land development and preservation over time and under uncertainty a review and a research agenda abstract the combination of a rising interest in sustainable natural resource use and the increasingly fractious nature of the interactions between developers and preservationists has led to renewed interest in the question of appropriate natural resource management in this paper i consider the question of land development and preservation over time and under uncertainty i first review the extant literature and then i discuss its shortcomings next i propose a research agenda which will enable us to shed light on some important management questions faced by land developers

ex ante consumer welfare evaluation in cost benefit analysis abstract public projects and policies are normally evaluated ex ante i e while consumers may still be uncertain about future prices income levels interest rates and preferences this paper extends the theory of ex ante consumer welfare evaluation by developing a 2 period model with multiple sources of uncertainty it provides insights into the influence of temporal uncertainty on the empirical measurement of ex ante willingness to pay

the empirical performance of the ecb s repo auctions evidence from aggregated and individual bidding data abstract we analyze the empirical performance of the ecb s fixed rate tenders by estimating bid functions using aggregated and individual bidding data the intention of the study is twofold first in view of the ecb s emphasis on the principle of equal treatment we employ the aggregated data to compare the bidding behavior of german and non german banks specifically we investigate banks overbidding and its response to opportunity cost and interest rate expectations second we use the individual bidding data of german banks and estimate panel data models to investigate the impact of a bank s type on its bidding the results indicate that large banks bid more informed or sophisticated than smaller banks with regard to interest rate expectations however there is no evidence for a size effect in banks overbidding behavior

from demonstration to deployment an economic analysis of support policies for carbon capture and storage abstract this paper argues that an integrated policy architecture consisting of multiple policy phases and economic instruments is needed to support the development of carbon capture and storage ccs from its present demonstration phase to full scale deployment building on an analysis of the different types of policy instruments to correct market failures specific to ccs in its various stages of development we suggest a way to combine these into an integrated policy architecture this policy architecture adapts to the need of a maturing technology meets the requirement of policymakers to maintain flexibility to respond to changing circumstances while providing investors with the policy certainty that is needed to encourage private sector investment this combination of flexibility and predictability is achieved through the use of policy gateways which explicitly define rules and criteria for when and how policy settings will change our findings extend to bioenergy based ccs applications beccs which could potentially achieve negative emissions we argue that within a framework of correcting the carbon externality the added environmental benefits of beccs should be reflected in an extra incentive

why did the banks overbid an empirical model of the fixed rate tenders of the european central bank abstract this paper tests two alternative hypotheses for the overbidding behavior of the banks in the fixed rate tenders conducted by the european central bank ecb from january 1999 until june 2000 one hypothesis attributes the overbidding to the expectations of a future tightening of monetary policy while the other attributes it to the liquidity allotment decisions of the ecb the model is estimated with individual bidding data of the spanish banks and also with aggregate bidding data of all spanish banks and all banks in the euro area the empirical results provide support for the second hypothesis

the repo auctions of the european central bank and the vanishing quota puzzle until june 2000 the european central bank ecb used fixed rate tenders for its weekly repo auctions a switch to variable rate tenders became necessary due to massive overbidding by banks in this paper we introduce a stylized game among banks to investigate this overbidding phenomenon our results confirm the weakness of the fixed rate tender format and indicate that the ecb s liquidity management has significantly improved since the switch to the variable rate system yet recent episodes of rate cut expectations suggest that the ecb s practice of setting a minimum bid rate should be abandoned in favor of a more symmetric interest rate target

european central bank operations experimental investigation of the fixed rate tender abstract in an experimental study the auction procedure of the fixed rate tender is investigated with which the main refinancing operation of the eurosystem was carried out in the past in june 2000 the fixed rate tender was replaced by the american variable rate tender this change was occasioned by the suspicion that banks grossly exaggerate their liquidity needs in their bids the experimental results clearly support this hypothesis and demonstrate that the fixed rate tender method can be a regular invitation to the banks to continually raise their bids from auction to auction

valuing environmental commodities some recent experiments a general model of consumer behavior is proposed to assess six recent experiments that have attempted to reveal preferences for environmental goals each experiment used a mix of both the techniques and the theory of demand for non market commodities and each was designed to estimate a non market attitude associated with the environment and to analyze potential biases in the techniques the six cases show some consistency in results the linkage within the contingent market between the environmental attribute institutional setting and the bidding instrument must be realistic and accepted by the respondent to avoid biased results possibly the most important result is the replication of results using a traditional property value study and a contingent bidding approach all evidence obtained to date suggests that hedonic studies of property values or wages travel costs and survey techniques all yield values well one order of magnitude in accuracy 41 references 2 tables

