assessing the effects of co2 price caps on electricity investments a real options analysis abstract this paper uses real options modeling to assess the impact of different climate change policy instruments on investment profits and cumulative emissions in the electricity sector even though co 2 price caps or safety valves have been suggested as methods to limit uncertainty emanating from fluctuating prices of co 2 permits that would hurt the industry s profit and thereby also energy security our analysis shows that price caps set at a too low level are detrimental to the adoption of e g modern biomass fired capacity as a replacement for existing coal fired power plants we therefore conduct a series of experiments with different policy scenarios to analyze under which regime emissions are most effectively reduced with respect to co 2 price uncertainty it turns out that even for moderately rising co 2 prices fluctuations frequently lead to investment into carbon capture and storage ccs while investment is often not triggered in the face of deterministic co 2 prices

complex dynamics in a cobweb model with adaptive production adjustment abstract chaos occurs in a nonlinear cobweb model with normal demand and supply naive expectations and adaptive production adjustment the model differs from existing ones in that it includes adaptive production adjustment instead of adaptive expectations the model exhibits observable chaos strange attractors as well as topological chaos horseshoes associated with homoclinic points as numerical simulations show the faster suppliers adjust their production and the more inelastic demand is the more likely the market behaves chaotically

artificial adaptive agents in economic theory economic analysis has largely avoided questions about the way in which economic agents make choices when confronted by a perpetually novel and evolving world as a result there are outstanding questions of great interest to economics in areas ranging from technological innovation to strategic learning in games this is so despite the importance of the questions because standard tools and formal models are ill tuned for answering such questions however recent advances in computer based modeling techniques and in the subdiscipline of artificial intelligence called machine learning offer new possibilities artificial adaptive agents aaa can be defined and can be tested in a wide variety of artificial worlds that evolve over extended periods of time the resulting complex adaptive systems can be examined both computationally and analytically offering new ways of experimenting with and theorizing about adaptive economic agents many economic systems can be classified as complex adaptive systems such a system is complex in a special sense i it consists of a network of interacting agents processes elements ii it exhibits a dynamic aggregate behavior that emerges from the individual activities of the agents and iii its aggregate behavior can be described without a detailed knowledge of the behavior of the individual agents an agent in such a system is adaptive if it satisfies an additional pair of criteria the actions of the agent in its environment can be assigned a value performance utility payoff fitness or the like and the agent behaves so as to increase this value over time a complex adaptive system then is a complex system containing adaptive agents networked so that the environment of each adaptive agent includes other agents in the system complex adaptive systems usually operate far from a global optimum or attractor such systems exhibit many levels of aggregation organization and interaction each level having its own time scale and characteristic behavior any given level can usually be described in terms of local niches that can be exploited by particular adaptations the niches are various so it is rare that any given agent can exploit all of them as rare as finding a universal competitor in a tropical forest moreover niches are continually created by new adaptations it is because of this ongoing evolution of the niches and the perpetual novelty that results that the system operates far from any global attractor improvements are always possible and indeed occur regularly the everexpanding range of technologies and products in an economy or the everimproving strategies in a game like chess provide familiar examples adaptive systems may settle down temporarily at a local optimum where performance is good in a comparative sense but they are usually uninteresting if they remain at that optimum for an extended period a theory of complex adaptive systems based on aaa makes possible the development of well defined yet flexible models that exhibit emergent behavior such models can capture a wide range of economic phenomena precisely even though the development of a general mathematical theory of complex adaptive systems is still in its early stages the aaa models complement current theoretical directions they are

a symmetric safety valve abstract how to set policy in the presence of uncertainty has been central in debates over climate policy concern about costs has motivated the proposal for a cap and trade program for carbon dioxide with a safety valve that would mitigate against spikes in the cost of emission reductions by introducing additional emission allowances into the market when marginal costs rise above the specified allowance price level we find two significant problems both stemming from the asymmetry of an instrument that mitigates only against a price increase one is that most important examples of price volatility in cap and trade programs have occurred not when prices spiked but instead when allowance prices collapsed second a single sided safety valve may have unintended consequences for investment we illustrate that a symmetric safety valve provides environmental and welfare improvements relative to the conventional one sided approach

