optimal management of renewable resources with growing demand and stock externalities abstract in an equilibrium framework optimal management of renewable resources in the presence of growing demand or externalities leads to steady states that differ from those characterized by rate of interest equals rate of change in growth plus rate of change in prices measures to reach an optimum with externalities other than direct controls are found to be critically mediated by the costs of harvesting

discounting and divergence of opinion the objective of this paper is to adopt a general equilibrium model and determine the socially efficient discount factor risk free rate and discount rate when there are heterogeneous anticipations about the growth of the economy as well as heterogeneous time preference rates among others we tackle the following questions is the socially efficient discount factor an arithmetic average of the individual subjectively anticipated discount factors more generally can the arrow debreu prices the risk free rates the subjectively expected socially efficient discount factors and discount rates be obtained as an average of the individual subjectively anticipated ones can beliefs dispersion be analyzed as a sort of additional risk or uncertainty leading to possibly lower discount rates is it socially efficient when diversity of opinion is taken into account to reduce the discount rate per year for more distant horizons if so what is the trajectory of the decline

history dependence in concave economies abstract this paper investigates concave intertemporal optimization problems and derives two mechanisms either growth or control state interactions e g due to endogenous preferences that allow for multiple steady states including an unstable one therefore history dependence is possible in a perfectly governed economy subject to the law of diminishing returns if one of these two mechanisms is present this result complements a large amount of literature that attributes history dependence to convexities as a consequence lock ins into undesired evolutions are possible beyond the familiar case of increasing returns

equilibrium resource management with altruistic overlapping generations abstract we imbed a classic fishery model where the optimal policy follows a most rapid approach path to a steady state into an overlapping generations setting the current generation discounts future generations utility flows at a rate possibly different from the pure rate of time preference used to discount their own utility flows the resulting model has non constant discount rates leading to time inconsistency the unique markov perfect equilibrium to this model has a striking feature provided that the current generation has some concern for the not yet born the equilibrium policy does not depend on the degree of that concern

global warming and hyperbolic discounting the use of a constant discount rate to study long lived environmental problems such as global warming has two disadvantages the prescribed policy is sensitive to the discount rate and with moderate discount rates large future damages have almost no effect on current decisions time consistent quasi hyperbolic discounting alleviates both of these modeling problems and is a plausible description of how people think about the future we analyze the time consistent markov perfect equilibrium in a general model with a stock pollutant the solution to the linear quadratic specialization illustrates the role of hyperbolic discounting in a model of global warming

uncertainty in the theory of renewable resource markets the natural growth rate of most renewable resource stocks is in part stochastic this paper examines the implications of such ecological uncertainty for competitive equilibrium in a market with property rights we show that stochastic fluctuations add a risk premium to the rate of return required to keep a unit of stock in situ and we examine the effects of fluctuations on resource rent examples are used to show that extraction can increase decrease or be left unchanged as the variance of the fluctuations increases depending on the extent of market self correction regulatory implications are also discussed renewable resource economics has traditionally been concerned with the study of dynamically optimal harvesting policies given a deterministic function for the natural growth of the resource stock issues have included the existence and characteristics of steady state equilibria for the optimally managed resource the need for and design of regulatory policies to prevent over exploitation and conditions under which as a social optimum or otherwise the resource will be exploited to extinction 1 much of this work has been based on the assumption of a fixed and exogenous price for the harvested resource typically resulting in bang bang solutions for the harvesting policy however some recent papers make price endogenous and thereby describe how the extraction rate and the rate of return and asset value of the resource behave in a competitive market with property rights 2

the equivalency principle for discounting the value of natural assets an application to an investment project in the basque coast making decisions about optimal investments in green infrastructure necessitates setting social discount rates this paper suggests a practical way for determining the discount rate for projects or programmes in which one of the options is to maintain or improve land in its natural state we propose an a equivalency principlea to derive a simple rule that sets the discount rate the rule is based on the premise that the long term value of a naturally preserved land track ought to be at least the same as the value of an identical land track in the vicinity to which permission has been granted for development we illustrate this principle with various case studies and we apply it to a contentious investment project in the basque country associated with the regeneration of a large scale harbour in the province of gipuzkoa north of spain that involves reclaiming natural land that has important ecological value including for the conservation of a marine ecosystem

degradation of environmental capital and national accounting procedures abstract the capital theoretic approach to the environment as a wastable stock a stock with a flow of abatement services is explored in a simple ricardo like model involving wheat production and pollution production as an essential by product we then turn to how the national accounts are implicit in growth or capital theory models and how formulae emerge for accounting for the wasting of environmental capital airsheds and watersheds from excessive use

sustainability limited substitutability and non constant social discount rates abstract the paper shows how limited substitutability in consumption between different classes of goods affects the magnitude and time development of social discount rates it decomposes the discount rates into an absolute growth and a relative growth or substitutability effect the paper relates between good and intertemporal substitutability to the notions of weak and strong sustainability it analyzes under which circumstances low as opposed to high between good substitutability increases the weights given to long run environmental services

time series model forecasts and structural breaks evidence from spanish pre emu interest rates analysis of the future behaviour of economic variables can be biased if structural breaks are not considered when these structural breaks are present the in sample fit of a model gives us a poor guide to ex ante forecast performance this problem is true for both univariate and multivariate analysis and can be extremely important when co integration relationships are analysed the main goal of this article is to analyse the impact of structural breaks on forecast accuracy evaluation we focus on forecasting several interest rates from the spanish interbank money market in order to carry out the analysis we perform two forecasting exercises a without structural breaks and b when structural breaks are explicitly considered we use new sequential methods in order to estimate change points in an endogenous way this method allows us to detect structural breaks in all four rates in may 1993 however the effects of these breaks are not very strong since we found scarce gains in forecasting accuracy w

