project based mechanisms for emissions reductions balancing trade offs with baselines project based mechanisms for emissions reductions credits like the clean development mechanism pose important challenges for policy design because of several inherent characteristics participation is voluntary so it will not occur without sufficient credits evaluating reductions requires assigning an emissions baseline for a counterfactual that cannot be measured some investments have both economic and environmental benefits and might occur anyway uncertainty surrounds both emissions and investment returns and parties to the project are likely to have more information than the certifying authority the certifying agent is limited in its ability to design a contract that would reveal investment intentions as a result rules for benchmarking emissions may be systematically biased to overallocate and they also risk creating inefficient investment incentives this paper evaluates in a situation with asymmetric information the efficacy of the main baseline rules currently under consideration historical emissions an average industry emissions standard and expected emissions

preparing hydropower projects for the post paris regime an econometric analysis of the main drivers for registration in the clean development mechanism abstract the 2015 paris climate accords promises to reign in a new era in the fight against global climate change the agreement supports the establishment of new cooperative approaches including internationally transferred mitigation outcomes through which individual countries can meet their nationally determined contributions hydropower projects however are in danger of being left out in the new regime mainly due to its dubious position as a renewable energy source hydropower in the clean development mechanism cdm has been criticized for non conformance to additionality and sustainability objectives originally set out in the kyoto protocol to confirm such issues and to provide recommendations that may mitigate them this study conducted an econometric analysis of 2717 hydropower projects in the cdm pipeline leading up to 2016 specifically a logit model was constructed to identify the main drivers for registration success results of the analysis showed the capacity and expected carbon credits of hydropower projects to be the dominant factors for registration rather than their financial requirements or technological barriers most problematically large scale projects not requiring carbon credits were registered while their social and environmental impacts have not been extensively scrutinized policy recommendations to rectify the verification process are proposed so that when implemented the right hydropower projects may be included in the new market mechanisms of the post 2020 regime

screening as a unied theory of delinquency renegotiation and bankruptcy we propose a parsimonious model with adverse selection where delinquency renegotiation and bankruptcy all occur in equilibrium as a result of a simple screening mechanism a borrower has private information about her cost of bankruptcy and a lender may use random contracts to screen dierent types of borrowers in equilibrium some borrowers choose not to repay and thus become delinquent the lender renegotiates with some delinquent borrowers in the absence of renegotiation delinquency leads to bankruptcy we apply the model to analyze eects of a government intervention in debt restructuring we show that a mortgage modication program aimed at limiting foreclosures that fails to take into account private debt restructuring may have the opposite eect from the one intended

recent developments in consumer credit and default literature this survey discusses recent contributions to the quantitative literature on unsecured consumer debt and default and some ongoing challenges for the literature key topics include the sources of the rise in personal bankruptcies the importance of asymmetric information and the effects of developments in information technologies on consumer credit markets delinquency and informal bankruptcy debt collection and restructuring of distressed debt the cyclical behavior of consumer debt and default and the insurance role of household debt implications for welfare analysis and policy design are discussed several theoretical contributions and approaches to modeling the consumer credit markets are also highlighted

consequences of debt forgiveness strategic default contagion and lender learning i use a unique data set of loans to small business owners to examine whether lenders face adverse consequences when they grant debt forgiveness to borrowers i provide evidence consistent with borrowers communicating their debt forgiveness to other borrowers who then more frequently strategically default on their own obligations this strategic default contagion is economically large when the lender doubles debt forgiveness the default rate increases by 10 9 on average using an exogenous shock to the lender s forgiveness policy my findings suggest that as the lender learns about the extent of borrower communication the lender tightens its debt forgiveness policy to mitigate default contagion

real estate markets and macroprudential policy in europe boom bust cycles in real estate markets have been major factors in systemic financial crises and therefore need to be at the forefront of macroprudential policy the geographically differentiated nature of real estate market fluctuations implies that these policies need to be granular across regions and countries before the financial crisis that started in 2007 property markets were overvalued in a range of european countries but much like in other constituencies active policies addressing this were an exception an increasing number of studies suggest that borrower based regulatory policies such as reductions in loan to value or debt to income limits can be effective in leaning against real estate booms but many of the new macroprudential policy authorities in europe do not have clear powers to determine them moreover the cross border spillovers they may give rise to suggest the establishment of a well defined macroprudential coordination mechanism for the single european market

