extrinsic uncertainty and the informational role of prices abstract we study a financial economy with finitely many states of private information there are two agents informed and uninformed we define agents expectations on future equilibrium prices as a probability distribution over k distinct values i e we introduce k extrinsic events we show that there are open sets of economies with nonrevealing and also with partially revealing equilibria for an appropriate choice of self fulfilling price expectations observable equilibrium prices are signal invariant journal of economic literature classification numbers d52 d82 d84

regulation of natural gas distribution using policy benchmarks local distribution companies ldcs play the role of purchasing and delivering natural gas to their consumers and state regulators oversee the pricing of natural gas to consumers the common method of regulation based on the cost of service provides arguably little incentive for the ldc to optimally manage their procurement activities in the light of recent deregulation and other changes benchmarking based regulatory schemes are being increasingly perceived as the right direction to pursue various states are experimenting with simple benchmark mechanisms that have inherent deficiencies and are often criticized in this paper we propose and characterize a new kind of benchmark that we call a policy benchmark as a mechanism for regulation using variance as the measure of risk we formulate the regulator s and the ldc s problems as multiple objective optimizations we provide rigorous characterizations of the dominance frontiers for a two stage model we also provide multistage formulations that take

liberalisation and r d in network industries the case of the electricity industry abstract electricity sector liberalisation has coincided with a significant decline in r d spending this paper reviews the industrial organisation literature on r d and innovation to explore the likely causes of the decline in r d spending in the electricity sector meanwhile r d productivity and innovative outputs in utilities and equipment suppliers appear to have improved however a lasting decline in r d expenditure can have a negative long term effect on technological progress and innovation in the sector we conclude that the decline in r d could have been predicted from the literature we also discuss the need to reorient the post liberalisation technology policy

a class of monotone economies in which rational expectations equilibria exist but prices do not reveal all information abstract some economies having excess demands which depend monotonically on agents information signals are examined if there are no multiple market clearing prices then these economies have strict rational expectations equilibria in which equilibrium prices alone do not transmit all information

on the possibility of informationally efficient markets this paper presents conditions for a resolution of the grossman stiglitz paradox of informationally efficient markets we display a market with asymmetric information where a privately revealing equilibrium obtains in a competitive framework and where incentives to acquire information are preserved as long as the correlation in traders valuations is not too large the equilibrium is efficient and the problems associated with fully revealing rational expectations equilibria are precluded without resorting necessarily to noise traders the robustness of the results to general information structures is established and the effect of market power is examined in a large market approximation to the competitive economy the model is applied to explain changes in bidding behavior in central bank liquidity auctions in the crisis period jel d82 d84 g14 e59

innovation regimes r d and radical innovations in telecommunications abstract by introducing the concept of innovation regimes the aim of this article is to show how the rapid pace of technological development in the telecom sector may be explained by the close links between the sector s own r d and the creation of numerous innovations many of which are radical in contemporary innovation theory a theoretical antinomy exists whereas the creation of incremental innovations is variously explained in terms of rational responses to markets dynamics of technological regimes dominant design etc radical innovations in contrast are explained in terms of serendipity chance or haphazard scientific discoveries evidence from analysis of innovations in the telecom sector suggests that innovation regimes have provided a capability of coordination direction and leadership in the creation of many of the radical technological innovations that have emerged in the sector thus one may claim that the strong innovation regimes and high r d intensity of the telecom sector at least until recently have provided a capability of creating innovations on purpose for a purpose the policy implications of this contradict some of the assumptions on which the prevailing market oriented r d governance models and policies are based and which are supported by contemporary innovation theories

entrapment in large technology systems institutional commitment and power relations abstract large technology systems cannot be developed without social commitments usually including legal especially in the form of contracts organisational involving producers users and financiers and political involving various actors associated with the state commitments without such commitments there can be no innovation and no investment given the high risks that are entailed however embedded commitments can create inertia causing inferior technologies and technology paths to survive long after they should have been abandoned this form of technological lock in may be reinforced when there are close relations between producers and states which prevent markets and democratic processes from operating effectively these phenomena are illustrated through study of the thermal oxide reprocessing plant thorp a nuclear reprocessing plant in the uk the lesson for technology policy is that much more attention needs to be given to the maintenance of reversibility and adaptability in infrastructural development

