liquidation equilibrium with seniority and hidden cdo the aim of our paper is to price credit derivatives written on a single name when this name is a bank indeed due to the special structure of the balance sheet of a bank and to the interconnections with other institutions of the financial system the standard pricing formulas do not apply and their use can imply severe mispricing the pricing of credit derivatives written on a single bank name requires a joint analysis of the risks of all banks directly or indirectly interconnected with the bank of interest each name cannot be priced in isolation but the banking system must be treated as a whole it is necessary to analyze the contagion of losses among banks especially the equilibrium of joint defaults and recovery rates at liquidation time we show the existence and uniqueness of such an equilibrium then the standard pricing formulas are modified by adding a premium to capture the contagion effects

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

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

sulfur dioxide control by electric utilities what are the gains from trade title iv of the 1990 clean air act amendments caaa established a market for transferable sulfur dioxide so2 emission allowances among electric utilities this market offers firms facing high marginal abatement costs the opportunity to purchase the right to emit so2 from firms with lower costs and this is expected to yield cost savings compared to a command and control approach to environmental regulation this paper uses econometrically estimated marginal abatement cost functions for power plants affected by title iv of the caaa to evaluate the performance of the so2 allowance market specifically we investigate whether the much heralded fall in the cost of abating so2 compared to original estimates can be attributed to allowance trading we demonstrate that for plants that use low sulfur coal to reduce so2 emissions technical change and the fall in prices of low sulfur coal have lowered marginal abatement cost curves by over 50 percent since 1985 the flexibility to take advantage of these chan

cost functions and nonlinear prices estimating a technology with quality differentiated inputs the paper is concerned with developing a production theory for the case when some inputs have nonlinear prices because the price depends on endogenous quality this involves extending the notion of a cost function to the case where nonlinear prices are parameters of costs after developing the appropriate theory we apply our results to the case of coal fired electric power generation where fuel quality depends on sulfur and ash impurities environmental regulations induce a negative value on sulfur whereas ash impurities degrade performance and thus reduce production possibilities a number of empirical results emerge including significant rates of technological change that are sulfur and ash saving though capital using this change may explain in part the recent drop in the price of sulfur allowances in the united states

a critical review of contagion risk in banking the recent financial crisis has focused the attention of scholars and policymakers on how to improve financial stability through better macro prudential regulation and supervision in this paper we compare the existing theoretical and empirical literature on contagion through the banking system it is argued that the structure of the interbank market the size of banks the linkages among them the level of correlation of their investments and the transparency of the regulator are key factors in determining the possibility of contagion we discuss the different findings and present avenues for future research

financial contagion in the laboratory the cross market rebalancing channel abstract we present the results of the first experimental study of financial markets contagion we develop a model of financial contagion amenable to be tested in the laboratory in the model contagion happens because of cross market rebalancing a channel for transmission of shocks across markets first studied by kodres and pritsker 2002 theory predicts that because of portfolio rebalancing a negative shock in one market transmits itself to the others as investors adjust their portfolio allocations the theory is supported by the experimental results the price observed in the laboratory is close to that predicted by theory and strong contagion effects are observed the results are robust across different market structures moreover as theory predicts lower asymmetric information in a developed financial market increases the contagion effects in emerging markets

attack defence and contagion in networks sanjeev goyal acknowledges support from a keynes fellowship cambridge inet institute and european research area complexity net resilience and interaction of networks in ecology and economics adrien vigier acknowledges support from a gates cambridge fellowship as well as a core fellowship from universite catholique de louvain

international financial contagion in currency crises abstract this paper examines the role of financial linkages especially through a common creditor in the propagation of emerging market crises during the 1990s using panel probit regressions on 41 emerging market countries it finds that financial linkages played a significant role in the spread of the mexican asian and russian crises the significance of financial linkages emerges after controlling for the role of domestic and external fundamentals trade spillovers and financial weaknesses in the affected countries a strong financial linkage to the crisis country of origin not only substantially raises the probability of contagion but also helps to explain the observed regional concentration of currency crises