optimal growth resource amenities and the preservation of natural environments this paper examines the conditions for which it is optimal to permanently preserve natural environments in which a productive natural resource is found the conditions are more restrictive than those previously indicated in the literature on the economics of natural environments increasing consumption and declining commodity prices are not sufficient to warrant permanent preservation the initial capital stock can be an important determinant of the optimal level of preservation in addition resource amenity values will increase the initial resource price and decrease the rate of growth of the resource price the natural world provides a variety of services to the human community natural resources are essential inputs in the production of goods and services in addition the natural world generates a variety of amenity services including the scientific recreational and aesthetic value of preserved natural environments krutilla 1967 krutilla and fisher 1975a this paper examines the impact of resource amenity values on the optimal growth of an economy which depends upon natural resource inputs for the production of goods and services in particular the paper examines the conditions under which it is optimal to permanently preserve some natural environments in which the productive resource is found the conditions which warrant permanent preservation are more restrictive than previously indicated by the literature on the economics of natural environments increasing consumption and declining commodity prices are not sufficient to warrant permanent preservation in addition the initial capital endowment can be an important determinant of the optimal level of preservation

on welfare frameworks and catastrophic climate risks recent theoretical work in the economics of climate change has suggested that climate policy is highly sensitive to fat tailed risks of catastrophic outcomes weitzman 2009 68 such risks are suggested to be an inevitable consequence of scientific uncertainty about the effects of increased greenhouse gas concentrations on climate criticisms of this controversial result fall into three categories the first suggests that it may be irrelevant to cost benefit analysis of climate policy the second challenges the fat tails assumption and the third questions the behavior of the utility function assumed in the result this paper analyses these critiques and suggests that those in the first two categories have formal validity but that they apply only to the restricted setup of the original result which may be extended to address their concerns they are thus ultimately unconvincing critiques in the third category are shown to be robust however they open up new ethical and empirical challenges for climate economics that have thus far been neglected how should we value catastrophes as a society i demonstrate that applying results from social choice to this problem can lead to counterintuitive results in which society values catastrophes as infinitely bad even though each individual s utility function is bounded finally i suggest that the welfare functions traditionally used in climate economics are ill equipped to deal with climate catastrophes in which population size changes drawing on recent work in population ethics i propose an alternative welfare framework with normatively desirable properties which has the effect of dampening the contribution of catastrophes to welfare

a cointegration analysis of treasury bill yields this paper shows that yields to maturity of u s treasury bills are cointegrated and that during periods when the federal reserve specifically targeted short term interest rates the spreads between yields of different maturity define the cointegrating vectors this cointegrating relationship implies that a single nonstationary common factor underlies the time series behavior of each yield to maturity and that risk premia are stationary an error correction model that uses spreads as the error correction terms is unstable over the federal reserve s policy regime changes but a model using post 1982 data is stable and is shown to be useful for forecasting changes in yields copyright 1992 by mit press

valuing the future recent advances in social discounting the perplexing issue of discounting prescriptive economics requires that unless there are very good reasons to the contrary economic policy should be based on the principle that individuals preferences should count indeed the entire body of welfare economics centres round the formal identity of the statement x prefers a to b and the statement x has higher welfare in a rather than b this combination of a seemingly innocuous and democratic value judgement preferences should count and a formal definition about the meaning of welfare improvement involves many complications the entire history of policy analysis focuses on those complications whose preferences should count over what time period what constitutes a legitimate attenuation of the basic value judgement one of the problem areas concerns timediscounting the process whereby society places a lower value on a future gain or loss than on the same gain or loss occurring now the rationale for time discounting follows logically from the basic value judgement of welfare economics if people s preferences count and if people prefer now to the future those preferences must be integrated into social policy formulation time discounting is thus universal in economic analysis but it remains as it always has controversial the controversy has a parallel in another form of discounting spatial discounting when translated into economic terms the ethical principle

national product related welfare measures in the presence of technological change externalities and uncertainty the purpose of this paper is to discuss under what conditions welfare can be measured by observables related to the national product or hamiltonian along the optimal trajectory under nonattributable technological or environmental change welfare will depend on time itself meaning that the hamiltonian along the optimal trajectory will be a biased measure of welfare this result will also hold if we make the time dependence of welfare endogenous by replacing technological change will externalities that are not internalized during optimization on the other hand if we take the externalities fully into account then the hamiltonian will represent the appropriate measure of welfare similar results also hold in the case of uncertainty where we show that a generalized hamiltonian provides a welfare measure and that the deterministic measures are special cases of their stochastic counterparts

determination of long run and short run dynamics in ec varma models via canonical correlations this article studies a simple coherent approach for identifying and estimating error correcting vector autoregressive moving average ec varma models canonical correlation analysis is implemented for both determining the cointegrating rank using a strongly consistent method and identifying the short run varma dynamics using the scalar component methodology finite sample performance is evaluated via monte carlo simulations and the approach is applied to modelling and forecasting us interest rates the results reveal that ec varma models generate significantly more accurate out of sample forecasts than vector error correction models vecms especially for short horizons