rent extraction with a type by type scheme an instrument to incorporate sustainable development into the cdm although the cdm is supposed to assist developing countries in achieving sustainable development sustainable development is not incorporated into the market aspect of the cdm by participating in the cdm developing countries may end up losing all cheap emissions reduction possibilities while obtaining little sustainability benefits this paper proposes rent extraction with a type by type scheme as an instrument to incorporate sustainable development into the cdm the rent extraction with a type by type scheme makes it possible for the cdm host country government to discourage the low cost projects that have little sustainability benefits and to extract more rent from the projects that are developed the main challenge of implementing this instrument is the uncertainty of the opportunity cost but the host country government can adjust the scheme for the uncertainty to achieve its goal therefore the type by type scheme will better assist the host country in achieving sustainable development than a single rate scheme

default and aggregate income abstract this paper studies how default varies with aggregate income we analyze a model in which optimal contracts enable risk sharing of privately observed idiosyncratic income by allowing for default default provisions allow agents with low idiosyncratic income realizations to repay less and thus provide insurance default penalties ensure that only these agents default we show that default can occur under the optimal contract and that default provisions vary with aggregate income we provide conditions such that both the amount of default and default penalties vary countercyclically with aggregate income and show that the default rate can be discontinuous

an estimation of the swiss hydropower rent the electricity generation in switzerland is mostly based on hydropower 58 and nuclear power 38 the exploitation of water in the hydropower sector can generate significant economic rent one possibility to capture this rent is through royalties or fees this system has been used in switzerland since many decades however the actual water fee system is not flexible and does not take into consideration different production costs between the type and location of hydropower plants furthermore storage plants can sell electricity to a higher price than run of river plants a flexible system is needed in a liberalized electricity market to take into account these different production situations and the fact that prices may vary considerably over time the main goal of this paper is to calculate the potential economic rent that could be generated in the swiss hydropower sector under a future liberalized market based on the results of the paper it can be concluded that the introduction of a flexible fee system could improve the competitiveness of the hydropower sector and promote an energy system based on renewable energy sources

a real option based model for promoting sustainable energy projects under the clean development mechanism abstract the clean development mechanism cdm provides a way of assisting sustainable development in developing countries for developed countries to reduce greenhouse gas ghg emissions despite its intended benefits the primary cdm market decreased from us 5 8 billion in 2006 to us 1 5 billion in 2010 one of the primary reasons for the reduction of market size is that developed countries as investors have a high level of risks caused by the volatility of the market price for certified emission reductions cers another issue to be resolved is that developing countries as host countries cannot claim any right to the cers produced on their own land this paper presents a real option based model for both parties developed and developing countries to have their fair share of profits and risks by controlling the uncertainty associated with the future value of cers a case study illustrated that the proposed model can effectively attract investors to cdm projects leading to mitigation of climate change

housing really is the business cycle what survives the lessons of 2008 09 the downturn of 2008 09 has confirmed that i housing is the single most critical part of the u s business cycle ii the proper conduct of monetary policy needs to be cognizant that choices made at one point in time affect the options later and iii the best time to intervene in the housing cycle is when the volume of building is above normal and growing more so what was different this time was the rapid and substantial decline in home prices

duration of sovereign debt renegotiation abstract in the period since 1990 sovereign debt renegotiations take an average of five years for bank loans but only one year for bonds we provide an explanation for this finding by highlighting one key difference between bank loans and bonds bank loans are rarely traded while bonds are heavily traded on the secondary market in our theory the secondary market plays a crucial information revelation role in shortening renegotiations consider a dynamic bargaining game with incomplete information between a government and creditors the creditors reservation value is private information and the government knows only its distribution delays in reaching agreements arise in equilibrium because the government uses costly delays to screen the creditors reservation value when the creditors trade on the secondary market the market price conveys information about their reservation value which lessens the information friction and reduces the renegotiation duration we find that the secondary market tends to increase the renegotiation payoff of the government but decrease that of the creditors while increasing the total payoff we then embed these renegotiation outcomes in a simple sovereign debt model to analyze the ex ante welfare implications the secondary market has the potential to increase the government ex ante welfare when the information friction is severe

consumer ruthlessness and mortgage default during the 2007 to 2009 housing bust from 2007 to 2009 u s house prices plunged and mortgage defaults surged while ostensibly consistent with widespread ruthless default analysis of detailed mortgage and house price data indicates that borrowers do not walk away until they are deeply underwater far deeper than traditional models predict the evidence suggests that lender recourse is not the major driver of this result we argue that emotional and behavioral factors play an important role in decisions to continue paying borrower reluctance to walk away implies that the moral hazard cost of default as a form of social insurance may be lower than suspected this article is protected by copyright all rights reserved