econometric issues in the analysis of contagion this paper presents a canonical econometric model of contagion and investigates the conditions under which contagion can be distinguished from inter dependence in a two country market set up it is shown that for a range of fundamentals the solution is not unique and for sufficiently large values of the contagion coefficients it has interesting bifurcation properties with bimodal density functions the extension of the model to herding behaviour is also briefly discussed to identify contagion effects in the presence of inter dependencies the equations for the individual markets or countries must contain country market specific forcing variables this sheds doubt on the general validity of the correlation based tests of contagions recently proposed in the literature which do not involve any country market specific fundamentals finally we show that ignoring inter dependence can introduce an upward bias in the estimate of the contagion coefficient and using monte carlo experiments we further show that this bias could be substantial

a new approach to modeling early warning systems for currency crises can a machine learning fuzzy expert system predict the currency crises effectively abstract this paper presents a hybrid causal model for predicting the occurrence of currency crises by using the neuro fuzzy modeling approach the model integrates the learning ability of the neural network with the inference mechanism of fuzzy logic the empirical results show that the proposed neuro fuzzy model leads to a better prediction of crisis significantly the model can also construct a reliable causal relationship among the variables through the obtained knowledge base compared to neural network and the traditionally used techniques such as logit the proposed model can thus lead to a somewhat more prescriptive modeling approach based on determinate causal mechanisms towards finding ways to prevent currency crises

on the contagion effect in the us banking sector by using the spatial econometrics methodology this paper investigates the contagion of the risk taking by banks in the us banking sector during 2001 to 2012 in addition the contagion signals up to the subprime crisis in 2008 are analyzed and different channels of contagion are studied in order to identify fragile groups of banks our analysis reveals that there is no significant contagion transmitted to the whole banking system however we observe that the bank contagion is significantly spread locally and for the group of banks that share similar characteristics related to size and bank regulations

incentives of carbon dioxide regulation for investment in low carbon electricity technologies in texas abstract this paper compares the incentives a carbon dioxide emissions price creates for investment in low carbon dioxide emitting technologies in the electricity sector we consider the extent to which operational differences across generation technologies particularly nuclear wind and solar photovoltaic create differences in the incentives for new investment which is measured by the operating profits of a potential entrant first astylized model of an electricity system demonstrates that the composition of the existing generation system may cause electricity prices to increase by different amounts over time when a carbon dioxide price is imposed differences in operation across technologies therefore translate to differences in the operating profits of a potential entrant then a detailed simulation model is used to consider a hypothetical carbon dioxide price of 10 50 per metric ton for the electric reliability council of texas ercot market the simulations show that for the range of prices considered the increase in electricity prices is positively correlated with output from a typical wind unit but the correlation is much weaker for nuclear and photovoltaic consequently a carbon dioxide price creates much stronger investment incentives for wind than for nuclear or photovoltaic technologies in the texas market

budget institutions and fiscal policy in the u s states this paper summarizes state balanced budget requirements and the available empirical evidence on the effect of these rules on state fiscal policies existing state rules differ from many current proposals at the federal level they are typically restricted to part of the state budget they frequently permit short term borrowing and they lack formal enforcement mechanisms the paper also surveys previous research on how anti deficit provisions affect state fiscal policy the available evidence indicates that stringent anti deficit provisions lead to more rapid adjustment of state taxes and expenditures when fiscal deficits emerge this suggests that changing the federal budget process has the potential to affect federal fiscal policy this abstract was borrowed from another version of this item