agent based computational transaction cost economics this article explores the use of agent based computational economics ace for modelling the development of transactions between firms transaction cost economics neglects learning and the development of trust ignores the complexity of multiple agents and assumes rather than investigates the efficiency of outcomes efficiency here refers to minimum cost or maximum profit we model how co operation and trust emerge and shift adaptively as relations evolve in a context of multiple interacting agents this may open up a new area of application for the ace methodology a simulation model is developed in which agents make and break transaction relations on the basis of preferences based on trust and potential profit profit is a function of product differentiation specificity of assets economy of scale and learning by doing in ongoing relations agents adapt their trust in a partner as a function of his loyalty exhibited by his continuation of a relation they also adapt the weight they attach to trust on the basis of realized profit the model enables an assessment of the efficiency of outcomes relative to the optimum as a function of trust and market conditions we conduct a few experiments to illustrate this application of ace

simulating the effects of environmental and market variability on fishing industry structure abstract an agent based model comprising a fish stock a fishing fleet and a fish market is used to investigate the combined effects of environmental and market variability on the structure of a fishery over 15 year simulations agents make daily fishing decisions and annual entry exit and investment decisions based on the fishery s past economic outcomes and their individual risk preferences and opportunity costs e g an alternative source of income environmental variability is simulated through fishing success variability while market variability is simulated through changes in the elasticity of the demand curve i e the responsiveness of market prices to changes in daily landings our findings indicate that changes in variability lead to changes in economic and biological conditions of the fishery by influencing the composition of risk preferences within the fleet counter to expectations market stability did not dampen the negative impacts of environmental variability but rather stimulated over investment and increased harvesting by a small number of risk seeking fishers results from this research suggest that climate driven increases in fisheries variability coupled with increases in market integration that act to reduce local price signals may lead to inefficient investments and reduced fishery resources

the asymmetric effect of endowments on vertical intra industrial trade este articulo trata de analizar los determinantes del comercio intra industrial vertical en espana con una muestra de paises extensa se contrasta empiricamente la hipotesis de la ventaja comparativa con esta finalidad hemos construido series de capital fisico humano y tecnologico en media cuando se utiliza la estimacion mco las diferencias en dotaciones suponen una limitacion al comercio intra industrial vertical usando la tecnica de regresion por cuantiles se observa que este efecto negativo disminuye en terminos absolutos a medida que los flujos de comercio intra industrial vertical se incrementan y en algunos casos llegan a ser positivos en los cuantiles altos de la distribucion este resultado ofrece evidencia a favor de una version reducida de la hipotesis de la ventaja comparativa

equilibrium and reinforcement learning in private information games an experimental study abstract this paper examines the abilities of standard game theoretic solution concepts static nash equilibrium and a simple model of individual learning to describe subject behavior in an experiment involving private information games with mixed strategy nash equilibrium outcomes the experimental data are compared in several ways with the predictions of static nash equilibrium and the quite different predictions of the learning model which is based on the models of roth and erev 1995 games and economic behavior special issue nobel symposium vol 8 pp 164 212 nash equilibrium does not adequately describe subject behavior whereas the learning model performs well in describing aspects of the evolution in behavior over time

markets in equilibrium with firms out of equilibrium a simulation study abstract we explore the effect of the limited ability to process information on the convergence of firms toward equilibrium in the context of a cournot oligopoly with a unique and symmetric nash equilibrium firms are modeled as adaptive economic agents through a genetic algorithm computational experiments show that while market production is close to equilibrium firm production is relatively far from the individual equilibrium level this pattern of firm heterogeneity is not an artifact of random elements built into the decisional process instead it comes from the market interaction of firms with cognitive limitations

modeling long term dynamics of electricity markets in the last decade many countries have restructured their electricity industries by introducing competition in their power generation sectors although some restructuring has been regarded as successful the short experience accumulated with liberalized power markets does not allow making any founded assertion about their long term behavior long term prices and long term supply reliability are now center of interest this concerns firms considering investments in generation capacity and regulatory authorities interested in assuring the long term supply adequacy and the stability of power markets in order to gain significant insight into the long term behavior of liberalized power markets in this paper a simulation model based on system dynamics is proposed and the underlying mathematical formulations extensively discussed unlike classical market models based on the assumption that market outcomes replicate the results of a centrally made optimization the approach presented here focuses on replicating the system structure of power markets and the logic of relationships among system components in order to derive its dynamical response the simulations suggest that there might be serious problems to adjust early enough the generation capacity necessary to maintain stable reserve margins and consequently stable long term price levels because of feedback loops embedded in the structure of power markets and the existence of some time lags the long term market development might exhibit a quite volatile behavior by varying some exogenous inputs a sensitivity analysis is carried out to assess the influence of these factors on the long run market dynamics

