long live the doge death as a term limit on venetian chief executives can an electorate use the projected life expectancy of a lifetime appointed chief executive to enforce binding informal term limits informal term limits based on the life expectancy of a chief executive candidate at election would enable an electorate to exercise discretion in adjusting tenure lengths to minimize expected turnover and tenure length costs while also providing a strictly binding term limit death we provide a detailed historical case study of venice from 1172 to 1797 when the ruling patricians utilized informal term limits on their chief executive the doge relying on the projected life expectancy of ducal candidates

constrained efficiency in the neoclassical growth model with uninsurable idiosyncratic shocks we investigate the welfare properties of the one sector neoclassical growth model with uninsurable idiosyncratic shocks we focus on the notion of constrained efficiency used in the general equilibrium literature our characterization of constrained efficiency uses the first order condition of a constrained planner s problem this condition highlights the margins of relevance for whether capital is too high or too low the factor composition of income of the consumption poor using three calibrations commonly considered in the literature we illustrate that there can be either over or underaccumulation of capital in steady state and that the constrained optimum may or may not be consistent with a nondegenerate long run distribution of wealth for the calibration that roughly matches the income and wealth distribution the constrained inefficiency of the market outcome is rather striking it has much too low a steady state capital stock

the structure of financial equilibrium with exogenous yields the case of incomplete markets1 this paper presents an analysis of the structure of competitive equilibrium in a model whose principal feature is incomplete financial markets formulated in the spirit of arrow specifically the overall payoffs or returns from financial instruments are assumed to be fixed or predetermined independently of the operation of the economy and these instruments are assumed to be fewer in number than required to span all potential spot markets for commodities our main result establishes that market incompleteness generates a corresponding degree of allocation indeterminateness suppose there are n 1 spot markets but only 0 m n linearly independent financial instruments so that the deficiency in financial markets is 0 n n m n then subject to some relatively innocuous technical qualifications the set of equilibrium allocations contains a smooth n dimensional submanifold we also indicate how real indeterminacy may increase when returns for example the market price and promised interest on an ordinary bond are treated as variables rather than parameters

drivers and inhibitors of renewable energy a qualitative and quantitative study of the caribbean abstract we explore the factors that affect the development of renewable energy in the caribbean the caribbean region can serve as a laboratory in studying the institutional issues relating to energy development due to the differences in political jurisdictions over a short distance based on 12 case studies and 75 in depth interviews with a variety of stakeholders we identified five factors that appear to be critical for the development of renewable energy in the caribbean entrepreneurship attitudes the role of local champions the electric utility influence informal institutions and the influence of international agencies we built a multiple regression model to test these relationships through a survey of 34 political jurisdictions in the caribbean the statistical analysis we conducted suggests that informal institutions have a significant impact on the extent of renewable energy development while the incumbent electricity utilities influence may impede the development of renewable energy based on these findings we provide recommendations on how best to make use of these factors identified in order to develop effective energy policies throughout the caribbean

shirking and sorting in a political market with finite lived politicians this paper analyzes principal agent slack in the context of a political market composed of voters challengers and incumbents the introduction of a last period via finite livedness in combination with voters imperfect information about politicians preferences causes time varying shirking behavior on the part of politicians political markets eventually sort out those politicians with significantly deviant policy preferences potentially providing a solution to the last period problem and enabling politicians to make credible commitments in the extreme sorting can insure that it is not worthwhile for potential shirkers to run for office a systematic relationship between political shirking and number of terms in office may exist and depends on how quickly sorting takes place we show that evidence of little if any shirking is quite consistent with politicians having diverse and strongly held policy preferences in addition if sorting is a significant feature of political markets cross sectional studies will tend to oversample little and non shirking politicians compared to longitudinal studies reinterpretations of existing empirical work are also discussed

public investment and social risk sharing abstract how the government uses market rates of return to discount risky public projects is intrinsic to the efficient allocation of capital and the choice of public investment policy this paper shows that social discount rates for risk can be higher than lower than or equal to private rates previous analyses which argue for one sided rules where social discount rates are always lower or equal to private rates are shown to be inappropriate in general the paper shows in a general model that the difference between the social value of a public project and its market value is determined by the social insurance value that the project has from improving risk sharing relative to the market depending on the project and degree of market imperfection this term can be positive negative or zero explaining the different possibilities for the social evaluation of risk

relative wealth concerns and financial bubbles we present a rational general equilibrium model that highlights the fact that relative wealth concerns can play a role in explaining financial bubbles we consider a finite horizon overlapping generations model in which agents care only about their consumption though the horizon is finite competition over future investment opportunities makes agents utilities dependent on the wealth of their cohort and induces relative wealth concerns agents herd into risky securities and drive down their expected return even though the bubble is likely to burst and lead to a substantial loss agents relative wealth concerns make them afraid to trade against the crowd

idiosyncratic risk and financial policy in economies subject to uninsurable idiosyncratic risks competitive equilibrium allocations are constrained inefficient reallocations of assets support pareto superior allocations this is the case even if the asset market for the allocation of aggregate risks is complete