post mortem examination of the international financial network abstract as the recent crisis has forcefully suggested understanding financial market interconnectedness is of a paramount importance to explain systemic risk stability and economic dynamics in this paper we address these issues along two related perspectives first we explore the statistical properties of the international financial network ifn defined as a weighted directed graph where nodes are countries and links represent debtor creditor relationships in equities and short long run debt we investigate whether the 2008 financial crisis has resulted in a significant change in the topological properties of the ifn our findings suggest that the crisis caused not only a reduction in the amount of securities traded but also induced changes in the topology of the network and in the time evolution of its statistical properties this has happened however without changing the disassortative core periphery structure of the ifn architecture second we perform an econometric study to examine the ability of network based measures to explain cross country differences in crisis intensity we investigate whether the conclusion of previous studies showing that international connectedness is not a relevant predictor of crisis intensity may be reversed once one explicitly accounts for the position of each country within the ifn we show that higher interconnectedness reduces the severity of the crisis as it allows adverse shocks to dissipate quicker however being central in the network may make countries that are not members of a rich club more vulnerable in times of crisis finally we find strong evidence of nonlinear effects once the high degree of heterogeneity that characterizes the ifn is taken into account

banning banking in eu emissions trading abstract admitting banking in emissions trading systems reduces overall compliance costs by allowing for inter temporal flexibility cost savings can be traded over time however unless individual eu member states ms decide differently the transfer of unused allowances from the period of 2005 2007 into the first commitment period under the kyoto protocol i e 2008 2012 will be prohibited in this paper we first explore the implications of such a ban on banking when initial emission targets are lenient this analysis is based on a simulation which was recently carried out in germany with companies and with a student control group the findings suggest that a eu wide ban on banking would lead to efficiency losses in addition to those losses which arise from the lack of inter temporal flexibility second we use simple game theoretic considerations to argue that under reasonable assumptions such a eu wide ban on banking will be the equilibrium outcome thus to avoid a possible prisoners dilemma ms should have co ordinated their banking decisions

environmental regulations and productivity growth the case of fossil fueled electric power generation this paper measures and analyzes the effect of sulfur dioxide emission restrictions on the rate of productivity growth in the electric power industry over the 1973 79 business cycle a firm specific measure of regulatory intensity is developed which depends on the severity of the emission standard the extent of enforcement and the unconstrained emission rate relevant to each utility the results indicate that emission regulations result in significantly higher generating costs primarily from the increased use of low sulfur fuels the average rate of productivity growth was reduced by 0 59 percentage points per year for constrained utilities

a network model of financial system resilience abstract we examine the role of macroeconomic fluctuations asset market liquidity and network structure in determining contagion and aggregate losses in a stylized financial system systemic instability is explored in a financial network comprising three distinct but interconnected sets of agents domestic banks overseas banks and firms calibrating the model to advanced country banking sector data this preliminarily model generates broadly sensible aggregate loss distributions which are bimodal in nature we demonstrate how systemic crises may occur and analyse how our results are influenced by firesale externalities and the feedback effects from curtailed lending in the macroeconomy we also illustrate the resilience of our model financial system to stress scenarios with sharply rising corporate default rates and falling asset prices

the interbank network across the global financial crisis evidence from italy abstract this study examines the effects of the global financial crisis gfc on interbank market connectivity using network analysis more specifically using data on italian banks bilateral interbank positions between 1998 and 2013 we analyze the impact of the following events on each bank s network centrality the liquidity crisis in august 2007 the collapse of lehman brothers in september 2008 eurosystem s long term refinancing operations ltros between 2009 and 2012 the sovereign debt crisis in july 2011 and the announcement of outright monetary transactions omt in 2012 the results show that the 2007 liquidity crisis and especially the collapse of lehman brothers are associated with a marked reduction of the relative interconnectedness of the italian banking sector i e a shift in the distribution of banks centrality to the left away from the most connected bank in the following years the system progressively recovered its initial patterns of integration among banks which coincided with the main eurosystem s monetary policy interventions however the average outcome conceals different results across banks depending on their characteristics and initial positions within the system