the monetary compensation mechanism an alternative to the clean development mechanism abstract one of the key challenges in resolving global warming problem is how to induce developing countries to reduce emissions the cdm was proposed in the kyoto protocol as a means of obtaining the cooperation of developing countries in controlling greenhouse gases but it has some intrinsic problems and has generated considerable controversy this paper presents an alternative mechanism the monetary compensation mechanism mcm i study the characteristics of this mechanism with a dynamic principal agent model by solving the model numerically i obtain the optimal solution for a scenario based on 1990 data the monetary compensation rate under the mcm is comparable to the price of cers in the cdm but the mcm has several advantages over the cdm

on the contribution of labelled certified emission reductions to sustainable development a multi criteria evaluation of cdm projects abstract the clean development mechanism cdm has a twofold objective to offset greenhouse gas emissions and to contribute to sustainable development in the host country the contribution to the latter objective seems marginal in most cdm activities also cdm activities are unevenly spread among developing countries in response to these concerns initiatives with the objective of promoting cdm projects with broad local sustainable development dividends have been launched such as the gold standard and the community development carbon fund the gold standard label rewards best practice cdm projects while the community development carbon fund focuses on promoting cdm activities in underprivileged communities using a multi criteria method the potential contribution to local sustainable development of those cdm projects with particular attributes is compared with ordinary ones this evaluation suggests that labelled cdm activities tend to slightly outperform comparable projects although not unequivocally

does ecological economics have a future contradiction and reinvention in the age of climate change abstract this paper addresses the role of neoclassical methodologies in ecological economics and the contradictions these methodologies pose to the field s critical founding principles we first consider robert costanza s treatment of nicholas stern s global deal and then survey climate change related articles published in this journal over the past five years this survey reveals how mainstream neoclassical methodologies dominate discourse and do so by marginalizing more critical political economy analyses this situation imperils the field s founding vision of a no growth steady state it also fails to address the related growth dynamics of capitalism without such a critical treatment the field s formal embrace of methodological pluralism actually entails an ideological empiricism that renders ecological economics theoretically incoherent this situation undermines the field s historical promise as an alternative economic paradigm ecological economics now faces a problematic future its survival in a form faithful to its founding vision will require an explicit choice to address its internal contradictions and reinvent itself in ways relevant to our contemporary context without such a choice ecological economics will likely succumb to an implicit acceptance of the hegemony of mainstream economic methodologies and their pro growth imperatives

mortgage default during the u s mortgage crisis this paper asks which theories of mortgage default are quantitatively consistent with observations in the united states during 2002 2010 theoretical models are simulated for the observed time series of aggregate house prices their predictions are then compared to actual default rates on prime fixed rate mortgages an out of sample test discriminates between estimated reduced forms of the two most prominent theories the test reveals that the doubletrigger hypothesis attributing mortgage default to the joint occurrence of negative equity and a life event like unemployment outperforms a frictionless option theoretic default model based on this finding a structural partialequilibrium model with liquidity constraints and idiosyncratic unemployment shocks is presented to provide micro foundations for the double trigger hypothesis in this model borrowers with negative equity are more likely to default when they are unemployed and have low liquid wealth the model explains most of the observed strong rise in mortgage default rates a policy implication of the model is that subsidizing homeowners can mitigate a mortgage crisis at a lower cost than bailing out lenders

state foreclosure laws and the incidence of mortgage default abstractthis paper examines how differences in state foreclosure laws influence the incidence of default in the residential mortgage market in particular we examine how judicial review requirements lenders recourse rights deficiency judgments and state assistance programs for distressed borrowers affected the likelihood of default during the recent u s housing crisis we argue that state foreclosure laws should have little effect on the likelihood of liquidity events for example shocks to borrowers ability to make payments and thus provide a good instrument for identifying borrowers costs of default we find that borrowers with negative home equity are significantly more likely to default in states with borrower friendly foreclosure laws finally we examine how recent state and federal loan foreclosure prevention programs affected the likelihood of default overall we find a significant decline in the effect of judicial review requirements but not deficiency judgments on default after 2008

accuracy of mortgage portfolio risk forecasts during financial crises abstract this paper explores whether factor based credit portfolio risk models are able to predict losses in severe economic downturns such as the recent global financial crisis gfc within standard confidence levels the paper analyzes i the accuracy of default rate forecasts and ii whether forecast downturn percentiles value at risk var are sufficient to cover default rate outcomes over a quarterly and an annual forecast horizon uninformative maximum likelihood and informative bayesian techniques are compared as they imply different degrees of uncertainty we find that quarterly var estimates are generally sufficient but annual var estimates may be insufficient during economic downturns in addition the paper develops and analyzes models based on auto regressive adjustments of scores which provide a higher forecast accuracy the consideration of parameter uncertainty and auto regressive error terms mitigates the shortfall