understanding technology choice in electricity industries a comparative study of france and denmark abstract the ability to predict how national electricity industries will respond to the challenges of competition and the demand for sustainability requires a good understanding of the nature of technological systems and a workable theory of technology choice so far two distinct theoretical perspectives the economic and socio political concepts of technological systems have competed for dominance in policy analysis and policy making this paper is a comparative study of the way in which the electricity industries of denmark and france responded to a series of challenges beginning with the 1973 oil crisis and continuing through the present push to liberalise electricity markets focussing on the forces that directed technological change in these two nations i examine the relative importance of economic and socio political factors my analysis indicates that socio political factors which together can be described as political traditions have shaped technology choice the danish and french electricity industries have pursued several objectives in addition to economic efficiency this has limited the function of free markets thus they should be understood as political structures whose most important characteristic is the distribution of power in this context the economic perspective represents a normative demand for the re arrangement of political values technological choice which radically departs from the status quo implies a significant redistribution of political power and is therefore very difficult

bargaining and regulation with asymmetric information about demand and supply abstract rate regulation is studied as a bargaining process in which consumers and the firm negotiate output and payments under asymmetric information the feasible set of transactions given incentive compatibility and individual rationality constraints is characterized the set of interim incentive efficient mechanisms for the direct revelation game is also characterized sufficient conditions are given for efficient mechanisms to be full information efficient efficient mechanisms are identified which correspond to nonlinear monopoly pricing monosony compensation schedules and the baron myerson regulation model

unintended consequences energy r d in a deregulated energy market abstract many advanced industrialized nations are substantially reducing their national public and private investments in energy research and development r d driven in part by changes occurring as a result of the deregulation of these nations energy sectors in particular funding for strategic energy r d aimed at developing future energy supply options eg fusion fission clean fossil energy renewable energy has been decreased substantially in both the public and private sectors in many of these nations these trends are now starting to be seen in the united states as it moves towards the deregulation of the nation s utilities the magnitude of the reductions in support for energy r d in the public and private sectors and the shift towards decidedly shorter term r d has profound implications for nations approaching deregulation though utility customers may be short term winners from the deregulation of utilities by paying less for energy a national failure to invest in energy r d is very likely to have long term negative impacts on national energy sectors the economies and environmental wellbeing

on the design of regulatory price adjustment mechanisms abstract price adjustment mechanisms are employed in the electric utility industry to pass changes in fuel costs on to consumers without formal rate review by a regulatory commission the predictability of this pass through and the regulator s limited ability to observe the actions of a firm can create potential incentive problems associated with the choices of technology and fuel supply this paper is concerned with the regulatory design of pass through formulas when a factor price is uncertain the optimal design involves deviating from the full information optimal price formulas in order to mitigate the incentive problems

r d expenditures in liberalized electricity markets the case of turkey abstract current problems in the electricity sector require deployment of new technologies which are the outcome of research and development r d mostly on the other hand figures show that government energy r d expenditures have declined in many developed countries which mostly resulted from liberalization and restructuring moreover studies indicate that private energy r d expenditures have also been affected by the reform process as a result there are concerns about the declines in government and private energy r d expenditures which may hamper the deployment of sustainable energy technologies similar to other countries turkey has initiated electricity market reforms and it has been trying to establish a competitive electricity market since 2001 moreover it has increased its efforts to develop domestic low carbon energy technologies an assessment of the relation between r d expenditures and liberalization in the turkish power market shows that market reforms have created new demand and opportunities for equipment manufacturers and there have been an increase in r d expenditures performed by these companies on the other hand power companies have mostly refrained from performing r d expenditures due to their perception of r d expenditures as unnecessary as well as insufficient incentives lack of funds and uncertainties stemming from liberalized market framework

trade and revelation of information abstract we consider an economy with asymmetric information and two types of agents fully informed and uninformed uninformed agents update their information observing equilibrium prices and the equilibrium levels of other agents excess demand we show that for a generic set of economies there are rational expectations equilibria which are partially revealing on an open dense set of signals of positive lebesgue measure provided that the dimension of the signal space is sufficiently larger than the dimension of the commodity space