winds of change how high wind penetrations will affect investment incentives in the gb electricity sector abstract wind power is widely expected to expand rapidly in britain over the next decade large amounts of variable wind power on the system will increase market risks with prices more volatile and load factors for conventional thermal plant lower and more uncertain this extra market risk may discourage investment in generation capacity financial viability for thermal plant will be increasingly dependent on price spikes during periods of low wind increased price risk will also make investment in other forms of low carbon generation e g nuclear power more challenging a number of policies can reduce the extent to which generators are exposed to market risks and encourage investment however market risks play a fundamental role in shaping efficient investment and dispatch patterns in a liberalised market therefore measures to improve price signals and market functioning such as a stronger carbon price and developing more responsive demand are desirable however the scale of the investment challenge and increased risk mean targeted measures to reduce although not eliminate risk exposure such as capacity mechanisms and fixed price schemes may have increasing merit the challenge for policy is to strike the right balance between market and planned approaches

stationary pareto optimality of stochastic asset equilibria with overlapping generations abstract a way of establishing the stationary pareto optimality of asset equilibria in stochastic settings with age diversity among the agents is suggested difficulties in obtaining such results arise because agents behavior is affected by random future state variables while pareto optimality defined in terms of expected lifetime utility of representative agents conditioned on their first period state involves redistributions of consumption among agents with different histories of realized states frobenius theorem is used to establish the existence of weights for which the so weighted sum of representative agents conditional expected utilities is maximized at the asset equilibrium allocation

commodity trade and international risk sharing how much do financial markets matter abstract this paper evaluates the social gains from international risk sharing in some simple general equilibrium models with output uncertainty a simulation model calibrated to selected moments of u s and japanese data estimates the incremental loss from a ban on international portfolio diversification to be on the order of 0 20 percent of output per year even the theoretical gains from asset trade may disappear under alternative sets of assumptions on preferences and technology the paper argues that the small magnitude of potential trade gains may help explain the apparently inconsistent findings of empirical studies on the degree of international capital mobility

stochastic olg models market structure and optimality for a general class of pure exchange olg economies under uncertainty we provide a complete characterization of the efficency properties of competitive equilibria when markets are only sequentially complete and the criterion of efficency is conditional pareto optimality we also consider a particular case in which markets fail to be even sequentially complete and provide a characterization when the criterion of efficency is weakened to ex post pareto optimality

pareto optimality and competition there is a general consensus that u s financial markets are very competitive and efficient with prices quickly reflecting the available information there is also a widespread belief that these competitive and efficient markets enable the efficient allocation of scarce capital among alternative investment opportunities this belief is not based on direct observation it is virtually impossible to obtain the data concerning the joint probability distribution of returns to all possible projects which would be required for a direct assessment of the efficiency of the resource allocations to which the market gives rise rather it is based on the well known result that perfectly competitive markets generate pareto efficient resource allocations the object of this paper is to question that conclusion to show that even with apparently competitive and efficient markets resource allocations may not be pareto efficient

dynastic political privilege and electoral accountability the case of u s governors 1950 2005 i introduction political dynasties which pass on public offices and other political privileges from family member to family member have been important in the united states throughout its history this paper investigates whether dynastic political privilege enhances incumbent accountability to voters as incumbents with family political capital work to maintain favorable reputations even in the incumbents last period this would mitigate last period problems in contrast with earlier empirical results in which incumbents in their last period in office deliver inferior economic results we test the hypothesis that dynastic political privilege increases accountability using data for 1950 2005 on u s governors including a new data set on the family relationships of politicians the constitution of the united states embodies the political ideals of the founders whose goal was to establish a republican national government that was responsible to the nation s people that specified the powers of the federal government that recognized the rights of the states and that incorporated checks and balances which would limit governmental power this new government was to be a direct contrast to and repudiation of monarchy in one of the most explicit repudiations of monarchy the constitution forbids the grant of titles of nobility by both the federal government and the states constitution of the united states article i sections 9 and 10 see the federalist papers number 39 for james madison s statements on the most decisive importance of the ban on titles of nobility library of congress 1961 242 interestingly however the constitution does not directly forbid hereditary office provided that the inheritor of the office is elected to it or appointed to it by constitutional means for example early in the nineteenth century the nation elected john quincy adams son of the second president as its sixth president dal bo dal bo and snyder 2009 carefully examine u s congressional dynasties from 1789 to 1996 and find that political power in the united states is self perpetuating this seems not only contrary to our nation s fundamental political principles but it also seems to hand over opportunities for rent seeking to relatives of successful politicians furthermore it is inefficiently anticompetitive because under such a system many highly qualified candidates are frozen out of office for reasons other than qualifications and anticipated productivity in office thus at first glance this process of family privilege in politics appears repugnant and contrary to the republican principles of our national political system there are however at least two other views of inherited political privilege which see it as socially useful first it is possible that political skills are actually inheritable so that dynastic political privilege may be socially productive that is relatives of office holders may gain special access to knowledge and skills that is only available to other potential office holders at much higher cost if at all the second and perhaps more important way in which inherited political privilege could be socially productive is that it may mitigate public sector principal agent problems the political system of the united states presents substantial principal agent problems as the voters cannot directly control the behavior of incumbent officials this gives office holders opportunities to act against the voters interests through corruption shirking on the job consumption at public expense promoting narrow ideology and others dynastic political privilege may make these behaviors more costly the possibility that opportunistic behavior in office may damage other family members political prospects disciplines current office holders making them more likely to exercise care in serving their constituents interests the main mechanism for voters to discipline incumbents is through elections

fiscal rules and discretion in a world economy governments are present biased toward spending fiscal rules are deficit limits that trade off commitment to not overspend and flexibility to react to shocks we compare coordinated rules chosen jointly by a group of countries to uncoordinated rules if governments present bias is small coordinated rules are tighter than uncoordinated rules individual countries do not internalize the redistributive effect of interest rates however if the bias is large coordinated rules are slacker countries do not internalize the disciplining effect of interest rates surplus limits enhance welfare and increased savings by some countries or outside economies can hurt the rest