competitive pricing behavior in the auto market a structural analysis in a competitive marketplace the effectiveness of any element of the marketing mix is determined not only by its absolute value but also by its relative value with respect to the competition for example the effectiveness of a price cut in increasing demand is critically related to competitors reaction to the price change managers therefore need to know the nature of competitive interactions among firms in this paper we take a theory driven empirical approach to gain a deeper understanding of the competitive pricing behavior in the u s auto market the ability motivation paradigm posits that a firm needs both the ability and the motivation to succeed in implementing a strategy boulding and staelin 1995 we use arguments from the game theoretic literature to understand firm motivation and abilities in different segments of the auto market we then combine these insights from the game theoretic literature and the ability motivation paradigm to develop hypotheses about competition in different segments of the u s auto market to test our hypotheses of competitive behavior we estimate a structural model that disentangles the competition effect from the demand and cost effects on prices the theory of repeated games predicts that firms with a long run profitability objective will try to sustain cooperative pricing behavior as a stable equilibrium when conditions permit for example markets with high concentration and stable market environments are favorable for sustaining cooperative behavior and therefore provide firms with the ability to cooperate the theory of switching costs suggests that in markets in which a firm s current customers tend to be loyal firms have a motivation to compete very aggressively for new customers recognizing the positive benefits of loyalty from the customer base in the long run as consumer loyalty in the market increases the gains from increasing market share by means of aggressive competitive behavior are more than offset by losses in profit margins firms therefore have the motivation to price cooperatively empirically we find aggressive behavior in the minicom pact and subcompact segments cooperative behavior in the compact and midsize segments and bertrand behavior in the full size segment these findings are consistent with our theory based hypotheses about competition in different segments in estimating a structural model of the auto market we address several methodological issues a particular difficulty is the large number of car models in the u s auto market existing studies have inferred competitive behavior only in markets with two to four products they also use relatively simple functional forms of demand to facilitate easy estimation functional forms of demand however impose structure on cross elasticities between products such structure when inappropriate can bias the estimates of competitive interaction we therefore use the random coefficients logit demand model to allow flexibility in cross elasticities we also use recent advances in new empirical industrial organization neio to extend structural estimation of competitive behavior to markets with a large number of products we use the simulation based estimation approach developed by berry et al 1995 to estimate our model a frequent criticism of the neio approach is that its focus on industry specific studies limits the generalizability of its findings in this study we retain the advantages of neio methods but partially address the issue of generalizability by analyzing competitive behavior in multiple segments within the auto industry to see whether there is a consistent pattern that can be explained by theory theoretical modelers can use our results to judge the appropriateness of their models in predicting competitive outcomes for the markets that they analyze a by product of our analysis is that we also get estimates of demand and cost apart from competitive interactions for the market managers can use these estimates to perform what if analysis they can answer questions about what prices to charge when a new product is introduced or when an existing product s characteristics are changed

efficient dynamic pollution taxation in an uncertain environment this paper analyzes efficient pollution taxation within a stochastic model of endogenous growth pollution is a by product of production and causes disutility furthermore the productivity which results from environmental quality is uncertain this reflects e g uncertain capital depreciation induced by natural disasters like hurricanes or floods this uncertainty is shown to raise an ambiguous impact on the optimal pollution level as well as on optimal environmental taxation market equilibrium turns out to be suboptimal since the households mis perceive their individual impact on pollution conditions for welfare maximizing pollution taxation are stated and it is shown that a direct pollution tax is not appropriate to yield pareto optimal growth instead a linear capital income tax together with a linear abatement subsidy build an efficient tax scheme if secondarily the governmental budget is balanced moreover an increase in the riskiness of environmental productivity may even lead to an increase in the optimal pollution level and to a decrease in optimal environmental taxation depending predominantly on the preference parameters

on asymptotic properties of the parameters of differentiated product demand and supply systems when demographically categorized purchasing pattern data are available we derive asymptotic properties of an estimator for supply and demand models extended with additional moments relating consumer demographics to the characteristics of purchased products we clarify the structure of a practical sampling scheme in which the extended estimator is consistent asymptotically normal and more efficient than the original estimator we provide conditions guaranteeing the asymptotic theorems hold for the random coefficient logit model of demand with oligopolistic suppliers extensive simulation studies demonstrate significant benefits of the additional moments in estimating the random coefficient logit model

sustainable growth renewable resources and pollution thresholds and cycles abstract ayong le kama j econ dyn control 25 2001 1911 combines within an interesting model optimal saving a la ramsey with optimal intertemporal renewable resource use a la berck j environ econ manage 11 1981 101 this note draws attention to two possible outcomes thresholds and limit cycles that are overlooked in ayong le kama but also in other recent works and that are quite important in this context

sustainable growth renewable resources and pollution abstract our intention is to present a growth model with an environmental resource which has its own regeneration process the stock of this resource serves as a source of utility and an input to production we also intend to introduce a negative externality caused by a pollution flow which we assume to be proportional to production in the context of this model it is shown that by using the utility level of the green golden rule as a generalization of the ramsey s bliss point for solving an optimal growth problems with a zero discount rate an optimal path converges to the green golden rule configuration

thresholds in concave renewable resource models abstract a number of renewable resource models some of them just recently published e g about shallow lakes refer to convexities with respect to the resource stock as the source for multiple steady states and associated thresholds this short paper draws attention to the fact that multiple steady states and thresholds are possible in well behaved i e concave models too the ecological consequence is that renewable resource management is sensitive to initial conditions in more cases than so far suggested in the literature