deep impact geo simulations as a policy toolkit for natural disasters adverse post natural disaster outcomes in low income regions like elevated internal migration levels and low consumption levels are the result of market failures poor mechanisms for stabilizing income and missing insurance markets which force the affected population to respond and adapt to the shock they face in a spatial environment with multiple locations with independent but inter connected markets these transitions quickly become complex and highly non linear due to the feedback loops between the micro individual level decisions and the meso location wise market decisions to capture these continuously evolving micro meso interactions this paper presents a spatially explicit bottom up agent based model to analyze natural disaster like shocks to low income regions the aim of the model is to temporally and spatially track how population distributions income and consumption levels evolve in order to identify low income workers that are food insecure the model is applied to the 2005 earthquake in northern pakistan which faced catastrophic losses and high levels of displacement in a short time span and with market disruptions resulted in high levels of food insecurity the model is calibrated to pre crisis trends and shocked using distance based output and labor loss functions to replicate the earthquake impact model results show how various factors like existing income and saving levels distance from the fault line and connectivity to other locations can give insights into the spatial and temporal emergence of vulnerabilities the simulation framework presented here leaps beyond existing modeling efforts which usually deals with macro long term loss estimates and allows policy makers to come up with informed short term policies in an environment where data is non existent policy response is time dependent and resources are limited

can neoclassical economics handle complexity the fallacy of the oil spot dynamic abstract this paper is essentially a rebuttal of the view that neoclassical economics can handle complexity i have coined the locution oil spot dynamic to denote the neoclassical ability to subsume each and every new perspective the main part of the paper is devoted to showing why the oil spot dynamic cannot work with the complexity approach which is seen as a coherent stand alone research program that stems from the sfi economics program and manifests itself with different nuances the fallacy of the oil spot dynamic is relevant in this period in which economists are beginning to realize that the neoclassical samuelsonian paradigm no longer represents the common language of their profession the spread of the complexity approach and the dissolving notion of mainstream are here interpreted as indicative of a changing economics a short foray into the features of the process of change completes my arguments by showing that the shift from one paradigm to another has many interrelated dimensions and that there may be rigidities internalizing changes

dynamic modeling of thermal generation capacity investment application to markets with high wind penetration modeling the dynamics of merchant generation investment in market environments can inform the making of policies whose goals are to promote investment in renewable generation while maintaining security of supply such models need to calculate expected output costs and revenue of thermal generation subject to varying load and random generator outages in a power system with high penetrations of wind this paper presents a dynamic investment simulation model where the short term energy market is simulated using probabilistic production costing using the mix of normals distribution mond technique to represent residual load load net of wind output price mark ups due to market power are accounted for an energy only market setting is used to estimate the economic profitability of investments and forecast the evolution of security of supply simulated results for a great britain gb market case study show a pattern of increased relative security of supply risk during the 2020s in addition many new investments can recover their fixed costs only during years in which more frequent supply shortages push energy prices higher

the value of adaption climate change and timberland management abstract adaptation to exogenous change occurs on both intensive and extensive margins whether and how one accounts for human adaptation directly affects estimates of the economic consequences of environmental change estimates that are both critical in informing policy decisions and notoriously difficult to value this paper introduces and applies an analytical framework for placing an economic value on adaptation we explore the issue first in a stylized model that facilitates making concrete generalizations about the kinds of adaptations that generate high or low economic value we then test the soundness of our insights by incorporating learning and adaptive decision making into a structural dynamic forestry model where climate change is imposed exogenously and agents respond optimally using downscaled climate projections integrated with site and species specific timber productivity data we estimate the economic value of adaptation to climate change within the california timber industry we find on the intensive margin changing the rotation intervals will yield a low value of adaptation but on the extensive margin replanting more suitable tree species can yield significant value