cyclical correlations credit contagion and portfolio losses abstract we model aggregate credit losses on large portfolios of financial positions contracted with firms subject to both cyclical default correlation and direct default contagion processes cyclical correlation is due to the dependence of firms on common economic factors contagion is associated with the local interaction of firms with their business partners we provide an explicit normal approximation of the distribution of portfolio losses we quantify the relation between the variability of global economic fundamentals strength of local firm interaction and the fluctuation of losses we find that cyclical oscillations in fundamentals dominate average losses while local interaction causes additional fluctuations of losses around their average the strength of the contagion induced loss variability depends on the complexity of the business partner network

gross loan flows we present a series of stylized facts about gross loan flows and how they vary over time bank size and region we define loan creation as the sum of the change in bank loans at all banks that increased loans since last quarter loan destruction is similarly defined as the absolute value of the change in loans at all banks that decreased loans the gross flow akin to what the labor literature calls reallocation is the sum of creation and destruction

measuring sovereign risk spillovers and assessing the role of transmission channels a spatial econometrics approach abstract we contribute to the literature on international risk spillovers by developing a unified framework based on spatial econometrics that enables us to address the following questions i what are the effective transmission channels real linkages and informational channels of international risk spillovers across countries and or regions ii what are the most dominant ones and iii which countries are most at risk for their environment and which are suffering the most from international exposure our analysis based on 41 advanced and emerging economies from 2008q1 to 2012q4 shows that among the considered channels for explaining international spillovers of sovereign bond spreads the informational channel is of utmost importance our results challenge previous findings from the literature in which the empirical strategy did not accommodate altogether important features of country spillovers such as the co existence of multiple transmission channels in the presence of contemporaneous and time lagged interactions ultimately our stress testing analysis reveals important insights on countries prone either to international spillovers international exposure or both at the regional and the worldwide level

dueling policies why systemic risk taxation can fail abstract two policy instruments for the banking sector are investigated namely systemic risk taxation and constructive ambiguity about bailout policy bailout expectations can induce moral hazard in the form of excessive risk taking by banks systemic risk taxation induces banks to prefer uncorrelated investments leading to lower systemic risk formation constructive ambiguity generates uncertainty about bailout prospects however systemic risk taxation also may inform banks about the regulator s concern for financial stability and thereby its bailout policy this result leads to a trade off between systemic risk taxation and constructive ambiguity and highlights the need to consider interdependence across policies when evaluating their effectiveness

trading networks and liquidity provision abstract we study the profitability of traders in two fully electronic and highly liquid markets the dow and standard poor s 500 e mini futures markets using unique information that identify counterparties to a transaction we show and seek to explain the fact that the network pattern of trades captures the relations between behavior in the market and returns our approach includes a simple representation of how much a shock is amplified by the network and how widely it is transmitted this representation provides a possible shorthand for understanding the consequences of a fat finger trade a withdrawing of liquidity or other market shock

runs versus lemons information disclosure and fiscal capacity we study the optimal use of disclosure and fiscal backstops during financial crises providing information can reduce adverse selection in credit markets but negative disclosures can also trigger inefficient bank runs in our model governments are thus forced to choose between runs and lemons a fiscal backstop mitigates the cost of runs and allows a government to pursue a high disclosure strategy our model explains why governments with strong fiscal positions are more likely to run informative stress tests and paradoxically how they can end up spending less than governments that are more fiscally constrained

the price of liquidity the effects of market conditions and bank characteristics we study the prices that individual banks pay for liquidity captured by borrowing rates in repos with the central bank and benchmarked by the overnight index swap as a function of market conditions and bank characteristics these prices depend in particular on the distribution of liquidity across banks which is calculated over time using individual bank level data on reserve requirements and actual holdings banks pay more for liquidity when positions are more imbalanced across banks consistent with the existence of short squeezing we also show that small banks pay more for liquidity and are more vulnerable to squeezes healthier banks pay less but contrary to what one might expect banks in formal liquidity networks do not state guarantees reduce the price of liquidity but do not protect against squeezes