environmental jolts institutional change and the creation of entrepreneurial opportunity in the us electric power industry the relationship between institutional change and entrepreneurship is poorly understood we build the theory in this area by tracing institutional change in the us electric power industry over a 40 year period our analysis shows that environmental jolts mobilize actors to reformulate institutions resulting in increased entrepreneurial opportunity when the institutional environment is stable we find that incumbent organizational forms and embedded logics present formidable obstacles to entrepreneurial activity environmental jolts however catalyze search processes and motivate the evaluation of current institutional logics specifically in the case of the electric power industry environments of abundance and regulation resulted in homogeneity of organizational structures and strategies and few entrepreneurial opportunities environments marked by scarcity and crisis however witnessed heavy scrutiny of existing institutional arrangements that eroded their taken for grantedness and symbolic value resulting in opportunities for entrepreneurial action

technological transformations in history how the computer regime grew out of existing computing regimes abstract in the article we describe how the digital computer regime grew out of existing computing regimes through a process of transformation this transformation is conceptualised as a regime shift a change in the rule set that underpins technical change guiding innovative activity and output into particular directions examples of such rules are technical standards product standards user requirements design rules and organisational rules of how to produce what to produce the paper describes how the new digital computer regime had to start from structures of the old regimes and only later on developed its own distinctive elements it describes how specific changes in the existing computing regimes particularly the increasing division of labour the growing schematisation of computing activities and the development of more sophisticated punch card machinery contributed to the design and programming methods of the digital computer how the old programming methods constrained the development of the new regime is also discussed the article does not go into the actual processes of diffusion of digital computers into specific domains it does however discuss the role of market demand dynamics for the evolution of digital technology which too often is portrayed as a technology science push phenomenon

innovation processes in large technical systems market liberalization as a driver for radical change abstract electricity supply is a large technical system which exhibits strong path dependencies and high barriers for radical innovations recent market liberalization however has initiated a fundamental restructuring the paper analyzes how liberalization has altered innovation processes in the field of electricity supply we examine three radical innovations under monopoly conditions and contrast the findings with the results from a survey on the innovation behavior of electric utilities in liberalized markets we argue that the selection environment for innovations has changed in various respects in our sample new options open to innovation activities have emerged at the level of the firm and utility strategies turn out to be more heterogeneous this may be interpreted as an increase in the variety of search processes which may lead to a mid term decrease of path dependencies

the non economics of the nuclear fuel cycle an historical and discourse analysis abstract the development of commercial nuclear power seems irrational while the nature of the nuclear fuel cycle has been well known since the early days of nuclear power the problem of disposing of nuclear waste has only recently become a central area of concern and research also commercial nuclear power has probably never been truly economically competitive as it has received large subsidies it is argued that the rise of nuclear power can be understood through the use of discourse analysis where the discourse of the modernising and interventionist state is well matched to the discourse of nuclear power as offering control and modernity

a privately revealing rational expectations equilibrium for the futures market abstract this paper develops a model of the futures market with two types of participants farmers and speculators farmers undertake production decisions and face both output and spot price risk as opposed to speculators who face only spot price risk agents have constant absolute risk aversion von neumann morgenstern utility functions and form rational expectations about the future output shock and spot price we assume that traders specialize in information collection in our model the futures price is not a sufficient statistic for the market information we show that the rational expectations equilibrium ree futures price is privately revealing to traders who purchase costly information this ree is efficient in the sense that in equilibrium traders are in possession of all market information we demonstrate that traders a have an incentive to collect costly information and b are better off by specializing in collecting the information in which they have a comparative advantage in terms of the quality of the information that they can obtain finally we show that the futures market stabilizes the spot price

partial revelation with rational expectations we exhibit a partially revealing rational expectations equilibrium where no individual knows the state of the world or the quantities traded by any other individual c 1998 academic press