the social cost of carbon and its policy implications the shadow price or social cost of carbon is an important indicator of the global incremental damage done by emitting greenhouse gases today cost benefit analysis would set the optimal amount of greenhouse gas emission reduction at the point where this social cost just equals the incremental cost of controlling emissions the higher the value for the social cost of carbon the more control is warranted this comparison assumes that cost benefit analysis is the correct way of determining climate change policy and many believe this is not the case because of the very long term irreversible and potentially catastrophic nature of global warming but in the short run at least a comparison of cost and benefits is required and in any event all decisions imply costs and benefits but what is the right figure for the social cost of carbon this paper reviews the uk government s assessment of the cost and concludes that it has been set far too high because of a misreading of the integrated assessment models used to balance costs and benefits moreover adoption of the uk government s shadow price would have formidable implications for energy policy in the uk and for policies on afforestation copyright 2003 oxford university press

uncertainty and amenity values in renewable resource economics in this paper we study the effects of amenities and uncertainty on the optimal exploitation of a renewable resource first if society displays a protection motive in the presence of amenities its optimal harvesting strategy will be more conservative second we show that ecological uncertainty leads society to develop the opposite behavior thus reducing its exposition towards risk a stationary analysis is undertaken to analytically quantify and compare these two effects with a gompertz natural regeneration function and a proportional risk the amenity effect is proved to prevail if and only if stochastic fluctuations on the resource stock are not too large

identification in differentiated products markets using market level data we present new identification results for nonparametric models of differentiated products markets using only market level observables we specify a nonparametric random utility discrete choice model of demand allowing rich preference heterogeneity product market unobservables and endogenous prices our supply model posits nonparametric cost functions allows latent cost shocks and nests a range of standard oligopoly models we consider identification of demand identification of changes in aggregate consumer welfare identification of marginal costs identification of firms marginal cost functions and discrimination between alternative models of firm conduct we explore two complementary approaches the first demonstrates identification under the same nonparametric instrumental variables conditions required for identification of regression models the second treats demand and supply in a system of nonparametric simultaneous equations leading to constructive proofs exploiting exogenous variation in demand shifters and cost shifters we also derive testable restrictions that provide the first general formalization of bresnahan s 1982 intuition for empirically distinguishing between alternative models of oligopoly competition from a practical perspective our results clarify the types of instrumental variables needed with market level data including tradeoffs between functional form and exclusion restrictions

an empirical study of credit shock transmission in a small open economy in this paper we identify and estimate the dynamic effects of foreign us and national canadian credit shocks in a small open economy we use standard credit spreads as proxies to the external finance premium our first result suggests that the us and canadian credit spreads contain substantial forecasting power for several measures of the canadian real economic activity especially during the recent financial crisis and its aftermath secondly an adverse us credit shock generates a significant and persistent economic slowdown in canada the national external finance premium rises immediately while interest rates credit aggregates output and employment indicators decline variance decomposition reveals that credit shocks have a sizeable effect on real activity measures leading indicators and credit spreads yet the unexpected shocks in domestic credit spreads are not able to generate any significant dynamic response of the real activity once we control for the us credit market conditions

stochastic trends and economic fluctuations are business cycles mainly the result of permanent shocks to productivity this paper uses a long run restriction implied by a large class of real business cycle models identifying permanent productivity shocks as shocks to the common stochastic trend in output consumption and investment to provide new evidence on this question econometric tests indicate that this common stochastic trend cointegration implication is consistent with postwar u s data however in systems with nominal variables the estimates of this common stochastic trend indicate that permanent productivity shocks typically explain less than half of the business cycle variability in output consumption and investment copyright 1991 by american economic association

term structure of interest rates and the expectation hypothesis the euro area abstract this paper investigates the informational content of the yield curve in the european market using data on the italian term structures according to the expectation hypothesis theory eht the current forward rate equals the future short rate plus a constant risk premium that is time invariant but maturity dependent this theory has been widely tested in the empirical literature providing various findings according to the country where it has been applied and to the segment of the yield curve examined or the period under study the standard approach to test the eht uses the regression techniques assuming data on spot rates and their first differences to be stationary recently an increasing number of studies evidenced the non stationarity of interest rates time series and some tests of the eht are formulated using term spread and forward spot spread which are stationary a new strand of literature suggests to investigate the eht using a restricted var framework in this paper following jondeau e ricart r 1999 the expectations hypothesis of the term structure tests on us german french and uk euro rates journal of international money and finance 18 725 750 ghazali n a low s w 2002 the expectations hypothesis in emerging financial markets the case of malaysia applied economics 34 1147 1156 and seo b 2003 non linear mean reversion in the term structure of interest rates journal of economic dynamics and control 27 2243 2265 we test if the expectation hypothesis holds using cointegration and error correction analysis for the period under study results suggest that the long and short term interest rates are cointegrated and therefore subject to a long equilibrium path providing evidence that the eht holds for the italian and the european market

why the far distant future should be discounted at its lowest possible rate abstract a critical feature of the distant future is currently unresolvable uncertainty about what will then be the appropriate rate of return on capital to use for discounting this paper shows that there is a well defined sense in which the lowest possible interest rate should be used for discounting the far distant future part of any investment project some implications are discussed for evaluating long term environmental projects or activities like measures to mitigate the possible effects of global climate change