bank run psychology abstract banks are inherently susceptible to panics and bank runs due to the problem of maturity mismatch resulting in both a stable equilibrium in which the bank survives and an unstable equilibrium in which a bank run occurs understanding equilibrium selection in this setting is extremely important for safeguarding financial stability in this paper one new potential factor that determines whether a bank runs gets triggered or not is experimentally studied namely the psychological state of the depositor prior to participating in an experimental bank run game subjects are either induced with fear sadness or happiness using an autobiographical emotion induction task the findings suggest that the presence of background fear significantly increases the likelihood of withdrawal and a subsequent bank run in addition women are shown to be significantly more likely to withdraw then men but only in the fear induction treatment

where modern macroeconomics went wrong this paper provides a critique of the dsge models that have come to dominate macroeconomics during the past quarter century it argues that at the heart of the failure were the wrong microfoundations which failed to incorporate key aspects of economic behaviour e g incorporating insights from information economics and behavioural economics inadequate modelling of the financial sector meant they were ill suited for predicting or responding to a financial crisis and a reliance on representative agent models meant they were ill suited for analysing either the role of distribution in fluctuations and crises or the consequences of fluctuations on inequality the paper proposes alternative benchmark models that may be more useful both in understanding deep downturns and responding to them

what factors drive systemic risk during international financial crises abstract we analyze the determinants of the contribution of international banks to both global and local systemic risk during prominent financial crises we find no empirical evidence supporting conjectures that bank size leverage non interest income or the quality of the bank s credit portfolio are persistent determinants of systemic risk across financial crises in contrast our results show that global systemic risk in particular is predominantly driven by characteristics of the regulatory regime we also confirm for the subprime crisis that the banks contribution to moderately bad tail events in the past predicts the financial sector s crash risk

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

a model of intertemporal emission trading banking and borrowing abstract this paper provides a general treatment of emission trading banking and borrowing in an intertemporal continuous time model using optimal control theory the decentralized behavior of firms is shown to lead to the least cost solution attainable under joint cost minimization explicit solutions for the time paths of emissions and permit prices are derived when firms are allowed to both bank and borrow and when firms are only allowed to bank emission permits the policy implications of emission banking and borrowing are discussed

relative risk aversion and the transmission of financial crises we study how investor behavior affects the transmission of financial crises if investors exhibit decreasing relative risk aversion then negative wealth shocks increase the risk premium required to hold risky assets we integrate this into a second generation model of currency crises which allows for contagion through changes in fundamentals investor behavior can be a transmission channel of financial crises as changes in risk premia increase the coverage ratio and makes the defense of a peg less attractive for the policy maker the feedback effect of the risk premia on the probability of devaluation also makes multiple equilibria more likely the possible stabilization effects of capital controls and a tobin tax on the international transmission of financial crises are also studied

forecasting the fragility of the banking and insurance sectors linkages between banks and insurance companies are important when forecasting the fragility of the banking and insurance sectors we propose a novel empirical framework that allows us to estimate unobserved linkages in panel data sets that contain observed regressors we find that taking unobserved common factors into account reduces the root mean square forecasts error of firm specific forecasts by up to 9 of system forecasts by up to 14 and by up to 39 for systemic forecasts of more distressed firms relative to a model based on observed variables only estimates of the factor loadings suggest that the correlation of financial institutions has been relatively stable over the forecast period

auction failures and the market for auction rate securities abstract the market for auction rate securities ars made headlines during the second week of february 2008 when auctions at which the bonds interest rates reset experienced a wave of failures contrary to headlines that attribute the failures to a frozen market or investors irrationality we find that 1 even at their height less than 50 of ars experienced auction failures 2 the likelihood of auction failure was directly related to the level of the bonds maximum auction rates 3 the implied market clearing yields of bonds with failed auctions were significantly above their maximum auction rates and 4 ars yields were generally higher than yields of various cash equivalent investment alternatives we infer that investors priced the possibility of auctions failures into ars yields and rationally declined to bid for bonds for which required market yields exceeded their maximum auction rates