product space and the development of nations a model of product diversification abstract hidalgo et al 2007 hidalgo and hausmann 2009 and hausmann and hidalgo 2011 propose an outcome based product space in which development traps can emerge due to low connectivity between products and countries lack of productive capabilities a recent stream of research suggests that this product space can be used as an instrument to guide public policy to assess the potential effects of these policies on an economy s export performance and on the ones of its competitors we build a micro founded simulation model of the evolution of countries positions on the product space we find that export subsidies and polices aiming at improving firm s innovation capabilities can be effective tools for increasing a country export performance however this increase occurs at the expense of competing countries as they support unpredictable changes in the variety of their exports

the demand for enhanced annuities abstract this paper examines market reaction to the introduction of enhanced annuities in a market for deferred standard annuities the previous literature shows that individuals can try to avoid risk classification by contracting a standard annuity earlier in their life this paper offers a new perspective to the timing of the annuity purchase under the assumption that individuals already have an idea about their future risk type when young which becomes clearer over time it shows that enhanced annuities can crowd out earlier standard annuities completely if the individuals have incomplete knowledge of their future risk type however if individuals are sufficiently risk averse and there is a sufficiently high proportion of low risks in the population both products can remain in the market where lower risk types buy enhanced annuities while the higher risks stick to the early standard annuities the paper identifies the equilibrium candidate with both annuity types to be pareto superior and the unique equilibrium

country size income level and intra industry trade this study investigates three testable hypotheses of intra industry trade it begins by developing a theoretical two country model the model explicitly includes two goods differentiated products and homogeneous goods then three empirical hypotheses are derived as follows the share of intra industry trade will be large a if the two economies are of similar size b if the capital labour endowment ratio of both countries is similar and c if the total size of the two economies is large from the cross sectional analysis using 1970 1994 data results are obtained that support the model furthermore the results are confirmed using panel analysis on the pooled data

information processing and bounded rationality a survey this paper surveys recent attempts to formulate a plausible and tractable model of bounded rationality the author focuses in particular on models that view bounded rationality as stemming from limited information processing he discusses partitional models such as computability automata perceptions and optimal networks nonpartitional models and axiomatic approaches

capital accumulation and annuities in an adverse selection economy this paper suggests that adverse selection problems in competitive annuity markets can generate quantity constrained equilibria in which some agents whose length of lifetime is uncertain find it advantageous to accumulate capital privately this occurs despite the higher rates of return on annuities the welfare properties of these allocations are analyzed it is shown that the level of capital accumulation is excessive in a paretian sense policies that eliminate this inefficiency are discussed copyright 1987 by university of chicago press

regulation by prices quantities or both a review of instrument choice choosing appropriate policy instruments is an important part of successful regulation once objectives are agreed and suitable targets adopted policy makers can employ command and control regulation and or economic instruments and choose between fixing a price or a quantity this paper examines the relative advantages of price quantity and hybrid instruments according to their efficiency under uncertainty the trade off between credible commitment and flexibility implementation international considerations and political economy various illustrations of the theory are provided with two detailed applications to climate change and transport policy specifically congestion and safety pricing

risk preference forecasting accuracy and survival dynamics simulations based on a multi asset agent based artificial stock market abstract the relevance of risk preference and forecasting accuracy to the survival of investors is an issue that has recently attracted a number of theoretical studies by using agent based computational modeling this paper extends the existing studies to an economy where adaptive behaviors are autonomous and complex heterogeneous specifically a computational multi asset artificial stock market corresponding to blume and easley blume l easley d 1992 evolution and market behavior journal of economic theory 58 9 40 and sandroni sandroni a 2000 do markets favor agents able to make accurate predictions econometrica 68 1303 1341 is constructed and studied through simulation we present results that contradict the market selection hypothesis

institutional challenges caused by the integration of renewable energy sources in the european electricity sector the integration of large amounts of variable renewable energy poses fundamental challenges to the operation and governance of the energy system in this article we address the main institutional challenges that are caused by the integration of variable renewable energy sources like solar and wind energy in the european power system we first address how the variable and unpredictable nature of wind and solar energy increases the demand for flexible resources and we discuss potential sources of flexibility next we elaborate on how the need for more flexibility challenges the prevailing market design of todays liberalized power systems furthermore we discuss the key areas where there is a need for a more integrated approach to research and policy making the need for a more integrated approach is motivated by exposing a number of critical interdependencies between technical and institutional sub systems