securitization and distressed loan renegotiation evidence from the subprime mortgage crisis abstract we examine whether securitization impacts renegotiation decisions of loan servicers focusing on their decision to foreclose a delinquent loan conditional on a loan becoming seriously delinquent we find a significantly lower foreclosure rate associated with bank held loans when compared to similar securitized loans across various specifications and origination vintages the foreclosure rate of delinquent bank held loans is 3 to 7 lower in absolute terms 13 to 32 in relative terms there is a substantial heterogeneity in these effects with large effects among borrowers with better credit quality and small effects among lower quality borrowers a quasi experiment that exploits a plausibly exogenous variation in securitization status of a delinquent loan confirms these results

optimal monetary policy rules and house prices the role of financial frictions we consider the scope for targeting house prices in simple monetary policy rules using a new keynesian dynamic stochastic general equilibrium model of the euro area with a housing sector and financial frictions on the household side if the central bank s main objective is the minimization of inflation and output fluctuations then a systematic response to house prices does not entail any systematic sizeable welfare improvement when the objective of monetary policy is the maximization of aggregate and individual welfare then the optimized rule does feature a systematic reaction to house price variations the sign and size of such reaction crucially depend on the degree of financial frictions in the economy if the economy is characterized by both a large share of constrained agents and a high average loan to value ratio then it is optimal to positively react to house price movements finally we show that uncertainty about the actual degree of financial frictions suggests some caution in the construction of optimal monetary policy rules the welfare costs generated by systematically counteracting house price movements are in general smaller than those implied by a procyclical response

recourse and residential mortgage default evidence from us states we quantify the effect of recourse on default and find that recourse affects default by lowering the borrower s sensitivity to negative equity at the mean value of the default option for defaulted loans borrowers are 30 more likely to default in non recourse states furthermore for homes appraised at 500 000 to 750 000 borrowers are twice as likely to default in non recourse states we also find that defaults are more likely to occur through a lender friendly procedure such as a deed in lieu in states that allow deficiency judgments we find no evidence that mortgage interest rates are lower in recourse states the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

building stable mortgage markets lessons from canada s experience the global financial crisis illustrated the high costs of boom bust cycles in housing and mortgage markets and the importance of implementing policy frameworks that mitigate the risk of these events this article discusses elements of canada s policy framework that contributed to the relatively good performance of its mortgage market in recent years including supervisory practices and mortgage underwriting standards lender recourse and the nondeductibility of mortgage interest payments played a complementary role ongoing policy challenges are also identified including the need for monitoring to ensure the current prolonged period of low interest rates does not lead to levels of debt and house prices that create future instability in housing and mortgage markets

market structure and inefficiency in the foreign exchange market abstract this paper investigates the intradaily operational efficiency of the us foreign exchange market by conducting computer simulation experiments with market structure the numbers of market makers brokers and customers the results indicate significant operational inefficiencies which can be explained by temporary inventory imbalances inherent in a decentralized market the results also suggest that much of this inefficiency could be alleviated through a centralization of price information jel f31 g15

recent developments in consumer credit and default literature consumer credit and default literature this survey discusses recent contributions to the quantitative literature on unsecured consumer debt and default and some ongoing challenges for the literature key topics include the sources of the rise in personal bankruptcies the importance of asymmetric information and the effects of developments in information technologies on consumer credit markets delinquency and informal bankruptcy debt collection and restructuring of distressed debt the cyclical behavior of consumer debt and default and the insurance role of household debt implications for welfare analysis and policy design are discussed several theoretical contributions and approaches to modeling the consumer credit markets are also highlighted

wind farm investment risks under uncertain cdm benefit in china abstract china has set an ambitious target to increase its wind power capacity by 35 gw from 2007 to 2020 the country s hunger for clean power provides great opportunities for wind energy investors however risks from china s uncertain electricity market regulation and an uncertain energy policy framework mainly due to uncertain clean development mechanism cdm benefits prevent foreign investors from investing in china s wind energy the objectives of this paper are to 1 quantify wind energy investment risk premiums in an uncertain international energy policy context and 2 evaluate the impact of uncertain cdm benefits on the net present values of wind power projects with four scenarios this study simulates possible prices of certified emissions reductions cers from wind power projects project net present values npvs have been calculated the project risk premiums are drawn from different and uncertain cer prices our key findings show that uncertain cdm benefits will significantly affect the project npvs this paper concludes that the chinese government needs revising its tariff incentives most likely by introducing fixed feed in tariffs fits and re examining its cdm granting policy and its wind project tax rates to facilitate wind power development and enable china to achieve its wind energy target