capital regulation and credit fluctuations we provide a rationale for imposing counter cyclical capital ratios on banks in our simple model bankers cannot pledge the entire future revenues to investors which limits borrowing in good and bad times complete markets do not sufficiently stabilize credit fluctuations as banks allocate too much borrowing capacity to good states and too little to bad states as a consequence bank credit output capital prices or wages are excessively volatile imposing a stricter capital ratio in good states corrects the misallocation of the borrowing capacity increases expected output and can be beneficial to all agents in the economy although in our economy all agents are risk neutral counter cyclical capital ratios are an effective stabilization tool to ensure this effectiveness capital ratios have to be based on ex ante equity capital as classical capital ratios can be bypassed

are renewable energy subsidies effective evidence from europe abstract we test if policy support for renewable electricity have been effective in promoting renewables in the five largest european countries in the period 2000 2010 we collect data on the exact amount of monetary incentives and the average tariffs granted the econometric analysis reveals a positive correlation between subsidies and the production of incentivized energy as well as the installed capacity we find that a 1 1c increase in the incentive tariff leads to an increase in renewable generation of 0 4 1 18 26 feed in tariffs appear to outperform tradable green certificates overall the analysis shows that these policies have been effective in promoting renewable energy both in the short and in the long run

does electoral accountability affect economic policy choices evidence from gubernatorial term limits this paper analyzes the behavior of u s governors from 1950 to 1986 to investigate a reputation building model of political behavior we argue that differences in the behavior of governors who face a binding term limit and those who are able to run again provides a source of variation in discount rates that can be used to test a political agency model we find evidence that taxes spending and other policy instruments respond to a binding term limit if a democrat is in office the result is a fiscal cycle in term limit states which lowers state income when the term limit binds

stationary monetary equilibria in overlapping generations models with incomplete markets abstract the objective of this paper is to study the stationary monetary equilibria of a stochastic overlapping generations model with a general incomplete asset structure it is proved that a stationary equilibrium with a nonzero price of money generically exists and is locally isolated when there is outside money for an open set of economies there is an equilibrium with positive money prices in all states the equilibrium is also given a neat characterisation in terms of the properties of the underlying state prices with only inside money there will instead be a continuum of equilibria journal of economic literature classification numbers d52 d90 e40

optimal bank regulation and fiscal capacity financial regulation is synchronized across countries despite the fact that countries vary widely in their ability to bail out their banking sector in the event of a nancial crisis this paper addresses the question of whether countries with dierent scal capacity should optimally have dierent ex ante minimum bank capital requirements in an environment with endogenously in complete markets and overinvestment because of moral hazard and pecuniary externalities i show that countries with larger scal capacity should have lower ex ante minimum bank capital require ments this result is the opposite of what one may expect given that countries with larger scal capacity often have stronger moral hazard i also show that in addition to a minimum bank capital requirement regulators in countries with strong moral hazard which are countries with a concen trated nancial sector and large scal capacity should impose a limit on the amount of liquidity pledged by nancial institutions in a crisis state this would entail restricting the amount of put options cds contracts sold by nancial institutions among other measures

regulating capital flows to emerging markets an externality view abstract we show that capital flows to emerging market economies create externalities that differ by an order of magnitude depending on the state contingent payoff profile of the flows those with pro cyclical payoffs such as foreign currency debt generate substantial negative pecuniary externalities because they lead to large repayments and contractionary exchange rate depreciations during financial crises conversely capital flows with an insurance component such as fdi or equity are largely benign we construct an externality pricing kernel and use sufficient statistics and dsge model simulations to quantify the externalities that materialized during past financial crises we find stark differences depending on the payoff profile justifying taxes of up to 3 for dollar debt but close to zero for fdi these findings contrast with the existing literature which has suggested that policymakers should focus on reducing over borrowing rather than changing the composition of external liabilities

moral hazard and nonmarket institutions dysfunctional crowding out or peer monitoring the authors examine a situation in which insurance is characterized by moral hazard when market insurance is provided supplementary mutual assistance between family and friends unobservable to market insurers will occur when nonmarket insurers have no better information than market insurers the mutual assistance not only crowds out market insurance but is also harmful and therefore dysfunctional alternatively when nonmarket insurers can observe each other s effort perfectly mutual assistance is beneficial these results point to the potential importance of peer monitoring mechanisms in mitigating moral hazard copyright 1991 by american economic association

a macroeconomic model with a financial sector this paper studies a macroeconomic model in which financial experts borrow from less productive agents we pursue four sets of results i the economy is prone to instability and occasionally enters volatile episodes as volatility spikes agents precautionary motive increases depressing prices even further log linear approximations fail to capture these non linear effects that can cause economies to be significantly depressed for long periods of time ii endogenous risk during volatile episodes increases asset price correlations iii financial experts impose a negative externality on each other and on the labor sector by not maintaining adequate capital cushion and funding structure iv while risk sharing within the financial sector through securitization and derivatives contracts reduces many inefficiencies it can also amlify systemic risks