combining micro and macro data in microeconometric models or panel samples to improve accuracy of estimation in this paper we show how to do this efficiently we show that the gains from use of marginal information can be substantial we also discuss how to test the compatibility of sample and marginal information

measuring market power in the ready to eat cereal industry the ready to eat cereal industry is characterized by high concentration high price cost margins large advertising to sales ratios and numerous introductions of new products previous researchers have concluded that the ready to eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense nonprice competition this paper empirically examines this conclusion in particular i estimate price cost margins but more importantly i am able empirically to separate these margins into three sources i that which is due to product differentiation ii that which is due to multi product firm pricing and iii that due to potential price collusion the results suggest that given the demand for different brands of cereal the first two effects explain most of the observed price cost margins i conclude that prices in the industry are consistent with noncollusive pricing behavior despite the high price cost margins leading firms are able to maintain a portfolio of differentiated products and influence the perceived product quality it is these two factors that lead to high price cost margins

use and misuse of the net present value in environmental studies abstract environmental studies regularly use the net present value npv to value benefits and costs of projects however the npv disregards whether the stream of net benefits is steady or volatile and ignores the distribution of net benefits among different groups of people here we test alternatives to npv building on two example cases 1 we use discounted utility du to evaluate land use projects and calculate opportunity costs for avoided deforestation 2 we simulate decision making on tropical deforestation whereby we use multiple decision criteria to consider the distribution of net benefits between two groups farmers and conservationists results show considerable differences in the ranking of projects between du and npv when projects are not marginal compared to du npv regularly overestimates the value of forest plantations moreover npv tends to overstate the opportunity costs of avoiding deforestation in terms of saved carbon emissions not accounting for the distribution of net benefits when optimizing land use allocation leads to sub optimal simulated deforestation scenarios we therefore suggest that future studies should either also use du to value economic consequences of projects or that they use the npv as only one among several socio economic and ecological decision criteria

path dependence in a ramsey model with resource amenities and limited regeneration this paper studies a ramsey optimal control economy with one consumer good extended to include several non renewable resources with amenity value the steady state equilibria of this economy are shown to form a continuum selection of the steady state to which the economy converges depends on the initial resource stocks hence unlike the usual ramsey models our model exhibits path dependency and postponement in the introduction of resource e ciency policies has long term e ects if the resource is renewable with a limited regeneration function the continuum becomes a turnpike that is optimal paths move along it towards the unique steady state the results also hold when there are several consumers 2003 elsevier b v all rights reserved

optimal pollution abatement under sustainable and other social time preferences this paper analyses optimal pollution abatement expenditure and the pricing of pollution under alternative social time preferences including sustainable preferences defined as those that are consistent with two axioms of sustainable development introduced by chichilnisky land econ 73 467 491 1997 these axioms state essentially that neither the welfare of present nor future generations ought to be favoured over the other in determining the socially optimal path of economic development the method is to calibrate a modified ramsey model of optimal global growth and saving where pollution is generated by the global output of goods and services pollution in turn reduces output the simulation results illustrate how sensitive the optimal pollution price and abatement expenditure can be over time to assumptions about the social time preference rate they also show that sustainable preferences impose a lower burden on future generations in terms of the pollution price and abatement expenditure hence there is a case for governments to make explicit their value judgments about intergenerational welfare in the context of their notion of sustainable development when setting target pollution abatement levels and pollution prices over time

provision of a public good with multiple dynasties carbon emissions create externalities across countries and generations these externalities depend on the degree of contemporaneous cooperation and intergenerational altruism i study the relative importance of these features in determining equilibrium climate policy by imbedding an olg framework with intergenerational altruism into a differential game among dynasties each representing a coalition of nations there is an isomorphism between pure and paternalistic altruism i illustrate the multiplicity of equilibria using an analytic linear in state model equilibrium steady states are more sensitive to small changes in cooperation than altruism consideration of large changes in altruism and cooperation can reverse this ranking

arbitrage cointegration and testing the unbiasedness hypothesis in financial markets we use a no arbitrage cost of carry asset pricing model to show that the existence of coin tegration between spot and forward futures prices depends on the time series properties of the cost of carry we argue that the conditions for cointegration are more likely to hold in currency markets than in commodity markets explaining many of the empirical results in the literature we also use this model to demonstrate why the forward rate forecast error the basis and the forward premium are serially correlated and to develop econometric tests ofthe unbiasedness hypothesis sometimes called the simple efficiency hypothesis in various financial markets the unbiasedness hypothesis is so prevalent in the finance liter ature that many tests for it have been developed we examine four of the common tests and and use our cointegration results to demonstrate why each of these tests should reject the null hypothesis of unbiasedness we find strong support for our hypothesis in the existing empirical literature

limit theorems for estimating the parameters of differentiated product demand systems we provide an asymptotic distribution theory for a class of generalized method of moments estimators that arise in the study of dierentiated product markets when the number of observations is associated with the number of products within a given market we allow for three sources of error sampling error in estimating market shares simulation error in approximating the shares predicted by the model and the underlying model error it is shown that the estimators are can provided the size of the consumer sample and the number of simulation draws grow at a large enough rate relative to the number of products we consider the implications of the results for berry levinsohn and pakes 1995 random coecient logit model and the pure characteristic model analyzed in berry and pakes 2002 the required rates dier for these two frequently used demand models a small monte carlo study shows that the dierence in asymptotic properties of the two models are reflected in quite a striking way in the models small sample properties moreover the limit distributions provide a good approximation to the actual monte carlo distribution of the parameter estimates the results have important implications for the computational burden of the two models