ecological economics and scientific controversies lessons from some recent policy making in the eec abstract contrasting the very limited scientific evidence on the forest dieback issue with the sudden adoption of policies on air pollution decided in the frg 1983 1984 and extended to the european community 1985 we propose an interpretative framework for the real internalization process at work in what was tantamount to a social crisis for public opinion the media and political actors we conclude that open scientific controversies on some environmental issues effects causes solutions pave the way for some actors to use the issue for their own techno industrial strategies quite alien to ecological constraints in cases of very high uncertainties on impacts it becomes impossible to apply conventional social cost benefit analysis scba as an optimizing tool we propose to develop economic analysis as a negotiation language and to give pride of place to the value of learning time and to the crucial role of technological pluralism as a condition for flexibility in the future

environmental issues and economic decisions in developing countries abstract this paper explains the key role of environmental economics in incorporating environmental concerns into decision making and in facilitating the more efficient management of natural resources as a step toward sustainable development it reviews concepts and techniques for valuation of environmental impacts for use in conventional cost benefits analysis as well as key related aspects including environmental impacts of economywide policies multicriteria analysis risk and uncertainty and discount rate issues several developing country case studies are summarized which cover a range of practical valuation methods the evidence presented suggests that the valuation techniques for determining use values may be applied successfully in appropriate cases but examples involving nonuse values are rare the use of multiobjective desicion methods also needs to be explored where economic valuation is not feasible

a positive theory of fixed rate funds supplying operations in an accommodative financial environment abstract this paper studies bidding behaviors in fixed rate funds supplying auctions using a simple game theoretic model while the existing literature argues that such auction schemes are vulnerable to the overbidding problem the bid to cover ratio for the bank of japan s current fixed rate operations has remained stable after reviewing the stylized repo game and the mechanism of overbidding under the fixed rate operations we argue that the current framework of fixed rate funds supplying auctions operated by the bank of japan and the recent accommodative financial environment make bidders loss functions locally satiated given this argument it is shown that any stable bid to cover ratios other than either undersubscription or overbidding can be supported by an equilibrium finally we empirically find that the ratio under the bank of japan operations has been influenced by such financial conditions proxied by market interest rates and term spreads

flexibility learning and irreversibility in environmental decisions a bayesian approach the bayes decision is characterized and studied for a two period decision problem involving a proposed resource development project it is assumed that development is irreversible and that expectations about benefits and costs during the second period vary with experiences resulting from the first period action the amount and types of learning achieved depend upon the particular action taken during the first period flexible sequential decision procedures are compared with fixed once and for all decisions it is shown that under this specification optimal development decisions are not necessarily more conservative when a sequential procedure is used the possibility of reneging on a fixed decision is formally specified and studied

information distortion in a supply chain the bullwhip effect this article originally appeared in management science april 1997 volume 43 number 4 pp 546 558 published by the institute of management sciences consider a series of companies in a supply chain each of whom orders from its immediate upstream member in this setting inbound orders from a downstream member serve as a valuable informational input to upstream production and inventory decisions this paper claims that the information transferred in the form of orders tends to be distorted and can misguide upstream members in their inventory and production decisions in particular the variance of orders may be larger than that of sales and distortion tends to increase as one moves upstream a phenomenon termed bullwhip effect this paper analyzes four sources of the bullwhip effect demand signal processing rationing game order batching and price variations actions that can be taken to mitigate the detrimental impact of this distortion are also discussed

information and the concept of option value this paper examines the arrow fisher henry concept of option value and analyzes its properties including its relationship to the value of information and the effects of increasing uncertainty about the future consequences of irreversible development it is shown that this option value is distinct from but bounded by the value of information in the overall decision problem also it is distinct from a concept of option value that appears in b s bernanke quart j econom 98 85 106 1983 however when there is a continuum of development levels rather than a binary choice between full development and no development some of these conclusions need to be modified

overbidding in fixed rate tenders the role of exposure risk abstract the fixed rate tender is one of the main procedures used by central banks in the implementation of their monetary policies while academic research has largely dismissed the procedure owing to its tendency to encourage overbidding central banks such as the ecb and the bank of england have continued using it we investigate this apparent conflict by considering an auction theoretic setting with private information about declining marginal valuations since overbidding entails exposure risk an equilibrium may exist even if bids are costless and the intended volume is pre announced in fact the allotment quota may be strictly below one with certainty also with adaptive expectations overbidding need not escalate however the resulting allocation is typically inefficient empirical proxies of exposure risk are significant in both euro and sterling operations our findings have implications in particular for the potential reintroduction of pro rata allotment in the main refinancing operations of the eurosystem