a reconsideration of minsky s financial instability hypothesis the worst and longest depressions have tended to occur after periods of prolonged and reasonably stable prosperity this results in part from agents rationally updating their expectations during good times and hence becoming more optimistic about future economic prospects investors then increase their leverage and shift their portfolios towards projects that would previously have been considered too risky so when a downturn does eventually occur the financial crisis and the extent of default become more severe whereas a general appreciation of this syndrome dates back to minsky 1992 jerome levy economics institute wp 74 and even beyond to irving fisher 1933 econometrica 1 337 357 we model it formally in addition endogenous default introduces a pecuniary externality since investors do not factor in the impact of their decision to take risk and default on the borrowing cost we explore the relative advantages of alternative regulations in reducing financial fragility and suggest a novel criterion for improvement of aggregate welfare

credit wages and bankruptcy laws we analyze how bankruptcy laws affect the general equilibrium interactions between credit and wages soft laws reduce the frequency of liquidations and thus ex post inefficiencies but they worsen credit rationing ex ante this hinders firm creation and thus depresses labor demand rich agents who need few outside funds can invest even if creditor rights are weak hence they favor soft laws that exclude poorer agents from the credit market and reduce the competition for labor such laws can generate greater utilitarian welfare than under perfect contract enforcement by barring access to credit to some agents soft laws lower wages which increases the pledgeable income of richer agents and decreases the liquidation rates they must commit to when they induce strong credit rationing however soft laws are pareto dominated by tougher laws combined with subsidies to entrepreneurs

managing credit booms and busts a pigouvian taxation approach we study a dynamic model in which the interaction between debt ac cumulation and asset prices magni es credit booms and busts we nd that borrowers do not internalize these feedback eects and therefore suf fer from excessively large booms and busts in both credit ows and asset prices we show that a pigouvian tax on borrowing may induce borrowers to internalize these externalities and increase welfare we calibrate the model by reference to i the us small and medium sized enterprise sector and ii the household sector and nd the optimal tax to be countercycli cal in both cases dropping to zero in busts and rising to approximately half a percentage point of the amount of debt outstanding during booms

assessing and managing regulatory risk in renewable energy contrasts between canada and the united states abstact a challenge for energy firms when considering new investments is to balance expected financial gains against potential risks however while investment opportunities in different jurisdictions are often straightforward to identify the policy or regulatory risks for investors are more difficult to accurately ascertain here i provide a novel conceptual framework for how firms can assess regulatory risk that focuses on the institutional processes governing policy making risks are lower and policies will subsequently be more stable in jurisdictions where regulatory agencies have greater autonomy from politicians and where policies are formulated through more rigid policy making processes the contrasting development patterns of renewable energy policies in ontario and texas offer support for the framework i further develop strategies for how firms can successfully manage regulatory risks in different types of environment

probabilistic decision model of wind power investment and influence of green power market this paper presents results from a model of a representative wind power investor s decision making process using a monte carlo simulation of a project financial analysis data in the form of probability distribution functions pdfs for key input variables were collected from interviews with investors and other professionals active in the u s wind power industry using a formal expert elicitation protocol this study presents the first quantitative estimates of the effect of the u s voluntary renewable energy certificate rec market on renewable energy generation the results indicate that the investment decisions of wind power project developers in the united states are unlikely to have been altered by the voluntary rec market the problem with the current voluntary rec market is that it does not offer developers a reliable risk adjusted revenue stream consequently the claims by u s green power retailers and promoters that voluntary market recs result in additional wind power projects lack credibility even dramatic increases in voluntary market rec prices in the absence of long term contracts were found to have only a small effect on investor behavior

procrastination and obedience in this lecture i shall focus on situations involving repeated decisions with time inconsistent behavior although each choice may be close to maximizing and therefore result in only small losses the cumulative effect of a series of repeated errors may be quite large thus in my examples decision makers are quite close to the intelligent well informed individuals usually assumed in economic analysis but cumulatively they make seriously wrong decisions that do not occur in standard textbook economics this lecture discusses and illustrates several pathological modes of individual and group behavior procrastination in decision making undue obedience to authority membership of seemingly normal individuals in deviant cult groups and escalation of commitment to courses of action that are clearly unwise in each case individuals choose a series of current actions without fully appreciating how those actions will affect future perceptions and behavior the standard assumption of rational forwardlooking utility maximizing is violated the nonindependence of errors in decision making in the series of decisions can be explained with the concept from cognitive psychology of undue salience or vividness for example present benefits and costs may have undue salience relative to future costs

stochastic equilibria with incomplete financial markets abstract we demonstrate the existence of equilibria with incomplete financial markets for stochastic economies whose information structure is given by an event tree restricting attention to purely financial securities those paying in units of account e g dollars financial markets may be incomplete some consumption streams may be impossible to obtain by any trading strategy securities may be individually precluded from trade at arbitrary states and dates sufficient conditions for the existence of stochastic equilibria are continuous convex strictly monotonic preferences and strictly positive aggregate endowments these conditions are weakened a corollary states that any regime of security prices precluding arbitrage can be embedded in an equilibrium

electricity market price and nuclear power plant shutdown evidence from california abstract japan s fukushima nuclear disaster triggered by the march 11 2011 earthquake has led to calls for shutting down existing nuclear plants to maintain resource adequacy for a grid s reliable operation one option is to expand conventional generation whose marginal unit is typically fueled by natural gas two timely and relevant questions thus arise for a deregulated wholesale electricity market 1 what is the likely price increase due to a nuclear plant shutdown and 2 what can be done to mitigate the price increase to answer these questions we perform a regression analysis of a large sample of hourly real time electricity market price data from the california independent system operator caiso for the 33 month sample period of april 2010 december 2012 our analysis indicates that the 2013 shutdown of the state s san onofre plant raised the caiso real time hourly market prices by 6 mwh to 9 mwh and that the price increases could have been offset by a combination of demand reduction increasing solar generation and increasing wind generation