national accounts and environmental resources in the paper optimal growth theory is used to derive the appropriate definition of the net national product concept when there are environmental resources and environmental damage to take into account the basic conclusions are that conventional defined np should be corrected by deducting environmental damage and adding the value of the net change of all resources

assessing the economic viability of alternative water resources in water scarce regions combining economic valuation cost benefit analysis and discounting abstract this paper demonstrates a comprehensive methodology for assessing the viability of an environmental management plan that has long run economic and ecological impacts the case study under consideration is the implementation of a water resource management plan in a water scarce region of the world namely cyprus specifically this plan proposes to replenish a depleting aquifer with treated wastewater the proposed methodology first identifies the key stakeholder groups farmers and the general public who are hypothesized to derive economic values benefits from implementation of this plan and then uses stated preference methods to capture the total economic value of these benefits benefits are aggregated over the relevant populations of these stakeholder groups and weighed against the total costs of implementing the plan in a long run cost benefit analysis cba an econometrically estimated time declining trajectory of discount rates is used for the cba in order to assess the long run sustainability of the plan the results reveal that the net benefit trajectory estimated with the time declining discount rate takes one and a half to three times as long to come to a plateau compared to the constant discount rates of 3 5 and 6 emphasizing the importance of using declining discount rates and capturing the entirety of the benefits generated by such plans this methodology is particularly recommended for providing much needed information to support the implementation of the eu water framework directive which advocates the use of cba with consideration of the notion of sustainability for achieving the good water status for all european waters

efficiency of conservationist measures an optimist viewpoint abstract we consider an economy with a consumer good capital a natural resource that provides amenity values and heterogeneous overlapping generations we compare a benchmark grandfathering policy that ensures efficiency through privatization with a policy of enforced resource conservation it is shown that i conservationist measures do not cause any pareto inefficiency irrespective of whether they pass a cost benefit test moreover it is shown that ii there exist pareto optimal allocations that can only be reached through resource conservation and not through competitive markets irrespective of compensating income transfers finally iii equivalence is demonstrated between strict resource conservation and non dictatorship of the present generations over future generations as formalized in chichilnisky s sustainable welfare function the results are shown to hold in both a first best and a second best setting

an analysis of the global oil market using svarma models the paper analyses the importance of supply versus demand shocks on the global oil market from 1974 to 2017 using a parsimonious structural vector autoregressive moving average svarma model the superior out of sample forecasting performance of the reduced form varma compared to var alternatives advocates the suitability of this framework we specifically account for the changes in the oil market over three distinctive sub periods pre moderation great moderation and post moderation periods to provide a means of identifying the changing nature of shock transmission mechanism across times the findings shed some light on the effects of supply versus demand related oil shocks under different economic environment oil supply shocks explain large fraction of the movements in the global oil market in the pre and post moderation periods i e during the slower economic growth periods the importance of global activity shock on oil price movements is obvious during the 2003 2008 boom period the oil specific shock has an interesting transmission path on the global economic activity where the global activity responded positively and negatively during the global economic expansion and contraction respectively emphasising the precautionary nature of the shock

endogenous growth and property rights over renewable resources abstract we study how different regimes of access rights to renewable natural resources namely open access versus full property rights affect sustainability growth and welfare in the context of modern endogenous growth theory resource exhaustion may occur under both regimes but is more likely to arise under open access moreover under full property rights positive resource rents increase expenditures on manufacturing goods and temporarily accelerate productivity growth but also yield a higher resource price at least in the short to medium run we characterize analytically and quantitatively the model s dynamics to assess the welfare implications of differences in property rights enforcement

how certain are we about the certainty equivalent long term social discount rate theoretical arguments for using a term structure of social discount rates sdr that declines with the time horizon have influenced government guidelines in the us and europe the certainty equivalent discount rate that often underpins this guidance embodies uncertainty in the primitives of the sdr such as growth for distant time horizons the probability distributions of these primitives are ambiguous and the certainty equivalent itself is uncertain yet if a limited set of characteristics of the unknown probability distributions can be agreed upon sharp upper and lower bounds can be defined for the certainty equivalent sdr unfortunately even with considerable agreement on these features these bounds are widely spread for horizons beyond 75 years so while estimates of the present value of intergenerational impacts including the social cost of carbon can be bounded in the presence of this ambiguity they typically remain so imprecise as to provide little practical guidance

sustainability and growth when manufactured capital and natural capital are not substitutable abstract a two sector neoclassical growth model of manufactured capital and natural capital is used in examining the importance of factor substitution to the issues of sustainability and economic growth analytical conclusions are established on the sustainability of the stocks of natural capital and manufactured capital as well as on the importance of factor substitution to the issues of technical progress and recycling policy and welfare implications of the analysis are also discussed

varma versus var for macroeconomic forecasting in this article we argue that there is no compelling reason for restricting the class of multivariate models considered for macroeconomic forecasting to vector autoregressive var models given the recent advances in vector autoregressive moving average varma modeling methodology and improvements in computing power to support this claim we use real macroeconomic data and show that varma models forecast macroeconomic variables more accurately than vars