institutional reform and technological practice the case of electricity this article proposes a framework for categorizing possible interrelations between technological and institutional change and applies this framework to the case of the restructuring of the electricity sector it is argued that there is a need for coherence between institutions and technological practice so as to safeguard the satisfactory functioning of electricity infrastructure the identification of possible incoherences between institutions and technological practice allows for a better understanding of the potential drivers for change and the evolutionary processes of which they may be part this article attempts to elaborate the nature of this co evolution in somewhat more detail using specific levels of analysis that are exemplified in a four level model in the case of the restructuring of the electricity sector the institutional framework has changed from a public utility oriented towards a market oriented system however the technological practice remained unchanged a system oriented approach that relies on centralized planning control and operation this discrepancy between institutions and technological practice leads to significant frictions in the functioning of the electricity sector but it also offers opportunities for innovation in order to make liberalization a success it might be necessary to stimulate certain technical developments i e distributed generation and intelligent networks

generic existence of completely revealing equilibria for economies with uncertainty when prices convey information conditions which imply the existence of strict rational expectations equilibria for most static pure exchange economies where prices convey information about the state of the world are analyzed information is aggregated and transmitted by prices because agents have different initial information and maximize the conditional expectation of state dependent utility functions major results state that if with probability one agents characteristics do not vary too much as the state of the world varies then generically there exist equilibrium price functions which reveal all initial information more precisely if the support of the image measure is contained in a compact c1 manifold satisfying some technical conditions which is of sufficiently low dimension relative to the number of commodities then existence of completely revealing equilibria is generic any economy satisfying these assumptions can be approximated by a sequence of economies which also obey these assumptions and have completely revealing equilibrium price functions slight perturbations do not destroy the existence property

a note on purchased power adjustment clauses a recent series of papers has examined some of the economic effects of automatic fuel adjustment clauses on the behavior of the regulated firm see baron and debondt 1979 gallop and karlson 1978 cowing and stevenson 1979 atkinson and halvorsen 1980 isaac 1982 kaserman and tepel 1982 for the most part these papers have analyzed the implications of profit maximization under two alternative regulatory regimes one in which the firm s output price is determined by the terms of an adjustment clause formula and one in which it is not 1 today virtually all electric utilities are subject to some sort of fuel cost adjustment mechanism 2 since the specific formulas embodied in these mechanisms exhibit considerable variation across regulatory virtually all electric utilities are subject to some sort of fuel cost adjustment mechanism one way in which these formulas differ is in their treatment of purchased power this paper examines the effect that alternative treatments of purchased power have on the incentive of the regulated firm to minimize short run costs through its choice of purchased versus owngenerated power the theoretical model indicates that excluding purchased power from the formula creates an economic incentive to overutilize the firm s own generating equipment based on data for 113 privately owned u s electric utilities the empirical analysis confirms the theoretical prediction we gratefully acknowledge the financial support provided by the public policy research center and the public utilities research center at the university of florida and a grant from resources for the future without implicating them in what follows we also acknowledge the helpful comments on an earlier draft provided by john mayo and especially by two anonymous referees 1 the study by gollop and karlson 1978 is an exception they create an index that varies directly with the value of the adjustment clause formula to the firm 2 fuel adjustment clauses were in effect in 43 states in 1976 see isaac 1982 p 159

energy market reforms in turkey and their impact on innovation and r d expenditures abstract energy sector is encountering serious problems which can be solved by technological innovations and increasing r d expenditures on the other hand energy market reforms notably the establishment of competitive electricity and natural gas markets have resulted in a decrease of government energy r d expenditures in most countries furthermore there are rising concerns that private energy r d expenditures are also declining as a result of energy market reforms and companies are choosing customer oriented innovations which may jeopardize the deployment of sustainable and renewable energy technologies turkey initiated energy market reforms in 2001 and has been trying to establish competitive electricity and natural gas markets since then a survey of electricity and natural gas transmission and distribution companies in turkey showed that nearly all of these companies have refrained r d expenditures and have made organizational innovations mostly moreover government energy r d expenditures are very low compared to developed countries and enterprises are still trying to adapt to new market conditions nonetheless energy market reforms may have positive effects on r d expenditures and innovations as turkey completes privatization of distribution companies eliminates uncertainties in electricity and natural gas markets and take measures to increase collaboration among enterprises universities and government agencies