money as a medium of exchange in an economy with artificially intelligent agents abstract we study the exchange economies of kiyotaki and wright 1989 in which agents must use a commodity or fiat money as a medium of exchange if trade is to occur our agents are artificially intelligent and are modeled as using classifier systems to make decisions in the assignment of credit within the classifier systems we introduce some innovations designed to study sequential decision problems in a multi agent environment for most economies that we have simulated trading and consumption patterns converge to a stationary nash equilibrium even if agents start with random rules in economies with multiple equilibria the only equilibrium that emerges in our simulations is the one in which goods with low storage costs play the role of medium of exchange i e the fundamental equilibrium of kiyotaki and wright

genetic algorithm learning and the cobweb model this paper presents the cobweb model in which competitive firms in a market for a single good use a genetic algorithm to update their decision rules about next period production and sales the results of simulations show that the genetic algorithm converges to the rational expectations equilibrium for a wider range of parameter values than other algorithms frequently studied within the context of the cobweb model price and quantity patterns generated by the genetic algorithm are also compared to the data of experimental cobweb economies it is shown that the algorithm can capture several features of the experimental behavior of human subjects better than three other learning algorithms that are considered

uncertainty resolution and the timing of annuity purchases abstract this paper considers the question of why the annuity market is thin a model is presented in which consumers have the option of purchasing annuities before discovering their survival probability they can then recontract the initial choice after the resolution of this form of uncertainty it is shown that consumers purchase insurance against their own survival probability type at a very young age and do not undertake further transactions this characterization is then used to analze the effects of introducing future income uncertainty and to investigate the trade off between old age insurance motive and portfilio flexibility

optimum and risk class pricing of annuities when information on longevity survival functions is unknown early in life individuals have an interest in insuring themselves against moving into different risk classes as their life expectancy is revealed the first best allocation involves transfers across states of nature with symmetric information competitive equilibrium separates different risk classes and cannot provide such transfers because insurance firms are unable to precommit when utility is invariant to risk class realisation the optimum entails uniform consumption and optimum retirement age independent of risk class and an optimum social security scheme is superior to competitive equilibrium when preferences depend on risk class welfare ranking of systems becomes indeterminate much work has been undertaken by economists to understand and rationalise the annuity puzzle the fact that the markets for private voluntarily purchased annuities

combining price and quantity controls to mitigate global climate change abstract uncertainty about compliance costs causes otherwise equivalent price and quantity controls to behave differently and leads to divergent welfare consequences although most of the debate on global climate change policy has focused on quantity controls due to their political appeal this paper argues that price controls are more efficient simulations based on a stochastic computable general equilibrium model indicate that the expected welfare gain from the optimal price policy is five times higher than the expected gain from the optimal quantity policy an alternative hybrid policy combines both the political appeal of quantity controls with the efficiency of prices using an initial distribution of tradeable permits to set a quantitative target but allowing additional permits to be purchased at a fixed trigger price even sub optimal hybrid policies offer dramatic efficiency improvements over otherwise standard quantity controls for example a 50 trigger price per ton of carbon converts the 3 trillion expected loss associated with a simple 1990 emission target to a 150 billion gain these results suggest that a hybrid policy is an attractive alternative to either a pure price or quantity system

the source of optimality in action it is well known that the nature of the information set and the axioms of rational choice are critical in determining the type of ranking on which agents are held to act in economic theory this paper argues that the concept of the optimising agent is also sensitive to the conception of the relation between a ranking of options facing an agent and concrete action what is termed the realisation process three conceptions of the realisation process are examined which are seen to lead to three quite distinct views on the role of agency the enabling conditions under which the concept of the optimising agent may be legitimately applied and the resulting domain of application of optimisation

beyond microfoundations towards a not too rational macroeconomics at ucla we are establishing a center for computable economics i have been very much involved in this effort this may surprise you that a non mathematical macro monetary economist should become an enthusiast for this project is one of those things that do not compute but then as i will explain we take a special interest in things that do not compute one may come to computable economics by many intellectual routes i will trace my own not because it makes a particularly edifying story but because it will tell you what kind of problems i hope we can make progress on by developing the field of computable economics but before we get to that i had better explain what i mean by computable economics