the financial accelerator in an evolving credit network we model a credit network characterized by credit relationships connecting i downstream d and upstream u firms and ii firms and banks the net worth of d firms is the driver of fluctuations the production of d firms and of their suppliers u firms in fact is constrained by the availability of internal finance proxied by net worth to the d firms the structure of credit interlinkages changes over time due to an endogeneous process of partner selection which leads to the polarization of the network at the aggregate level the distribution of growth rates exhibits negative skewness and excess kurtosis when a shock hits the macroeconomy or a significant group of agents in the credit network a bankruptcy avalanche can follow if agents leverage is critically high in a nutshell we want to explore the properties of a network based financial accelerator

an investigation into adequate data for estimating annual earnings time series models abstract the purpose of this study is to examine the stability of corporate earnings per share eps time series models as the length of the time series are altered evidence is found to support the stationarity of corporate eps data furthermore outlier analysis is employed and supports the long run stability of corporate earnings series

cost minimizing regulation of sulfur emissions regional gains in electric power environmental regulations set maximum allowable rates for sulfur dioxide emissions from electric utilities by ignoring firm differences in marginal abatement costs and preventing emissions trading these standards do not minimize the cost of reducing einissions this paper estimates marginal abatement cost functions for 56 utilities for 1973 79 marginal costs vary substantially across firms due to differences in the price of low and high sulfur fuels and the intensity of regulation the potential savings from a cost minimizing reallocation of abatement resources are estimated for five regions current expenditures are found to be 47 higher than cost minimizing levels i mplementation of the 1970 clean air act amendments relies extensively on technology based emission standards economists long have recognized that these standards can result in an inefficient allocation of pollution control resources engineering based restrictions ignore or oversimplify differences in abatement costs among polluters limited empirical research suggests that current standards result in substantially higher costs as much as ten times higher than a cost minimizing regulatory scheme 2 these studies however are based on engineering estimates of marginal abatement costs the models often assume that all polluters adopt control technologies that are required only for new plants and that have been largely unadopted by polluting firms 3 the impact of changing factor prices on marginal abatement costs typically is ignored the difficulty is that the resulting estimates of the cost of regulation neither adequately reflect the range of control options available to polluters nor take into account how polluters actually have responded to environmen

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

global environmental problems efficiency and limited altruism global environmental problems are often assumed to imply extensive inefficiencies since there is no global authority corresponding to the government at a national level this paper shows on the contrary that rich countries in a free unregulated market may still undertake globally efficient abatement investments given the existence of limited non paternalistic altruism d 2004 elsevier b v all rights reserved

a ten year rule to guide the allocation of eu emission allowances abstract member states in the european union eu are responsible for national allocation plans governing the initial distribution of emission allowances in the co2 emission trading system including rules governing allocations to installations that close and to new entrants the european commission has provided guidelines to discourage the use of allocation methodologies that provide incentives affecting firms compliance behavior for example by rewarding one type of compliance investment over another we find that the treatment of closures and new entrants by member states is inconsistent with the general guidelines provided by the eu we propose stronger eu guidance regarding closures and new entrants a more precise compensation criterion on which to justify free allocations and a ten year rule as a component of future eu policy that can guide a transition from current practice to an approach that places greater weight on efficiency

financial integration specialization and systemic risk this paper studies the implications of cross border financial integration for financial stability when banks loan portfolios adjust endogenously banks can be subject to sectoral and aggregate domestic shocks after integration they can share these risks in a complete interbank market when banks have a comparative advantage in providing credit to certain industries financial integration may induce banks to specialize in lending an enhanced concentration in lending does not necessarily increase risk because a well functioning interbank market allows to achieve the necessary diversification this greater need for risk sharing though increases the risk of cross border contagion and the likelihood of widespread banking crises however even though integration increases the risk of contagion it improves welfare if it permits banks to realize specialization benefits