long run implications for developing countries of joint implementation of greenhouse gas mitigation joint implementation ji calls for cooperation between industrialized and developing countries in the mitigation of greenhouse gas ghg emissions however a major concern of potential host countries is that if they utilize their low cost options for ji now they will be left with only high cost options in the future thereby penalizing them at a time when they may be obligated to mitigate ghgs themselves this paper formalizes this hypothesis by utilizing an optimal control framework analogous to the hotelling model of non renewable resource extraction the results are that cumulative abatement effects can impose costs on the future but that they can be offset by technological change market power or compensation

can t pay or won t pay unemployment negative equity and strategic default this paper uses new data from the psid to quantify the relative importance of negative equity versus ability to pay in driving mortgage defaults between 2009 and 2013 these data allow us to construct household budgets sets that provide better measures of ability to pay changes in ability to pay have large estimated effects job loss has an equivalent effect on the propensity to default as a 35 decline in equity strategic motives are also found to be quantitatively important as we estimate more than 38 of households in default could make their mortgage payments without reducing consumption received september 29 2015 editorial decision june 2 2017 by editor philip strahan authors have furnished an internet appendix which is available on the oxford university pressweb site next to the link to the final published paper online

when are modifications of securitized loans beneficial to investors loan modification is widely discussed as an alternative to foreclosure but little research has focused on quantifying its effect on loan performance i quantify this effect early in the housing crisis by exploiting exogenous variation in the incentives to modify securitized nonagency loans an additional modification reduces loan losses by 35 8 relative to the average loss this reduction suggests that the marginal benefit of modification likely exceeded the marginal cost consistent with the idea that high income borrowers may be better equipped to withstand bad economic times i find that modifications are especially beneficial when borrowers have larger loans received april 25 2016 editorial decision march 24 2017 by editor philip strahan

mitigation incentives with climate finance and treaty options abstract future greenhouse gas ghg mitigation action of current non climate policy np countries is considered to take two alternative forms 1 climate finance payments received in return for future reductions in its ghg emissions below a defined baseline and 2 join a climate treaty whereby the required emissions reductions are formally binding it is assumed that baselines defining climate finance payments and required emissions reductions under a treaty depend positively on current emissions it is then shown that making such future options available reduces current ghg mitigation in np countries leading to higher emissions in the short run this effect is stronger when future climate finance payments are higher the required relative emissions reductions under a treaty are greater when commitments under a treaty are longer lasting and mitigation targets depend more on current emissions such short run increases in emissions can sometimes more than fully eliminate the effect of the subsequent policy when climate finance and treaties are both future alternatives more generous climate finance can make it harder and more expensive to induce the country to join a climate treaty

conference on housing stability and the macroeconomy international perspectives this article provides an introduction to the jmcb special issue on housing bubbles the global financial crisis and the ensuing recessions in countries that experienced housing busts we focus on five themes that are important for policymakers and researchers alike the domestic and international factors driving housing booms and busts the relevance of the housing sector for the real economy how monetary policy should react to housing booms and busts how housing and mortgage finance reform could affect financial stability and the broad lessons learned for macroeconomics and macroprudential policy

institutions and the resource curse countries rich in natural resources constitute both growth losers and growth winners we claim that the main reason for these diverging experiences is differences in the quality of institutions more natural resources push aggregate income down when institutions are grabber friendly while more resources raise income when institutions are producer friendly we test this theory building on sachs and warner s influential works on the resource curse our main hypothesis that institutions are decisive for the resource curse is confirmed our results contrast the claims of sachs and warner that institutions do not play a role

the housing and credit bubbles in the united states and europe a comparison a house price boom occurred simultaneously in the united states and in a number of european countries from 2003 to 2007 accompanied in each case by an expansion in housing finance this article considers the role of financial innovation along with incomplete markets in these cycles