a model of learning and emulation with artificial adaptive agents we study adaptive learning in a sequence of overlapping generations economies in which agents live for n periods agents initially have heterogeneous beliefs and form multi step ahead forecasts using a forecast rule chosen from a vast set of candidate rules agents learn in every period by creating new forecast rules and by emulating the forecast rules of other agents computational experiments show that systems so defined can yield three qualitatively different types of long run outcomes 1 coordination on a low inflation stationary perfect foresight equilibrium 2 persistent currency collapse and 3 coordination failure within the allotted time frame

monopolistic competition and international trade reconsidering the evidence we test some propositions about international trade flows that are derived from models of monopolistic competition developed by elhanan helpman and paul krugman we investigate whether the volume of trade between oecd countries is consistent with the predictions of a model in which all trade is intraindustry trade in differentiated products we then repeat the test with non oecd countries we also investigate whether the share of intraindustry trade is consistent with a more general theoretical model in which some but not all trade is intraindustry trade our results lead us to question the apparent empirical success of these models

adverse selection in insurance markets policyholder evidence from the u k annuity market in this paper we investigate the importance of adverse selection in insurance markets we use a unique data set consisting of all annuity policies sold by a large u k insurance company since the early 1980s to analyze mortality differences among individuals who purchased different types of policies we find systematic relationships between ex post mortality and annuity policy characteristics such as whether the annuity will make payments to the estate in the event of an untimely death and whether the payments from the annuity rise over time these mortality patterns are consistent with the presence of asymmetric information in the annuity market we find no evidence of substantive mortality differences however across annuities of different size even though models of insurance market equilibrium with asymmetric information would predict such differences we also find that the pricing of various features of annuity contracts is consistent with the self selection patterns we find in mortality rates our results therefore suggest that selection may occur across many specific features of insurance contracts and that the absence of selection on one contract dimension does not preclude its presence on others this highlights the importance of considering the detailed features of insurance contracts when testing theoretical models of asymmetric information

capital accumulation and uncertain lifetimes with adverse selection this paper examines the implications of adverse selection in the private annuity market for the pricing of private annuities and the consequent effects on constrption and bequest behavior with privately known heterogeneous mortality probabilities adverse selection causes the rate of return on private annuities to be less than the actuarially fair rate based on population average mortality however a fully funded social security system with compulsory participation can offer an implied rate of return equal to the actuarially fair rate based on population average mortality thus since social security offers a higher rate of return than private annuities consumers cannot completely offset the effects of social security by transacting in the private annuity market using an overlapping generations model with uncertain lifetimes we demonstrate that the introduction of actuarially fair social security reduces the steady state rate of return on annuities and raises the steady state levels of average bequests and average consumption of the young the steady state national capital stock rises or falls according to the strength of the bequest motive this abstract was borrowed from another version of this item

a learning to forecast experiment on the foreign exchange market with a classifier system abstract this paper reports on an experiment of learning and forecasting on the foreign exchange market by means of an artificial intelligence methodology a classifier system which simulates learning and adaptation in complex and changing environments the experiment has been run for two different exchange rates the us dollar d mark rate and the us dollar yen rate representative of two possibly different market environments a fictitious artificial agent is first trained on a monthly data base from 1973 to 1990 and then tested out of sample from 1990 to 1992 its forecasting performance is then compared with the performance of decision rules which follow the prescription of various economic theories on exchange rate behaviour and the performance of forecasts given by var estimations of the exchange rate s determinants

annuities and individual welfare advancing annuity demand theory we present suffcient conditions for the optimality of full annuitization under market completeness that are substantially less restrictive than those used by yaari 1965 we examine demand with market incompleteness finding that positive annuitization remains optimal widely but complete annuitization does not how uninsured medical expenses affect demand for illiquid annuities depends critically on the timing of the risk a new set of calculations with optimal consumption trajectories very different from available annuity income streams still shows a preference for considerable annuitization suggesting that limited annuity purchases are plausibly due to psychological or behavioral biases

does the quality of political institutions affect intra industry trade within trade blocs the asean perspective there has been a renewed resolve for deeper integration and cooperation within asean intra industry trade iit is often viewed as a way of achieving economic as well as political integration thi