emergence of a core periphery structure in a simple dynamic model of the interbank market abstract this paper studies a simple dynamic model of interbank credit relationships starting from a given balance sheet structure of a banking system with a realistic distribution of bank sizes the necessity of establishing interbank credit connections emerges from idiosyncratic liquidity shocks banks initially choose potential trading partners randomly but over time form preferential relationships via an elementary reinforcement learning algorithm as it turns out the dynamic evolution of this system displays a formation of a core periphery structure with mainly the largest banks assuming the roles of money center banks mediating between the liquidity needs of many smaller banks statistical analysis shows that this evolving interbank market shares the majority of the salient characteristics of interbank credit relationship that have been put forth in recent literature preferential interest rates for borrowers with strong attachment to a lender may prevent the system from becoming extortionary and guarantee the survival of the small peripherical banks

measuring network systemic risk contributions a leave one out approach abstract the aim of this paper is to propose a new network measure of systemic risk contributions that combines the pair wise granger causality approach with the leave one out concept this measure is based on a conditional granger causality test and consists of measuring how far the proportion of statistically significant connections in the system breaks down when a given financial institution is excluded we analyse the performance of our measure of systemic risk by considering a sample of the largest banks worldwide over the 2003 2018 period we obtain three important results first we show that our measure is able to identify a large number of banks classified as global systemically important banks g sibs by the financial stability board fsb second we find that our measure is a robust and statistically significant early warning indicator of downside returns during the last financial crisis finally we investigate the potential determinants of our measure of systemic risk and find similar results to the existing literature in particular our empirical results suggest that the size and the business model of banks are significant drivers of systemic risk

is full banking integration desirable abstract we analyze the links between banking integration and economic development for a sample of oecd countries we measure banking integration considering indicators that merge not only openness but also connectedness with other banking systems we plug these indicators into income regressions also controlling for other relevant variables considered by the literature in contrast to previous initiatives this second stage explicitly takes into account the differing levels of economic development of the countries in our sample since the benefits of enhanced banking integration might not be generalizable to this end we implement quantile regression also considering the presence of endogenous regressors results show that bank connectedness is more important for economic development than bank openness but the combined effect i e banking integration overall is positive and significant the quantile regression models used in the second stage show that the effects are stronger for the poorest economies

do all sectoral shocks lead to aggregate volatility empirics from a production network perspective abstract productive diversification has long been acknowledged as a volatility reducing strategy yet recent theoretical contributions have shown that in strongly diversified economies idiosyncratic shocks could translate into aggregate volatility via the network of inter industry linkages by exploiting exogenous cross country sector variations in demand shocks during the 2008 great recession we provide empirical evidence that the network properties of a sector affected by an individual shock determine its propensity to transmit volatility to the rest of the economy more precisely shocks to sectors that are located in denser parts of a production network fade out over a large number of alternative paths of propagation due to substitution effects whereas shocks to sectors that are more influential within the network generate aggregate fluctuations through contagion effects we also find that the impact of sectoral shocks on aggregate volatility 1 is not conditional on sector level differences in trade intensity and 2 is larger for developing countries because they tend to have more isolated influential sectors and larger structural holes in their production network our results thus help consolidate the two opposite views in the literature on the impact of productive diversification on aggregate volatility

regionality revisited an examination of the direction of spread of currency crises abstract what determines the direction of spread of currency crises we examine data on waves of currency crises in 1992 1994 1997 and 1998 to evaluate several hypotheses on the determinants of contagion we simultaneously consider trade competition financial links and institutional similarity to the ground zero country as potential drivers of contagion to overcome data limitations and account for model uncertainty we utilize bayesian methodologies hitherto unused in the empirical literature on contagion in particular we use the bayesian averaging of binary models that allows us to take into account the uncertainty regarding the appropriate set of regressors we find that institutional similarity to the ground zero country plays an important role in determining the direction of contagion in all the emerging market currency crises in our dataset we thus provide persuasive evidence in favour of the wake up call hypothesis for financial contagion trade and financial links may also play a role in determining the direction of contagion but their importance varies amongst the crisis periods