strategic exploitation of a common resource under environmental risk abstract we study the effect of environmental risk on the extraction of a common resource using a dynamic and non cooperative game in which an environmental event impacts the renewability and the quality of the resource we show that the anticipation of such an event has an ambiguous effect on extraction and the tragedy of the commons a risk of a reduction in the renewability induces the agents to extract less today while a risk of a deterioration in the quality has the opposite effect moreover when environmental risk induces conservation the tragedy of the commons is worsened

renewable resources and economic sustainability a dynamic analysis with heterogeneous time preferences abstract in recent years there has been increasing interest in the study of economic sustainability and its relationship with natural resources this paper attempts to shed some light on the issue by taking into account the individual variations in time preferences for consumption and resource amenity we characterize the long run steady state analyze its asymptotic stability and explore the transational dynamics from any initial state the welfare implications of the optimal path are also discussed

poverty trap and global indeterminacy in a growth model with open access natural resources abstract in this paper we use global analysis techniques to analyze an economic growth model with environmental negative externalities giving rise to a three dimensional dynamic system the framework is the one introduced by wirl 1997 53 the dynamics of our model admits a locally attracting stationary state p 1 which is in fact a poverty trap coexisting with another stationary state p 2 possessing saddle point stability global dynamical analysis shows that under some conditions on the parameters if the initial values of the state variables are close enough to the coordinates of p 1 then there exists a continuum of equilibrium trajectories approaching p 1 and one trajectory approaching p 2 therefore our model exhibits global indeterminacy since either p 1 or p 2 can be selected according to agent expectations moreover we prove that conditions guaranteeing the attractivity of p 1 also imply the saddle point stability of p 2 however when p 1 is not attractive numerical simulations show the possible existence of one or two limit cycles an attractive one surrounding p 1 and one endowed with a two dimensional stable manifold surrounding p 2

numerical analysis of non constant pure rate of time preference a model of climate policy abstract when current decisions affect welfare in the far distant future as with climate change the use of a declining pure rate of time preference prtp provides potentially important modeling flexibility the difficulty of analyzing models with non constant prtp limits their application we describe and provide software available online to implement an algorithm to numerically obtain a markov perfect equilibrium for an optimal control problem with non constant prtp we apply this software to a simplified version of the numerical climate change model used in the stern review for our calibration the policy recommendations are less sensitive to the prtp than widely believed

along the way back from the brink abstract an optimal control model of wildlife management is developed to analyze the transitory dynamics set forth by the reintroduction of animals that provide benefits but can also come into conflict with humans the shadow price of these resources can be positive or negative potentially creating a nonconvexity the conditions under which reintroduction is not desirable are determined and those characterizing the initiation of costly population control are investigated an application to deer management illustrates the relevance of the nonconvexity and the magnitude of losses stemming from delays in implementing optimal management the impact of distributional concerns on efficiency is discussed

what is sustainable development this paper introduces two axioms that capture the idea of sustainable development and characterizes the welfare criterion that they imply the axioms require that neither the present nor the future should play a dictatorial role in society s choices over time theorems 1 and 2 show there exist sustainable preferences which satisfy these axioms and provide a full characterization theorems 3 5 study a standard dynamical system representing the growth of a renewable resource economy give a turnpike theorem and exhibit the differences between sustainable optima and the ones according to discounted utilitarianism

renewable resources in an endogenously growing economy balanced growth and transitional dynamics abstract we introduce a renewable resource sector into an endogenous growth model of a small economy deriving the transitional dynamic equilibrium the model generates a long run equilibrium in which a resource sector of limited size can coexist with constant ongoing growth elsewhere the key feature of the model is the allocation of labor between harvesting the resource and its use in the final output sector this naturally generates the empirically observed negative relationship between resource abundance and growth we examine both the dynamic and long run responses of the economy to various shocks pertaining to technological production conditions and resource sector parameters

benchmarking the expectations hypothesis of the interest rate term structure an analysis of cointegration vectors i test cointegration restrictions that are consistent with the expectations hypothesis of the term structure by employing the full information maximum likelihood methods developed by johansen yield curves appear to be the result of cointegration among interest rates the cointegration vectors that best describe the long term impact of interest rate levels on interest rate changes can often be written as linear combinations of interest rate spreads there is however difficulty in keeping short term yields in such a restricted cointegrated system with other interest rates short term speculative returns from long term bonds do not conform to the expectations hypothesis

explaining the failures of the term spread models of the rational expectations hypothesis of the term structure contrary to the predictions of the rational expectations hypothesis of the term structure of interest rates empirical evidence suggests that the term spread between long and short rates fails to forecast future movements of long term rates although its forecasts of future short term rates are in the correct direction in this paper the authors show that this puzzling behavior of the term spread alone can be explained by a time varying term premium that is correlated with the term spread once this is accounted for neither expression of the expectations hypothesis is against the predictions of the theory copyright 1997 by ohio state university press

scientific progress and irreversibility an economic interpretation of the precautionary principle abstract we consider the problem of the optimal use of a good whose consumption can produce damages in the future scientific progress is made over time that provides information on the distribution of the intensity of damages we show that this progress induces earlier prevention effort only if prudence is larger than twice absolute risk aversion this paper thus identifies the class of quite restrictive but plausible conditions such that scientific uncertainties justify an immediate reduction of the consumption of a potentially toxic substance