nonuse values in benefit cost analysis benefit cost analysis bca is a pragmatic realization of the theory of welfare economics much of the research associated with bca has sought to expand the types of benefits that can be measured in dollar terms with this research there has been a progressive movement of goods and services from the set without measures usually designated as intangibles in bca terminology to the set with for example the recreational services provided by projects associated with dams for hydroelectric power or flood control were regarded as intangible until the development of the travel cost model for estimating the demand for outdoor recreation sites one of the current frontiers in bca research is associated with modeling and measuring nonuse benefits in contrast to the past efforts with intangibles research on this topic has remained controversial with few direct effects on the practice of applied welfare economics there are two principal reasons for this outcome first there has not been an accepted set of definitions for nonuse benefits and second applied studies with empirical estimates of nonuse benefits have until recently been non existent clearly these problems are related a consistent set of definitions is a necessary prerequisite for empirical implementation i will argue that consistent definitions for nonuse benefits have been elusive because the conceptual frameworks used in the literature to describe its primary components option value and existence values are not mutually consistent in the process of demonstrating this result i will describe the elements of a consistent framework for treating both use and nonuse benefits and apply it in explaining some of the problems with the available empirical estimates of nonuse benefits

a note on option value and the expected value of consumer s surplus abstract in roughly contemporaneous papers cicchetti and freeman quart j econ 1971 and schmalensee amer econ rev 1972 reached apparently conflicting conclusions about the sign taken by option value cicchetti and freeman conclude that option value is always non negative schmalensee concludes that option value may be either positive or negative depending upon the circumstances this paper reconciles these seemingly contradictory conclusions it is demonstrated that cicchetti and freeman s unambiguous conclusions concerning the sign of option value are the result of two special strong assumptions not imposed by schmalensee

renewal theory and natural resource regulatory policy under uncertainty abstract in this paper we show how renewal theory can be used to model a large class of natural resource regulatory problems involving systemic and policy uncertainty we stress the policy implications of our approach and then we suggest possible extensions

european co2 prices and carbon capture investments we assess the option to install a carbon capture and storage ccs unit in a coal fired power plant operating in a carbon constrained environment we consider two sources of risk namely the price of emission allowance and the price of the electricity output first we analyse the performance of the eu market for co2 emission allowances specifically we focus on the contracts maturing in the kyoto protocol s first commitment period 2008 to 2012 and calibrate the underlying parameters of the allowance price process then we refer to the spanish wholesale electricity market and calibrate the parameters of the electricity price process we use a two dimensional binomial lattice to derive the optimal investment rule in particular we obtain the trigger allowance prices above which it is optimal to install the capture unit immediately we further analyse the effect of changes in several variables on these critical prices among them allowance price volatility and a hypothetical government subsidy we conclude that at current permit prices immediate installation does not seem justified from a financial point of view this need not be the case though if carbon market parameters change dramatically carbon capture technology undergoes significant improvements and or a specific governmental policy to promote these units is adopted

the stochastic city abstract this paper analyzes a simple model of an urban area with growth and uncertainty household income rents and prices for land follow stochastic processes even though investors are risk neutral uncertainty affects both land rents and land prices in equilibrium because the conversion of land from agricultural to urban use is irreversible growth on the other hand affects urban and agricultural land prices but not the level of rents we show that uncertainty i delays the conversion of land from agricultural to urban use ii imparts an option value to agricultural land iii causes land at the boundary to sell for more than its opportunity cost in other uses and iv reduces equilibrium city size

option value a conceptual overview the importance of nonuser benefits to the process of efficiently allocating natural environments was first emphasized by krutilla 15 a decade and a half ago one of the components of these nonuser benefits is option value originally introduced by weisbrod 23 as relevant for assets that might be difficult to reproduce option value has been the subject of considerable debate perhaps the simplest approach to explaining the meaning of option value is to use an example consider an individual who is uncertain whether he or she will consume the services of a particular asset in the future furthermore assume this individual is also uncertain whether the asset will be available in the future should he

overbidding in fixed rate tenders an empirical assessment of alternative explanations abstract this paper investigates various theories explaining banks overbidding in the fixed rate tenders of the european central bank ecb using auction data from both the bundesbank and the ecb we show that none of the theories can on its own explain the observed overbidding this implies that the proposed new rules by the ecb aimed at neutralizing interest rate expectations would not eliminate overbidding if the rationing rule in the fixed rate tenders remains unchanged

off shore enhanced oil recovery in the north sea the impact of price uncertainty on the investment decisions although co2 capture and storage ccs is considered a key solution for co2 emission mitigation it is currently not economically feasible co2 enhanced oil recovery can play a significant role in stimulating ccs deployment because co2 is used to extract additional quantities of oil this study analyzes the investment decision of both a carbon emitting source and an oil company separately by adopting a real options approach it is shown that when uncertainty is integrated in the economic analysis co2 and oil price threshold levels at which investments in co2 capture and enhanced oil recovery will take place are higher than when a net present value approach is adopted we also demonstrate that a tax on co2 instead of an emission trading system results in a lower investment threshold level for the investment in the co2 capture unit furthermore we determine a minimum co2 selling price between the two firms and show that co2 eor has the potential to pull ccs into the market by providing an additional revenue on the capture plant however when co2 permit prices are above an identifiable level the eu ets does not necessarily result in the adoption of ccs and stimulates oil production