government failure and market failure on the inefficiency of environmental and energy policy in this article we describe some important themes in energy and environmental policy there are two main reasons for our interest in these policies first such policies will likely be important in the coming decades as issues related to climate change and energy security come to the fore second there are important lessons to be learned from a careful review of the actual performance of energy and environmental policies we undertake a selective survey of the literature to highlight what is known about the efficiency of particular kinds of policies laws and regulations in these areas this paper makes three key contributions the first is to synthesize a large literature on energy and environmental policy in a way that can be easily digested by both non experts and experts the second contribution is to suggest that if history is a guide then we should not expect many interventions in these policy areas to come close to maximizing net economic benefits the third is to suggest what might be needed for the development of more efficient energy and environmental policies copyright 2010 oxford university press

dual measures of monopoly and monopsony power an application to regulated electric utilities the inefficiency from monopoly pricing monopsony pricing and other institutional factors should be simultaneously estimated to avoid misspecification estimation of a behavioral profit function where input and output shadow prices may diverge from their market values allows unbiased simultaneous estimation of inefficiencies if its normalized form is employed in an application to electric utilities consuming western coal the authors cannot reject the hypothesis that utilities act as price takers in output markets and find weak and statistically insignificant evidence of fuel adjustment clause bias strong evidence is found of monopsony behavior in the market for western coal and its transportation copyright 1989 by mit press

a tradable permit system in an intertemporal economy it is known that in an intertemporal competitive economy a tradable permit system may not achieve efficiency without setting appropriate permit interest rates i e rewards for holding permits to find the rates however we need to know in advance the path of efficient permit prices which is difficult to obtain this study intends to solve this problem in two ways first we analyze a special case in which the permit interest rates are given by a simple rule for example if the marginal abatement cost of pollution emission is constant then the appropriate rate is to equal the monetary interest rate as is the case for global warming if the damage is caused in the future far beyond the planning period of the environmental program the appropriate rate coincides with the marginal self recovery of environmental stock under certain conditions as a second approach we propose a tradable permit system with a permit bank as a mechanism by which the permit interest rates are generated endogenously without governmental intervention other than the issuance of permits however we also show that this approach raises the problem of indeterminacy of the equilibrium

the potential for cost savings in the sulfur dioxide allowance market empirical evidence from florida since the passage of the 1990 clean air act amendments researchers have hastened to appraise the new market for sulfur dioxide so2 emission allowances as the epa s program moves into its second phase some analysts question whether large enough savings are available to induce widespread market participation this study calculates the shadow prices of emission reductions for power plants that serve florida and compares the actions of utility owners to the actions predicted by the shadow prices the evidence suggests that plant owners have not taken full advantage of the opportunities the allowance market has provided to date

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

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

optimal trading ratios for pollution permit markets abstract we demonstrate a novel method for improving the efficiency of pollution permit markets by optimizing the exchange of emissions through trade under full information it is optimal for emissions to exchange according to the ratio of marginal damages under asymmetric information we derive necessary conditions for the marginal damage trading ratios to be optimal illustrate that the marginal damage trading ratios are generally not optimal and show how to improve efficiency using optimal trading ratios we calculate the optimal trading ratios for a global carbon market the gains from using optimal trading ratios rather than marginal damage trading ratios range from substantial to trivial which suggests the need for careful consideration of asymmetric information when designing permit markets

the dynamics of spillover effects during the european sovereign debt turmoil abstract in this paper we modify and extend the framework of diebold and yilmaz 2011 to quantify spillovers between sovereign credit markets and banks in the euro area spillovers are estimated recursively from a vector autoregressive model of daily changes in credit default swap cds spreads with exogenous common factors we account for interdependencies between sovereign and bank cds spreads and derive generalized impulse response functions specifically we assess the systemic effect of an unexpected shock to the creditworthiness of a sovereign or country specific bank index on other sovereigns and bank cdss between october 2009 and july 2012 channels of shock transmission from or to sovereigns and banks are summarized in a contagion index and its four components i among sovereigns ii among banks iii from sovereigns to banks and iv from banks to sovereigns we also highlight the impact of policy related events on the contagion index