attendance rates political shirking and the effect of post elective office employment attendance rates political shirking and the effect of post elective office employment i introduction political shirking the degree to which a politican s actions deviate from the wishes of his constituents can take many different dimensions economists e g amacher and boyes 1978 davis and porter 1989 dougan and munger 1989 kalt and zupan 1984 lott 1987d nelson and siberberg 1987 and peltzman 1984 have debated whether shirking exists in how a politician votes when he does vote this divergence is measured through some particular special interest voting ratings e g american conservative union americans for democratic action etc however shirking can obviously take as many forms as there are outputs that a politician produces besides how he votes he also produces services for his constituents involving everything from being personally available to listen to the constituents grievances to ensuring effective handling of case work by his staff see for example fiorina 1977 fenno 1978 and cain et al 1987 1 one dimension that has not been sufficiently examined is the extent to which politicians shirk by failing to vote on pending legislation 2 no attention has been given to which mechanisms will make this particular type of shirking relatively more costly most economists agree that opportunitic behavior by politicians is limited by the threat of reelection e g amacher and boyes 1978 barro 1973 kalt and zupan 1984 nelson 1976 and telser 1976 3 by implication the level of shirking should be the greatest when a politician decides to leave office however this opportunistic behavior might be reduced to the extent that political parties or constituencies impose costs for shirking through affecting politicisns post elective office career or the careers of their children thus a politicians last term in elective office may not represent his last period in any meaningful sense the next section outlines the differing views on how politicians act when they no longer face the threat of reelection section iii describes some empirical evidence on what mechanisms may prevent this last period problem the final section discusses the impliactions of these results ii the last period whether economists view politicians as ideologues e g kau and rubin 1979 and kalt and zupan 1984 or as simply attempting to maximize political support e g barro 1973 ferejohn 1986 nelson 1976 and peltzman 1984 the threat of reelection is seen as preventing shirking as kalt and zupan 1984 298 phrase it it appears that the proximity of the next election inhibits ideological shirking even those who do not view the last period as affecting how a politician votes argue that it will affect how often he votes lott 1987a 1987b has argued that if voters can determine and elect politicians that have ideological preferences corresponding exactly to the wishes of constituents politicians voting patterns should continue to reflect those values even when the cost of shirking in terms of forgone future votes is low the penalty to ideologues of not votingfor their constituency in the last period when they no longer face reelection is the forgone utility from not doing what they personally value assuming that politicians also desire leisure politicians should continue to vote for what they believe in but they should vote less frequently since they no longer receive the additional return of larger future support mechanisms to overcome this last period problem have been suggested by becker and stigler 1974 9 10 they argue that opportunistic behavior can be controlled if officeholders face the loss of a pension or equivalently a posted bond in the event of opportunistic behavior in their last term however the actual pension system does not effectively eliminate the last period for politicians since retirement payments are not based on cheating in the last period

term limits time horizons and electoral accountability term limits have been known to reduce electoral accountability by removing the possibility of reelection thus affecting economic policy choices i e the lame duck effect we show that the magnitude and statistical significance of this effect is influenced by the expected length of a future career by using incumbent age as a proxy for expected career length we find that the lame duck effect is statistically observable only among those politicians with long careers ahead using data on us governors from 1950 to 2005 we find evidence that the influence of term limits is heterogeneous primarily influencing young incumbents who hope to have long careers and thus have stronger incentives to remain accountable to voters indeed we find little evidence of a lame duck effect among older incumbents suggesting that their already shortened time horizons may offset the term limit effect

incumbent performance and electoral control in the pure theory of electoral competition citizens compare the platforms of the candidates and vote for the one whose platform is preferred candidate strategies are identified with promises about future performance in office models of this sort have been developed in both static mckelvey 1975 and dynamic kramer 1977 i settings and all appear to have the property that if the set of alternatives is large enough in some sense equilibrium platforms rarely exist but these models have another feature that is quite as disturbing as their instability in the static setting discussed by mckelvey little attention is paid to the possibility that once in office the politician s preferences may diverge from those of his constituents and that he may therefore choose policies at variance from his platform instead it is simply assumed that promises will be kept whether or not such behavior is congruent with the interest of the officeholder it is sometimes argued that an enforcement mechanism may exist to discipline politicians for failing to keep promises but without a specification of the mechanism it is not obvious that it would be in the interests of the

shifting foundations of agricultural policy analysis welfare economics when risk markets are incomplete the neat alignment of resources output and prices specified by the perfect competition model is far from duplicated in free markets and the equally neat alignment assumed under the constraints of a program is not experienced when programs are in effect in particular areas under empirically determined supply curves are unlikely to represent opportunity costs the basic theory is invaluable in providing a conceptual orientation for the analysis of programs but the assumptions implicit in the literal use of simple forms of it for policy conclusions are breathtakingly heroic

a model of financial market liquidity based on intermediary capital we present a model ofnancial market liquidity provided bynanciallyconstrained inter mediaries we show that market liquidity increases with the level of intermediary capital we also characterize conditions under which intermediaries play a stabilizing or destabi lizing role in markets finally we sketch a number of areas including welfare and public policy on which the model can shed light jel g01 g11 g12 g15 g18

