation semidefinite programming descriptions of the formulation can be embedded within standard convex economic dispatch constraint sets enabling cooptimization of base load and regulation pricing the approach mechanistically produces prices for any dynamic scenario and can therefore be used to consolidate diverse regulation services we demonstrate this feature by combining traditional frequency regulation area control error and the california independent system operator s flexible ramping product in an example

resistance redistribution and investor friendliness abstract poor communities sometimes resist private investment and destroy economic surplus even if the government has the willingness and ability to redistribute we interpret such acts of resistance as demands for redistribution destruction contains credible information about how the affected group values surplus and such information is used by the government in implementing the optimal redistribution policy the extent of destruction is increasing in the extent of political marginalization of the affected group resistance not only destroys economic surplus it also mutes the investor s incentives to create surplus the government uses a tax subsidy on the investor to maximize weighted social surplus and we show that the possibility of destruction may force the government to be too soft in its negotiations with the investor we discuss several policy instruments that have the potential to improve welfare these include compensation floor for the affected group legal or financial protection for the investor and licensing fees for the investor

information transmission and inefficient lobbying abstract in a seminal paper grossman and helpman 1994 introduced a framework to understand how lobbying influences the choice of import export tariffs in this paper we extend their analysis and assume that lobbies have private information to analyze the effects of information transmission in a grossman and helpman lobby game information transmission leads to two agency costs one refers to the cost of signaling and the other to the cost of screening the lobby s competitiveness the signaling cost reduces distortions resulting from the screening cost on the other hand distortions from the screening cost enhance the signaling cost the two combined effects generate more distortions in the political game than each effect separately tariff protection and lobbies rents are lower than those found in grossman and helpman s truthful equilibrium therefore information transmission may improve welfare through the reduction of rent seeking activities

a theory of trickle down growth and development this paper develops a model of growth and income inequalities in the presence of imperfect capital markets and it analyses the trickle down effect of capital accumulation moral hazard with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities three main conclusions are obtained from this model first when the rate of capital accumulation is sufficiently high the economy converges to a unique invariant wealth distribution second even though the trickle down mechanism can lead to a unique steady state distribution under laissez faire there is room for government intervention in particular redistribution of wealth from rich lenders to poor and middle class borrowers improves the production efficiency of the economy both because it brings about greater equality of opportunity and also because it accelerates the trickle down process third the process of capital accumulation initially has the effect of widening inequalities but in later stages it reduces them in other words this model can generate a kuznets curve

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

the value of an informed bidder in common value auctions abstract i compare two information structures in a common value first price auction with two bidders in one each of the two bidders knows only his own signal about the value of the object and in the other one of the bidders learns his opponent s signal as well gaining the additional information in the second information structure makes the informed bidder worse off if the value is submodular in the bidders signals and better off if it is supermodular if the value is supermodular then the seller s revenue tends to be lower with the informed bidder than without

the dynamics of the wealth distribution and the interest rate with credit rationing are uniquely determined and wealth dispersion among individuals or firms is irrelevant introducing credit rationing into the solow model modifies these conclusions multiple stationary interest rates and wealth distributions can exist because higher initial rates can be self reinforcing through higher credit rationing and lower capital accumulation the wealth accumulation process is ergodic in every steady state but wealth mobility is lower with higher steady state interest rates aggregate output is higher in steady states with lower interest rates because credit is better allocated short run interest rate or distribution shocks can be self sustaining and can have long run effects on output through the induced dynamics of the wealth distribution and credit rationing

influence of price responsive demand shifting bidding on congestion and lmp in pool based day ahead electricity markets this paper investigates the influence of price responsive demand shifting bidding on congestion and locational marginal prices in pool based day ahead electricity markets the market dispatch problem of the pool based day ahead electricity market is formulated as to maximize the social welfare of market participants subject to operational constraints given by real and reactive power balance equations and security constraints in the form of apparent power flow limits over the congested lines the social welfare objective function of the day ahead market dispatch problem maximizes the benefit of distribution companies and other bulk consumers based on their price responsive demand shifting bids and minimizes the real and reactive power generation cost of generation companies the price responsive demand shifting bidding mechanism which has been recently introduced in the literature is able to shift the price responsive demand from the periods of high price to the periods of low price in day ahead electricity markets the comparisons of the price responsive demand shifting bids with conventional price responsive and price taking bids are presented by solving hourly market dispatch problems on five bus ieee 30 bus realistic up 75 bus indian and ieee 118 bus systems for 24 h scheduling period it has been demonstrated that the proposed approach leads to reduction in congestion and locational marginal prices as compared to price responsive and price taking bids and meets the energy consumption targets of distribution companies bulk consumers

individual vs aggregate preferences the case of a small fish in a big pond we study the relationship between the risk preferences of individuals and the risk preferences of the aggregate economy to emphasize the vast differences that can occur between individual and market preferences brought about through aggregation we assume an economy consisting entirely of risk seekers we show that such individuals can lead to an aggregate economy that is risk averse the converse is also true an aggregate economy that exhibits risk aversion does not imply an economy of individual risk averters an economy demanding a risk premium can be formed from individuals who do not demand such compensation understanding the relationship between the preferences of individuals and the preferences of the aggregate economy is crucial for understanding the connection between the behavioral finance literature which focuses on individual preferences and the asset pricing literature which focuses on aggregate prices we discuss empirical implications of these results this paper was accepted by wei xiong finance