factor price changes technical efficiency and revenue requirements regulation a regulatory framework is considered in which output price adjustments can be initiated only by a change in the price of a non capital input e g fuel at some time in the future which is uncertain at that time there is a processing period and then an adjustment of the output price so that the revenues of the firm meet an allowed rate of return s the regulated firm choosing a putty clay technology is shown to overcapitalize for large values of s and to undercapitalize for sufficiently small values of s a decrease in the length of the processing period is found to accentuate the extent of either the undercapitalization or overcapitalization resulting from the specified rate of return

getting round the lock in in electricity generating systems the example of the gas turbine abstract the purpose of this paper is to show how in a situation of lock in in the environment of electricity generation a new technology can succeed in overcoming this situation and become competitive our study will show that it is possible to get round the lock in by bringing into play the increasing returns of adoption in particular production niches where the existence of powerful constraints of techno economic consistency leads to a path of increasing specification then a hybridization of the competing technologies will allow the new technology to emerge from the original niche and take advantage of the increasing returns of adoption which were hitherto the reserve of the former technology we shall then draw lessons from the example of the gas turbine in comparison with the basic model of b arthur

policy instruments fostering wind energy projects a multi perspective evaluation approach abstract during the last decade a large number of policy instruments have been developed and implemented all over europe aiming at supporting renewable energy project development however the success of the different policy approaches varies significantly given the very different mechanisms of the diverse instruments the design or the selection of appropriate instruments may cause methodological difficulties in order to support instrument selection economists have developed several evaluation criteria however this paper states that most of the typically proposed and applied criteria catalogues still neglect the interests and requirements of important stakeholder groups this paper therefore proposes a more integrated evaluation approach taking into account the different interests of all relevant stakeholder groups in the three fields renewable energy business especially wind industry policy making and conventional power business

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

on endogenous formation of price expectations abstract we study a two period exchange economy with complete financial markets and endogenous borrowing constraints contrary to perfect foresight paradigm we assume that agents are heterogeneous in their ability to forecast future prices we introduce a new equilibrium concept called informationally constrained equilibrium where the formation of price expectations is endogenous and reflects the revelation of information from observing bounds on liabilities designed to ensure solvency at any contingency we prove that under standard assumptions an equilibrium always exists and we characterize the degree of information revealed by the endogenous debt limits

firm organization industrial structure and technological innovation abstract the formal and informal structures of firms and their external linkages have an important bearing on the rate and direction of innovation this paper explores the properties of different types of firms with respect to the generation of new technology various archetypes are recognized and an effort is made to match organization structure to the type of innovation the framework is relevant to technology and competition policy as it broadens the framework economists use to identify environments that assist innovation

robust optimization policy benchmarks and modeling errors in natural gas abstract the problem of regulating natural gas procurement has become a huge burden to regulators especially due to the plethora of complicated financial contracts that are now being used by local distribution companies ldcs for risk management purposes muthuraman aouam and rardin 2008 proposed a new benchmarking scheme called policy benchmarks and showed that these benchmarks do not suffer from the usual criticisms that are made against existing regulatory methods such policy benchmarks based regulation has however faced hurdles in being adopted one of the primary reasons has been concerns over its robustness we demonstrate in this paper that when modeling errors are present the policy benchmarks proposed earlier can backfire and are hence as suspected not well suited for regulation we begin our analysis with a more general model than the one that has been used earlier by accommodating the ldc s ability to reduce cost by exerting effort as in classical economics we derive solutions to the ldcos problem find closed form solutions for the regulator s optimal fee fraction along with risk sharing implications and provide insights into the policy benchmark selection we then construct a robust optimization based policy benchmarking mechanism that inherits all the original benefits we further demonstrate that these unlike the earlier benchmarks are robust against modeling errors

optimal departures from marginal cost pricing focuses on departures from marginal cost pricing optimal allocation or resources level of tax revenue that will be collected by the government theorems developed for resource allocation ebsco

partially revealing rational expectations equilibrium in a competitive economy abstract a class of pure exchange economies is considered in which some agents are informed of private information and others are uninformed existence of a partially revealing rational expectations equilibrium ree is proved without restricting attention to particular functional forms for utility functions and probability distributions without introducing noise into the model and without departing from the standard definition of ree the equilibrium is robust in the sense that if the primitives of the economy are slightly perturbed the economy continues to have a qualitatively similar ree with somewhat stronger assumptions placed on the economy the equilibrium is also the unique measurable ree