electricity market reform failures uk norway alberta and california an analysis of electricity market reforms already taken place in the uk norway alberta canada and california usa leads to our overall conclusion that the introduction of a competitive generation market of itself has failed to deliver reliable service at low and stable prices the market reform failures are attributed to market power abuse by few dominant sellers especially at times of transmission congestion poor market design that invites strategic bidding by suppliers the lack of customer response to price spikes capacity shortage caused by demand growth not matched by new capacity and thin trading of forward and futures contracts that are critical for price discovery and risk management the paper then explains why an electricity market reform can easily fail to deliver the promised gains of better service at lower and more stable prices the policy implication is that an electric market reform can be extremely risky and may lead to a disastrous outcome thus it is imprudent to implement such a reform in countries with limited sites for newgeneration and no indigenous fuels e g israel and hong kong these countries should therefore consider introducing performance based regulation that can immediately benefit electricity consumers in terms of lower prices more stable prices improved reliability more choices while encouraging the electric sector to pursue efficient operation and investment r 2003 elsevier science ltd all rights reserved

equilibrium in economies with incomplete financial markets abstract this paper analyses an exchange economy in the absence of arrow debreu complete markets it is assumed that trading takes place in the sequence of spot markets and futures markets for securities payable in units of account unlimited short selling in securities is allowed a general equilibrium in such an economy is a set of current and future prices contingent on uncertain events and a set of individual plans such that all markets are cleared the existence of such an equilibrium is proved under usual assumptions this is in contrast to the case of futures markets for contingent futures commodities where an equilibrium may not exist the optimality of equilibrium allocations is also discussed

merit order effects of renewable energy and price divergence in california s day ahead and real time electricity markets abstract we answer two policy questions 1 what are the estimated merit order effects of renewable energy in the california independent system operator s caiso s day ahead market dam and real time market rtm and 2 what causes the hourly dam and rtm prices to systematically diverge the first question is timely and relevant because if the merit order effect estimates are small california s renewable energy development is of limited help in cutting electricity consumers bills but also has a lesser adverse impact on the state s investment incentive for natural gas fired generation the second question is related to the efficient market hypothesis under which the hourly rtm and dam prices tend to converge using a sample of about 21 000 hourly observations of caiso market prices and their fundamental drivers during 12 12 2012 04 30 2015 we document statistically significant estimates p value 0 01 for the dam and rtm merit order effects this finding lends support to california s adopted procurement process to provide sufficient investment incentives for natural gas fired generation we document that the rtm dam price divergence partly depends on the casio s day ahead forecast errors for system loads and renewable energy this finding suggests that improving the performance of the caiso s day ahead forecasts can enhance trading efficiency in california s dam and rtm electricity markets

pecuniary externalities in economies with financial frictions this article characterizes the efficiency properties of competitive economies with financial constraints in which phenomena such as fire sales and financial amplification may arise we show that financial constraints lead to two distinct types of pecuniary externalities distributive externalities that arise from incomplete insurance markets and collateral externalities that arise from price dependent financial constraints for both types of externalities we identify three sufficient statistics that determine optimal taxes on financing and investment decisions to implement constrained efficient allocations we also show that fire sales and financial amplification are neither necessary nor sufficient to generate inefficient pecuniary externalities we demonstrate how to employ our framework in a number of applications whereas collateral externalities generally lead to over borrowing the distortions from distributive externalities may easily flip sign leading to either under or over borrowing both types of externalities may lead to under or over investment

the merit order effect a detailed analysis of the price effect of renewable electricity generation on spot market prices in germany the german feed in support of electricity generation from renewable energy sources has led to high growth rates of the supported technologies critics state that the costs for consumers are too high an important aspect to be considered in the discussion is the price effect created by renewable electricity generation this paper seeks to analyse the impact of privileged renewable electricity generation on the electricity market in germany the central aspect to be analysed is the impact of renewable electricity generation on spot market prices the results generated by an agent based simulation platform indicate that the financial volume of the price reduction is considerable in the short run this gives rise to a distributional effect which creates savings for the demand side by reducing generator profits in the case of the year 2006 the volume of the merit order effect exceeds the volume of the net support payments for renewable electricity generation which have to be paid by consumers

assessing the strength and effectiveness of renewable electricity feed in tariffs in european union countries in the last two decades feed in tariffs fit have emerged as one of the most popular policies for supporting renewable electricity res e generation a few studies have assessed the effectiveness of res e policies but most ignore policy design features and market characteristics e g electricity price and production cost that influence policy strength we employ 1992 2008 panel data to conduct the first econometric analysis of the effectiveness of fit policies in promoting solar photovoltaic pv and onshore wind power development in 26 european union countries we develop a new indicator for fit strength that captures variability in tariff size contract duration digression rate and electricity price and production cost to estimate the resulting return on investment we regress this indicator on added res e capacity using a fixed effects specification and find that fit policies have driven solar pv development in the eu however this effect is overstated without controlling for country characteristics and is concealed without accounting for policy design we do not find robust evidence that fit policies have driven wind power development overall we show that the interaction of policy design electricity price and electricity production cost is a more important determinant of res e development than policy enactment alone

real indeterminacy with financial assets abstract it is shown that in a two period general equilibrium securities model where assets pay in money the generic dimension of the set of equilibrium allocations in the incomplete market situation is s 1 where s is the number of assets hence the degree or real indeterminacy is independent of the number of assets this result requires beyond fewer assets than states that the number of traders be larger than the number of securities and that the asset return matrix be in general position the generic dimension for arbitrary returns matrix is also obtained it is argued in addition that the presence of real or mixed assets does not by itself lower the degree of indeterminacy