the impact of discounting emission credits on the competitiveness of different cdm host countries discounting the value of emission credits has been proposed as a possible approach for addressing some of the shortcomings of the clean development mechanism cdm it could be used to compensate for non additional cdm projects to increase the incentive for advanced developing countries to move from the cdm to own mitigation commitments and to improve the competitiveness of less developed countries as hosts for cdm projects we assess the impact of discounting on the distribution of cdm projects in host countries with a special focus on least developed countries ldcs cdm specific abatement cost curves are built for 4 regions china india other advanced asian countries and ldcs abatement costs are estimated using the information provided in the project documentation of 108 projects from 17 subtypes in 16 host countries abatement potentials are derived from the current cdm pipeline for each region for ldcs we additionally include an optimistic potential estimation by adding to the current pipeline the potential found by a world bank study for ldcs in sub saharan africa we then assess the effect of two emission credit discounting schemes on these abatement cost curves credit discounting is differentiated by host countries based on an index composed of per capita gdp and per capita emissions in the first scheme it only affects the most advanced cdm host countries in the second one it also affects china we find that discounting has an impact on the competitiveness of individual cdm host countries in the carbon market as it affects their abatement cost curves it could become an instrument for incentivising advanced developing countries to leave the cdm and engage in other farther reaching climate related commitments as a result of the resulting emission credit cost increases however even with discounting ldcs remain unimportant in terms of abatement potential if the financial technical and institutional barriers to cdm development in these countries are not overcome

the effect of negative equity on mortgage default evidence from hamp s principal reduction alternative the home affordable modification program s hamp s principal reduction alternative pra is a government sponsored program to reduce the principal balances and monthly mortgage payments of troubled borrowers we examine the effect of principal forgiveness on borrowers subsequent mortgage default the program s rules imply a kink in the relationship between principal forgiveness and a borrower s initial equity level our identification strategy exploits the quasi experimental variation in principal forgiveness generated by this kink using a regression kink design rkd which compares the relationship between initial equity and default on either side of the kink we estimate that hamp pra reduced the quarterly default hazard from 3 8 to 3 1 received february 4 2015 accepted august 2 2015 by editor philip strahan

city equilibrium with borrowing constraints structural estimation and general equilibrium effects this article develops a general equilibrium model of location choice where mortgage approval rates determine household specific choice sets estimation of the model using san francisco bay area data reveals that the price sensitivity of borrowing constraints explains about two thirds of the price elasticity of neighborhood demand general equilibrium analysis of the 2000 2006 relaxation of lending standards predicts the following impacts on prices and neighborhood demographics i an increase in house prices accompanied by a compression of the price distribution and ii a reduction in the isolation of whites reflecting gentrification both predictions are supported by empirical observation

emissions trading with offset markets and free quota allocations we study optimal climate policy for a policy bloc of countries facing a market where emissions offsets can be purchased from a non policy fringe of countries such as with the cdm policy bloc firms benefit from free quota allocations which are updated according to either firms past emissions or outputs we show that the resulting abatement and its allocation between policy bloc and fringe are both inefficient when all quotas are traded freely at a single price the policy bloc chooses to either not constrain the offset market leading to suboptimal policy bloc mitigation or ban offsets completely the former latter case occurs when free allocation of quotas is not very generous and the offset market is large small it is preferable for policy bloc countries governments to instead buy offsets directly from the fringe at a quota price below marginal damage cost of emissions while the policy bloc quota price will be above this cost with maximization of global welfare and a unified quota price this price is higher and offsets constrained in fewer cases but the solution still inefficient full efficiency then requires a higher quota price in the policy bloc than in the fringe

second chances subprime mortgage modification and redefault we examine how the structure of mortgage modification affects the likelihood that the mortgage redefaults over the next year we focus on pre hamp home affordable modification program subprime modifications where the borrower was seriously delinquent and the monthly payment was reduced the average redefault rate over the year following the modification is 56 redefault rates decline with the magnitude of reduction in monthly payments and redefault rates decline more when the payment reduction is achieved through principal forgiveness as compared to lower interest rates

optimal debt structure and the number of creditors within an optimal contracting framework we analyze the optimal number of creditors a company borrows from we also analyze the optimal allocation of security interests among creditors and intercreditor voting rules that govern renegotiation of debt contracts the key to our analysis is the idea that these aspects of the debt structure affect the outcome of debt renegotiation following a default debt structures that lead to inefficient renegotiation are beneficial in that they deter default but they are also costly if default is beyond a manager s control the optimal debt structure balances these effects we characterize how the optimal debt structure depends on firm characteristics such as its technology its credit rating and the market for its assets