market and non market mechanisms for the optimal allocation of scarce resources a number of identical objects is allocated to a set of privately informed agents agents have linear utility in money the designer wants to assign objects to agents that possess specific traits but the allocation can only be conditioned on the willingness to pay and on observable characteristics i solve for the optimal mechanism the choice between market or non market mechanisms depends on the statistical linkage between characteristics valued by the designer and willingness to pay

impacts of contingency reserve on nodal price and nodal reliability risk in deregulated power systems the deregulation of power systems allows customers to participate in power market operation in deregulated power systems nodal price and nodal reliability are adopted to represent locational operation cost and reliability performance since contingency reserve cr plays an important role in reliable operation the cr commitment should be considered in operational reliability analysis in this paper a cr model based on customer reliability requirements has been formulated and integrated into power market settlement a two step market clearing process has been proposed to determine generation and cr allocation customers nodal unit commitment risk and nodal energy interruption have been evaluated through contingency analysis customers reliability cost including reserve service cost and energy interruption cost have also been evaluated

on ex post pricing in the real time electricity market this paper proposes a new framework in calculating the ex post prices for the spot electricity market the proposed method finds a set of prices that are as consistent as possible with the actual outputs of resources correctly following their dispatch instructions two alternative consistency metrics are proposed in the paper one measures the difference between the actual performance of an individual resource and its bid based profit maximizing response to the ex post prices in a perfectly competitive market another measures the difference between the ex post price and the price that supports the actual response of an individual resource compared to the existing approaches adopted in the real time electricity markets in the u s the proposed method solves the ex post energy and ancillary service prices directly and simultaneously it does not require heuristics that are hard to justify and has a much clear definition for the pricing problem than the existing approaches do moreover the proposed approach is flexible in the price control required by the market operators numerical examples are presented to further demonstrate the validity of this approach

to each according to markets tournaments and the matching problem with borrowing constraints we compare the performance of markets and tournaments as allocative mechanisms in an economy with borrowing constraints the economy consists of a continuum of individuals who differ in their initial wealth and ability level these must be assigned to a continuum of investment opportunities or inputs of different productivity with perfect capital markets matching is efficient under both mechanisms markets however generate higher aggregate consumption because of the waste associated with the production of signals under tournaments when borrowing constraints are present tournaments dominate markets in terms of matching efficiency and for sufficiently powerful signalling technologies also in terms of aggregate consumption

uneven growth a framework for research in development economics the textbook paradigm of economy wide development rests on the premise of balanced growth that is on the presumption that all sectors will grow in unison over time as a country gets richer this view has served us reasonably well in some circumstances but is not particularly useful for accounts of modern under development in many developing countries economic growth has been fundamentally uneven software development the outsourcing of services sectoral technological change quick compositional shifts between agriculture and other sectors the rise of particular exports special economic zones and so on this paper will discuss both the sources of uneven growth and its implications with greater emphasis on the latter the paper will argue that much of the distributional issues or the reactions to globalization that we see in modern developing societies can be viewed as reactions to a growth process that is fundamentally uneven and is indeed perceived as such

robustly collusion proof implementation a contract with multiple agents may be susceptible to collusion we show that agents collusion imposes no cost in a large class of circumstances with risk neutral agents including both uncorrelated and correlated types in those circumstances any payoff the principal can attain in the absence of collusion including the second best level can be attained in the presence of collusion in a way robust to many aspects of collusion behavior the collusion proof implementation generalizes to a setting in which only a subset of agents may collude provided that noncollusive agents incentives can be protected via an ex post incentive compatible and ex post individually rational mechanism our collusion proof implementation also sheds light on the extent to which hierarchical delegation of contracts can optimally respond to collusion

equilibrium rejection of a mechanism we study a mechanism design problem in which players can take part in a mechanism to coordinate their actions in a default game by refusing to participate in the mechanism a player can revert to playing the default game non cooperatively we show with an example that some allocation rules are implementable only with mechanisms which will be rejected on the equilibrium path in our construction a refusal to participate conveys information about the types of the players this information causes the default game to be played under different beliefs and more importantly under different higher order beliefs than the interim ones we find a lower bound on all the implementable payoffs we use this bound to establish a condition on the default game under which all the implementable outcomes are truthfully implementable without the need to induce rejection of the mechanism

the accumulation of wealth and the cyclical generation of new technologies a search theoretic approach in this paper sustained technological progress results from the feedback between technical change and the accumulation of wealth the production technology is affected by a productivity factor which ensues from research and development the research and development process is described as a sequential search problem in which optimal decisions depend on current levels of wealth and technology the resulting growth path displays invention cycles a discovery of a significant technological improvement at the end of a search phase is followed by periods of growth without search eventually sufficient wealth is accumulated research and development resumes and a new cycle begins copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association