contractual externalities and systemic risk we study effort and risk taking behaviour in an economy with a continuum of principal agent pairs where each agent exerts costly hidden effort principals write contracts based on both absolute and relative performance evaluations ape and rpe respectively to make individually optimal risk return trade offs but do not take into account their impact on endogenously determined aggregate variables this results in contractual externalities when these aggregate variables are used as benchmarks in contracts contractual externalities have welfare changing effects when principals put too much weight on ape or rpe due to information frictions relative to the second best if the expected productivity is high risk averse principals over incentivize their own agents triggering a rat race in effort exertion resulting in over investment in effort and excessive exposure to industry risks the opposite occurs when the expected productivity is low inducing pro cyclical investment and risk taking behaviours

favorite sons intergenerational wealth transfers among politicians in this paper we investigate the degree of occupational following in politics and its impact upon the career success and behavior while in office of both sons and fathers we find that sons follow into their politician fathers footsteps to a degree surpassed in the general population only among farmers and self employed proprietors there is substantial indirect evidence which suggests that following is motivated to a large extent by the transfer of valuable name recognition and voter loyalty

what drives renewable energy development abstract this viewpoint reviews renewable energy development in 14 markets that differ in market structure restructured vs not restructured use of feed in tariff fit yes vs no transmission planning anticipatory vs reactive and transmission interconnection cost allocated to a renewable generator high vs low we find that market restructuring is not a primary driver of renewable energy development renewable generation has the highest percent of total installed capacity in markets that use a fit employ anticipatory transmission planning and have loads or end users paying for most if not all of the transmission interconnection costs in contrast renewable developers have been less successful in markets that do not use a fit employ reactive transmission planning and have generators paying for most if not all of the transmission interconnection costs while these policies can lead to higher penetration of renewable energy in the short run their high cost to ratepayers can threaten the economic sustainability of renewable energy in the long run

projecting eu demand for natural gas to 2030 a meta analysis abstract gas demand projections for the eu27 from a variety of sources are compared projected demand varies widely between sources even when similar rates of economic growth and policy strength are assumed the divergence is shown to result from differing assumptions concerning future energy intensity on the one hand and the future contribution of nuclear power and renewables res to electricity generation on the other the variation with time of some of these projections is also examined it is found that the gas demand projected by both the international energy agency iea and the european commission ec for 2020 and for 2030 has tended to decrease with each successive projection this is understandable since the penetration of res e has continued to exceed expectations however in an economically depressed post fukushima europe estimates of future growth in both res and nuclear generation may need significant revision the energy efficiency directive as agreed by the council of the european union and the european parliament in april 2012 council of the european union 2012 will also impact significantly on future gas demand even though the measures incorporated are weaker than the original proposal the analysis presented here shows that a nuclear decline due to the fukushima disaster is seen to moderate rather than reverse projected demand decay a significant shortfall in projected res capacity if it were to occur constitutes a potential source of additional gas demand although the emphasis in this paper is on the eu27 as a whole consideration is given to the regional heterogeneity of each of these impacts hence although aggregate demand growth for the next decade or two is likely to be moderate or more probably negative local demand growth in some regions may be significant ensuring adequate access to these specific regions via interconnection to their eu27 neighbours and or directly from extra eu sources will therefore be essential hence implementation of the third energy plan should remain a priority

learning from experience the development of the renewables obligation in england and wales 2002 2010 abstract the uk has enviable renewable resources both onshore wind and offshore wind wave and tidal the offshore valuation group 2010 the government has had policy mechanisms in place since 1990 to encourage these resources to be developed the current mechanism the renewables obligation ro was specifically designed to emphasise competition and therefore to fit in with the uk s overall strategic approach to energy policy however as yet it has not delivered the capacity that it was designed to do and as a result the uk faces a difficult challenge in attempting to meet european wide renewable energy targets for 2020 as well as longer term decarbonisation targets this paper explores some of the major reasons why the ro has performed so poorly to date and considers the prospects for improvement up to 2020 it concludes that the strategic emphasis on competition in the support mechanisms has played a key role in limiting renewables development but that the mechanism has changed significantly since it was introduced however these changes together with proposals for electricity market reform still do not address important elements of risk in comparison with a standard feed in tariff

financial markets and the political structure of the enterprise abstract this paper argues that competitive financial markets disfavor democratic enterprises even assuming such enterprises suffer no allocational deficiencies this conclusion follows from five assertions a the democratic enterprise requires access to credit markets b access to credit presupposes access to equity markets c the democratic firm s optimal risk level is lower than that desired by stockholders d the risk level assumed by the firm is costly to observe subject to inaccurate measurement and contractually unenforceable and e the incentives required to induce stockholder favorable risk behavior are more costly for democratic firms than for firms with stockholder accountable management

the taxation of trades in assets when the asset market is incomplete there typically exist taxes on trades in assets that are pareto improving this fiscal policy is anonymous it is fully and correctly anticipated by traders and it results in ex post pareto optimal allocations as such it improves over previously proposed constrained interventions

diversification as a public good community effects in portfolio choice within a rational general equilibrium model in which agents care only about personal consumption we consider a setting in which due to borrowing constraints individuals endowed with local resources underparticipate in financial markets as a result investors compete for local resources through their portfolio choices even with complete financial markets and no aggregate risk agents may herd into risky portfolios this yields a pareto dominated outcome as agents introduce community risk unrelated to fundamentals moreover if some agents are behaviorally biased or cannot completely diversify their holdings rational agents may choose more extreme portfolios and amplify the effect