no job no money no refi frictions to refinancing in a recession we study how employment documentation requirements and out of pocket closing costs constrain mortgage refinancing these frictions which bind most severely during recessions may significantly inhibit monetary policy pass through to study their effects on refinancing we exploit a federal housing administration policy change that excluded unemployed borrowers from refinancing and increased others out of pocket costs substantially these changes dramatically reduced refinancing rates particularly among the likely unemployed and those facing new out of pocket costs our results imply that unemployed and liquidity constrained borrowers have a high latent demand for refinancing cyclical variation in these factors may therefore affect both the aggregate and distributional consequences of monetary policy

the relation between price changes and trading volume a survey this paper reviews previous and current research on the relation between price changes and trading volume in financial markets and makes four contributions first two empiri cal relations are established volume is positively related to the magnitude of the price change and in equity markets to the price change per se second previous theoretical research on the price volume relation is summarized and critiqued and major insights are emphasized third a simple model ofthe price volume relation is proposed that is consis tent with several seemingly unrelated or contradictory observations and fourth several directions for future research are identified

strategic climate policy with offsets and incomplete abatement carbon taxes versus cap and trade abstract this paper provides a first analysis of a policy bloc of fossil fuel importers which implements an optimal climate policy faces a non policy fringe of other fuel importers and an exporter bloc and purchases offset from the fringe we compare a carbon tax and a cap and trade scheme for the policy bloc in either case accompanied by an efficient offset mechanism for reducing emissions in the fringe the policy bloc is shown to prefer a tax over a cap since only a tax reduces the fuel export price and by more when the policy bloc is larger offsets are also more favorable to the policy bloc under a tax than under a cap the optimal offset price under a carbon tax is below the tax rate while under a cap and free quota trading the offset price must equal the quota price the domestic carbon and offset prices are both higher under a tax than under a cap when the policy bloc is small when the policy bloc is larger the offset price can be higher under a cap fringe countries gain by mitigation in the policy bloc more under a carbon tax since the fuel import price is lower

emerging technologies and ethics a race to the bottom or the top does national success with an emerging technology require ethical sacrifices this question is considered through the simultaneous consideration of ethics investment and outcomes in the nine jurisdictions that are making the largest investments in nanotechnologies an important emerging technology it is found that while ethical environment has no notable effect on pure and applied research a more positive ethical environment is associated with measures associated with invention and commercialization in summary a race to the top supports invention and commercialization of emerging technologies a critical finding as it suggests that issues such as corruption and regulation could be critical in limiting the extraction of social and economic benefit from emerging technologies like nanotechnologies

why don t lenders renegotiate more home mortgages redefaults self cures and securitization we document the fact that servicers have been reluctant to renegotiate mortgages since the foreclosure crisis started in 2007 having performed payment reducing modifications on only about 3 percent of seriously delinquent loans we show that this reluctance does not result from securitization servicers renegotiate similarly small fractions of loans that they hold in their portfolios our results are robust to different definitions of renegotiation including the one most likely to be affected by securitization and to different definitions of delinquency our results are strongest in subsamples in which unobserved heterogeneity between portfolio and securitized loans is likely to be small and for subprime loans we use a theoretical model to show that redefault risk the possibility that a borrower will still default despite costly renegotiation and self cure risk the possibility that a seriously delinquent borrower will become current without renegotiation make renegotiation unattractive to investors

housing and the macroeconomy inflation and the financial accelerator three themes connecting housing and the macroeconomy are discussed first evidence is presented for the property market as one of the drivers of u s consumer price inflation second key drivers of house prices are explained to account for the remarkable diversity of international experience finally three potential links between housing credit and the financial accelerator are discussed these are the consumption channel the investment channel and feedback between bad loans and risk spreads via the financial system and how institutional differences between countries can explain the presence absence and magnitudes of these linkages

beyond pure offsetting assessing options to generate net mitigation effects in carbon market mechanisms the current project based carbon market mechanisms such as the clean development mechanism cdm and the joint implementation ji do not have a direct impact on global greenhouse gas emission levels because they only replace or offset emissions nor do they contribute to host country s national greenhouse gas emission reduction targets contributions to net emission reductions in host countries is likely to become mandatory in new mechanisms under development such as in the framework for various approaches a new market based mechanism and even in a reformed ji this research analysed the question if approaches for carbon market based mechanisms exist that allow the generation of net emission reductions in host countries while keeping project initiation attractive we present a criteria based assessment method and apply it for four generic options in existing mechanisms and derive implications for future mechanism frameworks we identified the application of discounts on the amount of avoided emissions for the issuance of carbon credits and standardisation below business as usual as most promising options over limiting the crediting period and over conservativeness we propose to apply these options differentiated over project types based on internal rate of return to ensure cost efficiency and attractiveness