sustainable growth with environmental spillovers in this paper we apply the approach of ramsey and koopmans to the problem of optimal and sustainable growth under plausible assumptions intertemporal neutrality implies that the optimal growth path is sustainable without the contrivance of a sustainability constraint the model is extended to cases involving environmental disamenities the solutions equivalently solve the problem of maximizing net national product adjusted for depreciation in natural capital and environmental effects green net national product in this framework is constant over time thus avoiding the paradox of declining sustainable income

trade connections and interest rate linkages among asean japan and the usa an empirical analysis in the existing literature there have been only a limited number of efforts at empirically evaluating the degree of economic connections among asean countries the present study intends to fill this gap the study is conducted through an investigation of regional trade connections and interest rate linkages the results indicate that both the degree of trade interdependence and the interest rate linkages among asean nations are comparable to those among eec and nafta countries singapore plays a key role in asean economic relations different from eec and nafta asean appears to be heavily dependent on japan and the usa the two super economic powers outside the association

does better discounting lead to worse outcomes in long run decisions the dilemma of hyperbolic discounting the shortcomings of conventional discounting especially in the context of long run environmental problems have been extensively discussed in the literature recently hyperbolic discounting i e discounting at declining instead of constant discount rates has attracted a lot of interest among both scientists and politicians although there are compelling arguments for employing hyperbolic discounting there are also pitfalls which have to be pointed out in this paper i show that the problem of time inconsistency an inherent characteristics of hyperbolic discounting leads to a potential clash between economic efficiency and intergenerational equity as an example i refer to the weak progress in the controlling of greenhouse gas emissions under the kyoto protocol as the problem of time inconsistency cannot be solved on economic grounds alone there is a need for an intergenerational moral commitment

a component based approach to discounting for natural resource damage assessment abstract the paper proposes a component based approach to guide the choice of the social discount rate in natural resources damage assessment where time and discounting are key features it is a multi rate discounting scheme which draws on concepts from dual rate and time declining approaches each damage component is discounted at a component specific constant rate related to its time trajectory assuming a normatively defined declining schedule of rates as a starting reference components with longer time profiles generally represented by welfare losses are discounted at lower rates than short term damage components mainly remedial costs the rationale behind this choice is that the longer the duration of the damage component the higher the related nonincident specific uncertainty on the resource values and the more relevant the equity issues when estimating the total damage the resulting implicit average discount rate depends on the duration of each component and its relative relevance in the total damage in each moment from an operational point of view anchoring the rates to government prescriptions would support the robustness of the damage estimates in a court of law whereas the dual based environmental discount rate is based on ad hoc assumptions that are more difficult to justify

non constant discounting social welfare and endogenous growth with pollution externalities abstract we analyze the effect of non constant discounting on economic growth and social welfare in an endogenous growth model with pollution externalities for time consistent agents who play a game against their future selves the balanced growth equilibrium is compared to the case of standard exponential discounting a decaying instantaneous discount rate leads to slower growth in a centralized economy while its effect for a competitive economy is ambiguous interestingly when comparing the planned and the competitive equilibria the assumption of non constant discounting may imply greater social welfare in the market equilibrium under two conditions first the pollution externality on utility must be large with respect to the externality on production so that the central planner slows down growth below the growth rate in the market economy secondly individuals degree of impatience should decrease sharply with the time distance from the present concerning policy implications we observe that under log utility policies may not be necessary while for an isoelastic utility with an elasticity lower than one introducing policy instruments is less effective than under constant discounting

declining discount rates the long and the short of it the last few years have witnessed important advances in our understanding of time preference and social discounting in particular several rationales for the use of time varying social discount rates have emerged these rationales range from the ad hoc to the formal with some founded solely in economic theory while others reflect principles of intergenerational equity while these advances are to be applauded the practitioner is left with a confusing array of rationales and the sense that almost any discount rate can be justified this paper draws together these different strands and provides a critical review of past and present contributions to this literature in addition to this we highlight some of the problems with employing ddrs in the decision making process the most pressing of which may be time inconsistency we clarify their practical implications and potential pitfalls of the more credible rationales and argue that some approaches popular in environmental economics literature are ill conceived finally we illustrate the impact of different approaches by examining global warming and nuclear power investment this includes an application and extension of newell and pizer discounting the benefits of climate change mitigation how much do uncertain rates increase valuations journal of environmental economics and management 46 2003 52 to uk interest rate data

social discounting under uncertainty a cross country comparison recent research suggests that social cost benefit analysis should be conducted with a declining discount rate for instance newell and pizer discounting the distant future how much do uncertain rates increase valuations j environ econ manage 46 2003 52 71 show that the us certainty equivalent discount rate declines through time using a simple autoregressive model of us interest rates this paper extends that line of research estimating both autoregressive and regime switching models of real interest rates to determine certainty equivalent discount rates in australia canada germany and the uk it is found that the regime switching model is a better model of past interest rate behavior for all four countries this model tends to produce a more rapid decline in certainty equivalent discount rates the paper provides applications to the economics of climate change and nuclear power

investment and harvest strategies of the finnish forest sector under different forest tax policies a differential game approach with computer based decision aid abstract this study deals with the simultaneous solution of the investment harvest and taxation problems of the finnish forest sector these strategic questions involve competitive and contradictory interests among forestry the forest industry and society we build a computer based decision aid to support a decision maker who wants to analyze the consequences of different forest tax policies it is essential to this computational approach that only minor mathematical manipulations are needed to produce equilibrium open loop nash harvest and investment strategies moreover as a differential game approach it allows us to study the tax incidence we solve our model under three alternative tax policies lump sum unit and yield taxes