corporate takeovers the efficiency arguments in recent years the tender offer takeover has been praised and damned with a ferocity suggesting that the survival of capitalism is at stake the truth as in most disputes with substantial metaphysical content is more prosaic some takeovers enhance economic efficiency some degrade it and the balance of effects though not fully known is most likely a close one in this essay i try to lay bare the debate s foundations and bring it back to earth with an injection of evidence

texas s operating reserve demand curve s generation investment incentive abstract faced with reserve margin projections well below the adopted target of 13 75 of the system peak forecast the public utility commission of texas on 01 17 2019 ordered the state s grid operator the electric reliability council of texas to right shift the operating reserve demand curve ordc to increase generators revenue from energy sales in ercot s real time market rtm using a large sample of 15 min data for the backcast period of 01 01 2015 through 12 31 2018 we calculate the ordc shift s impact on rtm prices and investment incentives for natural gas fired generation ngfg had the ordc shift been in effect in the backcast period the resulting rtm price increases in 2018 could suffice to justify ngfg investment though not in the prior years of 2015 2016 and 2017 while the actual ordc shift occurred on 03 01 2019 had a large impact on rtm prices in the ensuing six month period of march august 2019 texas s planned renewable generation is expected to erode ngfg s operating profit thus diminishing the ordc s investment incentive over time hence texas s energy only market design will likely need further refinements to solve the missing money problem of inadequate ngfg investment incentive

efficiency and equilibrium when preferences are time inconsistent abstract we consider an exchange economy with time inconsistent consumers whose preferences are additively separable if consumers have identical discount factors then allocations that are pareto efficient at the initial date are also renegotiation proof in an economy with a sequence of markets competitive equilibria are pareto efficient in this sense and for generic endowments only if preferences are locally homothetic

the inefficiency of the stock market equilibrium this paper establishes that when there is not a complete set of markets but more than one commodity the stock market equilibrium will not in general be a constrained pareto optimum the economy will lack both the property of exchange and production efficiency necessary conditions which must be satisfied if the economy is to be a constrained pareto optimum for all technologies are derived if all individuals have identical homothetic indifference maps then either there must be unitary price elasticities so there is no effective risk or all individuals must have the same degree of risk aversion so there is no trade on the stock market

recursive equilibrium in stochastic overlapping generations economies we prove the generic existence of a recursive equilibrium for overlapping generations economies with uncertainty generic here means in a residual set of utilities and endowments the result holds provided there is a sufficient number of potentially different individuals within each cohort

banks and markets in a monetary economy abstract modern financial sectors consist of banks asset markets and a central bank this paper builds a model where these institutions provide different financial services and their interaction supports efficient allocations when one institution is missing equilibria are by construction inefficient the paper analyzes how interest rates and asset prices depend on the structure of the financial sector and characterizes the central bank policy that supports efficient allocations the analysis relies on the difference between liquidity and real shocks and relates the notion of liquidity used in this paper to the one adopted in other studies

short memory equilibrium in stochastic overlapping generations economies abstract in stochastic olg exchange economies we show that short memory equilibria the natural extension from deterministic economies of steady states low order cycles or finite state space stationary sunspots equilibria fail to exist generically in utilities as a result even with independent and identically distributed exogenous shocks there is serial correlation in endogenous economic variables in equilibrium this arises even if utilities are time separable some goods inferior and there are no technological lags hence the origins of economic fluctuations can be traced only to the demographic structure of a heterogeneous agent multiple good economy

devising renewable heat policy overview of support options renewable energy sources of heat offer the substantial economic environmental and social benefits associated with renewable electricity but policy to support their expansion is considerably less advanced the potential for applying various support instruments to renewable heat is considered with advantages and disadvantages discussed c 2012 published by elsevier ltd

rational expectations in the overlapping generations model abstract this paper reports results on the character of the rational expectations equilibria of a stochastic overlapping generations model with heterogenous markets the model considered is a stationary overlapping generations model in which the endowments of young agents are subject to i i d random shocks the main result shown is that if there are l 1 commodities traded in every period then for most preferences the rational expectations equilibrium stochastic process of prices and allocations necessarily exhibits serial correlation this is in marked contrast to the one commodity model in which there always exists an equilibrium which is measure isomorphic to the endowment process

symposium on organizations and economics m t r ost production in modern economies occurs within organizations and this production is regulated only to a limited extent by prices the size of some of the largest organizations like general motors or ibm or att if managers didn t they would be replaced and firms that didn t maximize value wouldn t survive accordingly what went on inside the black box was mere detail the behavior of the firm could be described completely without knowledge of those details

stationary equilibria with incomplete markets and overlapping generations recent work on general equilibrium models with incomplete financial markets has demonstrated that when assets pay off in units of account equilibrium prices and allocations are indeterminate the equilibria in such models are also generically constrained suboptimal a central planner can typically reallocate assets in such a way as to pareto dominate the competitive equilibrium in this paper the authors consider an overlapping generations model with incomplete markets in which one asset is fiat money they show that when outside money has value in equilibrium the stationary equilibrium prices and allocations are both locally isolated and constrained optimal copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

time series evidence on shirking in the u s house of representatives this paper presents time series evidence on the voting behavior of members of the u s house of representatives from 1975 to 1990 the empirical results indicate that voting behavior of individual congressmen is remarkably stable over time we find no evidence of economically significant last term effects on voting behavior nor are there important effects of legislative tenure on voting patterns the most significant deviations in voting behavior occur for congressmen who failed to win their reelection bid suggesting that sizable deviations from previous policy positions may result in swift retribution by constituents in the district