cross border electricity market effects due to price caps in an emission trading system an agent based approach the recent low co2 prices in the european union emission trading scheme eu ets have triggered a discussion whether the eu ets needs to be adjusted we study the effects of co2 price floors and a price ceiling on the dynamic investment pathway of two interlinked electricity markets loosely based on great britain which already has introduced a price floor and on central western europe using an agent based electricity market simulation with endogenous investment and a co2 market including banking we analyse the cross border effects of national policies as well as system wide policy options a common moderate co2 auction reserve price results in a more continuous decarbonisation pathway this reduces co2 price volatility and the occurrence of carbon shortage price periods as well as the average cost to consumers a price ceiling can shield consumers from extreme price shocks these price restrictions do not cause a large risk of an overall emissions overshoot in the long run a national price floor lowers the cost to consumers in the other zone the larger the zone with the price floor the stronger the effect price floors that are too high lead to inefficiencies in investment choices and to higher consumer costs

designing carbon markets part ii carbon markets in space this paper analyses the design of carbon markets in time i e intertemporally it is part of a twin set of papers that ask starting from first principles what an optimal global carbon market would look like by around 2030 our focus is on firm level cap and trade systems although much of what we say would also apply to government level trading and carbon offset schemes we examine the first principles of temporal design that would help to maximise flexibility and to minimise costs including banking and borrowing and other mechanisms to provide greater carbon price predictability and credibility over time

learning with misspecification in an artificial currency market abstract agents evolve their forecast rules over time via a modified genetic algorithm in a simple artificial currency market these forecast rules can be nonlinearly misspecified when the misspecification is suppressed learning tends to be complete when it is not suppressed learning can generate persistent exchange rate dynamics

the evolution of preferences why sovereign preferences may not lead to sustainable policies and what to do about it abstract the conventional economic paradigm assumes that tastes and preferences are exogenous to the economic system and that the economic problem consists of optimally satisfying those preferences tastes and preferences usually do not change rapidly and in the short term this assumption makes sense sustainability is an inherently long term problem and in the long run it does not make sense to assume tastes and preferences are fixed and given if preferences are expected to change over time and under the influence of education advertising changing cultural assumptions etc the old assumption of consumer sovereignty is not adequate different criteria of optimality are needed how preferences change how they relate to the goal of sustainability and how they can or should be actively influenced to satisfy the new criteria needs to be determined ecological economics has emphasized the three rank ordered goals of ecological sustainability fair distribution and allocative efficiency this paper examines how preferences evolve and change over time and the implications of this for developing policies that meet these three goals in democratic societies

varieties of agents in agent based computational economics a historical and an interdisciplinary perspective in this paper we trace four origins of agent based computational economics ace namely the markets origin the cellular automata origin the tournaments origin and the experiments origin along with this trace we examine how these origins have motivated different concepts and designs of agents in ace which starts from the early work on simple programmed agents randomly behaving agents zero intelligence agents human written programmed agents autonomous agents and empirically calibrated agents and extends to the newly developing cognitive agents psychological agents and culturally sensitive agents the review also shows that the intellectual ideas underlying these varieties of agents cross several disciplines which may be considered as a part of a general attempt to study humans and their behavior with an integrated interdisciplinary foundation

the cost of annuities implications for saving behavior and bequests the fact that most elderly u s individuals maintain a flat age wealth profile rather than buy individual life annuities contradicts the standard life cycle consumption model average expected yields on individual life annuities in the united states during 1968 1983 were lower by 4 21 6 13 percent or 2 43 4 35 percent after allowing for adverse selection than yields on plausible alternative investments simulations of a model of saving and portfolio allocation show that during the early retirement years such yield differentials can account for the absence of annuity purchases even without a bequest motive at older ages the combination of such yield differentials and a bequest motive can do so it is common experience that as we grow older and nearer to eternity we become more not less anxious about money derek brewer chaucer and his world p 213

experimental evidence on money as a medium of exchange abstract this paper presents an experimental examination of kiyotaki and wright s 1989 model of how money can arise as a medium of exchange while the results generally support the hypothesis that individuals are willing to utilize a good as a medium of exchange the trading patterns of a portion of the individuals deviated from the predicted patterns simulation studies suggest that while these deviations may have initially been a rational response by these subjects they persisted after they became less than optimal