state renewable energy electricity policies an empirical evaluation of effectiveness over the past decade state governments have emerged as us energy policy leaders across the country states are adopting policy instruments aimed at carbon mitigation and renewable energy deployment one of the most prevalent and innovative policy instruments is a renewable portfolio standard rps which seeks to increase the share of renewable energy electrification in the electricity market this analysis evaluates the effectiveness of state energy programs with an empirical investigation of the linkage between state rps policy implementation and the percentage of renewable energy electricity generation across states we use a variant of a standard fixed effects model referred to as a fixed effects vector decomposition with state level data from 1998 to 2006 results indicate that rps implementation is not a significant predictor of the percentage of renewable energy generation out of the total generation mix yet for each additional year that a state has an rps policy they are found to increase the total amount of renewable energy generation these findings reveal a potentially significant shortcoming of rps policies political institutions natural resource endowments deregulation gross state product per capita electricity use per person electricity price and the presence of regional rps policies are also found to be significantly related to renewable energy deployment

collateral and short squeezing of liquidity in fixed rate tenders abstract the paper models fixed rate tenders where a central bank offers to lend central bank funds to financial institutions bidders are constrained by the amount of collateral they have we focus on the strategic interaction between bidding in the tender and trading in the interbank market after the tender where short squeezes could occur we examine how the design of the tender affects equilibrium bidding behavior and the incidence of short squeezes important elements in the analysis include the type of policy implemented by the central bank as well as bidders initial endowments of liquidity and collateral three instruments for softening short squeezes are identified the tender rate the tender size and admissible collateral increasing the tender rate or size tends to decrease the probability and severity of a short squeeze the possibility of a short squeeze may induce bidders to oversubscribe even if the tender rate is higher than the competitive rate

the fundamentals of land prices and urban growth abstract in a very simple model in which capital is durable and landowners have perfect foresight the price of urban land has four additive components the value of agricultural land rent the cost of conversion the value of accessibility and the value of expected future rent increases a growth premium in rapidly growing cities the growth premium may easily account for half of the average price of land and may create a large gap between the price of land at the boundary minus conversion cost and the value of agricultural land rent

option value an exposition and extension this article examines the role of the discount rate in making decisions that will have significant implications for the environment the authors begin by providing a rationale for discounting in general and by describing the main factors that determine

requiem for option value as freeman 1984 accurately notes a lot of ink has been spilled over the concept of option value during the last two decades graham in his seminal 1981 article outlined the specific conditions under which option price is and more significantly is not an appropriate and relevant measure of value under demand uncertainty while graham s article demonstrates that option value is relevant only under restrictive assumptions regarding preferences and the nature of the uncertainty both the tone and contents of recent articles on the

valuing public goods discrete versus continuous contingent valuation responses independent applications of open ended and dichotomous choice formats are compared using tests of means estimating joint likelihood functions and nonparametric tests of distributions the null hypothesis of no difference in the open ended and dichotomous choice estimates of central tendency cannot be rejected for two out of three data sets while estimated standard deviations are significantly different for all three data sets in addition actual dichotomous choice means and standard deviations exceed those from comparable synthetic dichotomous choice data sets suggesting either open ended questions underestimate values or dichotomous choice bid structures may lead to systematic overestimates

thinking economically about climate change abstract uncertainty over both the regional impacts and timing of climatic changes the way they tend to magnify the likelihood of so called natural disasters and their irreversibility require careful analysis of policy options from an economic standpoint the best approach is to apply cost benefit thinking the essential trade off is between doing nothing now and investing in either important preventive or adaptive measures the choices involve analysis of incurring costs now against the benefits of reducing vulnerability and future damage costs for any given level of warming the aim is to minimize the sum of policy costs and costs of adaptation by individuals any resulting policy decision will have to address issues of international cooperation and compensation these considerations may in turn influence the resulting policy choices between carbon taxes marketable permits and regulatory restrictions

the choice of a welfare measure under uncertainty use of option price as a welfare measure when conducting a benefit cost analysis under uncertainty is appropriate only if the project under consideration will have no impact on the allocation of risk among individuals use of the willingness to pay locus as a benefit measure is appropriate only if the project will result in an efficient allocation of risk a more general welfare measure is proposed maximum agreeable payment that correctly measures the benefits and costs of any project