the dynamic linkage effect between energy and emissions allowances price for regional emissions trading scheme pilots in china abstract china s emissions trading scheme cets pilots are emerging and fragmented markets these emissions allowances markets may exhibit a different fundamental price process from the european union s eu and the united states us emissions trading scheme ets the dynamic linkage effects between energy and emissions allowances prices are investigated for regional ets pilots in china using cointegration techniques the empirical results confirm that in the long run coal oil and natural gas prices are the main determinant factors of regional emissions allowances prices except for the second phase beijing ets pilots however their long run cointegration relationships in the beijing and shanghai pilots are not exactly in line with the guangdong and hubei pilots in the short run the changes in oil and natural gas prices in the second phase beijing ets pilot the natural gas prices in the shanghai ets pilot and the coal prices in the hubei ets pilot are found to have significant effects on regional emissions allowances prices in china finally regional energy pricing inefficiency regional emissions trading market overreaction and their inefficient fundaments may provide major obstacles in reducing the effectiveness of the fossil energy price pass through to emissions allowances prices in regional ets pilots

genetic algorithms and inflationary economies abstract this paper studies overlapping generations economies in which agents use genetic algorithms to learn correct decision rules the results of computer simulations show that a genetic algorithm converges to the unique monetary steady state in case of a constant money supply policy and to the low inflation stationary equilibrium in case of a constant real deficit financed through seignorage features of the genetic algorithm adaptation are compared to the performance of other learning algorithms and to the behavior observed in experiments with human subjects in the same olg environments

an analysis of a forward capacity market with long term contracts we analyze the effectiveness of a forward capacity market fcm with long term contracts in an electricity market in the presence of a growing share of renewable energy an agent based model is used for this analysis capacity markets can compensate for the deteriorating incentive to invest in controllable power plants when the share of variable renewable energy sources grows but may create volatile prices themselves capacity markets with long term contracts have been developed e g in the uk to stabilize capacity prices in our analysis a fcm is effective in providing the required adequacy level and leads to lower cost to consumers and more stable capacity prices as compared to a yearly capacity market in case of a demand shock a fcm may develop an investment cycle but it still maintains security of supply its main effect on the power plant portfolio is more investment in peak plant

survival of businesses using collaborative relationships to commercialize complex goods authors with many theoretical and managerial perspectives argue that businesses commercializing technologically complex goods benefit when they collaborate closely with other businesses collaboration is viewed as a means for businesses to overcome competency limitations and to achieve the close configuration of components required for complex goods we predict that collaborative relationships often assist businesses to produce complex goods but that the relationships might also cause problems for the collaborating businesses we find that firms using development oriented and marketing oriented collaborative relationships in the hospital software systems industry are less likely to shut down than businesses that follow independent approaches when the environment changes gradually but businesses using collaborative relationships are sometimes susceptible to being acquired by other firms following a sudden environmental shock businesses with collaborative relationships for activities central to the shock became more likely to shut down while businesses with collaborative relationships for activities outside the focus of the shock became more likely to survive the study critically evaluates and tests the widely stated but little tested argument that interfirm collaboration is usually beneficial the results address the issue of whether organizational choices affect comparative business performance

private pensions mortality risk and the decision to annuitize abstract this paper examines household decisions about whether or not to annuitize retirement resources a life cycle model of consumption implemented with the use of dynamic programming techniques is used to construct a utility based measure of annuity value for individuals and couples in the health and retirement survey variation in the calculated annuity equivalent wealth arises from differences in mortality risk marital status risk aversion and the presence of pre existing annuities such as social security i find that a one percentage point increase in the annuity equivalent wealth leads to nearly a one percentage point increase in the ex ante probability of annuitizing balances in defined contribution pension plans however because much of the variation in the expected annuity decision is left unexplained by the life cycle model other factors are also analyzed health status and an individual s time horizon for financial decision making are significant determinants of the decision there is no evidence that bequest motives are an important factor in making marginal annuity decisions

new evidence on the money s worth of individual annuities this paper presents new information on the expected present discounted value of payouts on individual life annuities the annuity we examine is the single premium immediate life annuity an insurance product that pays out a nominal level sum as long as the covered person lives in exchange for an initial lump sum premium this annuity offers protection against the risk of someone outliving his saving given uncertainty about longevity for reasonable estimates of behavioral parameters we calculate that individual annuities are currently priced so that retirees without bequest motives should find these policies of substantial value in configuring their portfolios to smooth retirement consumption we also find that the expected present discounted value of payouts relative to the initial cost of the annuity has increased over the last decade these findings bear on the policy debate regarding the role of individual choice and self reliance in retirement planning this abstract was borrowed from another version of this item