an international perspective for mortgage market reform the united states and certain european countries e g ireland and spain have recently experienced serious distress in their residential mortgage markets public policy has responded with interventions to limit the deadweight costs of mortgage foreclosures but with limited success there are also open questions with respect to long term reforms in mortgage market structures in this paper i make use of the important differences that exist between u s and european mortgage markets to help identify those aspects of residential mortgage markets that are most in need of reform

pricing mortgage default and foreclosure delay this paper extends current mortgage pricing models to recognize the impact that delays between default and foreclosure have on the value of default to the borrower and the resulting value of the mortgage to investors the model explicitly captures potential costs through postforeclosure deficiency judgments and benefits in the elimination of negative equity and free rent that must be weighed at the time of default in determining whether the ultimate put option via allowing foreclosure is in the money the results provide policy implications concerning the operation of the fha insurance program copyright 1997 by ohio state university press

informational differences between limit and market orders for a market maker markets for exchange typically evolve over time and the organized security exchanges in the united states have evolved in such a manner as to give specialists a major role as market makers specialists are responsible for maintaining a fair and orderly market in the securities listed on an exchange they specify prices to reflect supply and demand and adjust these prices in response to shifts in supply and demand

evidence of the clean development mechanism impact on the chinese electric power system s low carbon transition the extension of the kyoto protocol till 2020 has left uncertainty dominating the future of climate change negotiations meanwhile on going debate on the variety of measures introduced by the protocol demonstrate that there is no consensus among academics and policy makers on the efficacy of those measures by focusing on a specific but extensive case study which encompasses the whole contribution of the clean development mechanism cdm to the chinese electricity production sector this paper aims to reflect upon the effectiveness of that mechanism during its originally planned lifetime which was to be the end of 2012 the paper contributes to the international debate by offering a new evidence based perspective on the efficacy of the cdm in a strategic sector of the most relevant non annex i country the obtained empirical results can serve as evaluation instruments for both academics and policy makers involved in the elaboration of a new protocol and its related mechanisms while at the same time offering a stimulus for further analyses sharing similar objectives the results reveal a new perspective on the chinese electricity system s low carbon transition while prompting debate over the original efficacy of the cdm

negative equity and foreclosure theory and evidence abstract recent declines in housing prices have focused attention on the relationship between negative housing equity and mortgage default theory implies that negative equity is a necessary condition for default but not a sufficient one this often misunderstood result is clearly illustrated in a dataset of massachusetts homeowners during the early 1990s fewer than 10 percent of borrowers likely to have had negative equity at the end of 1991 experienced a foreclosure during the following three years an econometric model of default estimated on two decades of massachusetts housing data also predicts low default rates for current negative equity borrowers we develop a simple theoretical model to interpret these empirical findings and to assess potential foreclosure reduction policies our results imply that lenders and policymakers face an information problem in trying to help borrowers with negative equity because it is hard to determine which owners really need help in order to stay in their homes

how to make the clean development mechanism sustainable the potential of rent extraction the clean development mechanism cdm should foster sustainable development and greenhouse gas emission reductions the design of the cdm and first experience suggest that it may not achieve these goals developing countries hosting cdm projects may lose cheap emission reduction possibilities for their own future use and sustainable development and technology transfer may not take place on the other hand the cdm has the potential to generate considerable rents if permit prices are high or costs low to account for equity and distributional issues a deliberate decision on how to distribute these rents could be taken and the potential failure of the cdm in meeting its goals calls for some further regulation i suggest to combine these two issues and to extract the rents by a profit tax ideally the tax revenues could contribute to national sustainable development strategies to offset external costs imposed by cdm projects and to extract part of the resource rent they may generate the international character of the cdm could offer a frame for internationally coordinated tax design this would hedge against a potential race to the bottom

securitization and mortgage renegotiation evidence from the great depression we use loan level data from the nyc metropolitan area to examine the extent to which lenders attempted to prevent foreclosures with concessionary modi cations during the great depression we nd no principal forgiveness in the sample and only a handful of concessionary mortgage modi cations of other types far more mortgages terminated through foreclosure than received any sort of concessionary modi cation the results indicate that there are signi cant impediments to renegotiation of residential mortgages beyond securitization as such less renegotiation seems unlikely to be a major cost of securitization of residential mortgages

forced asset sales and the concentration of outstanding debt evidence from the mortgage market we provide evidence that lenders differ in their ex post incentives to internalize price default externalities associated with the liquidation of collateralized debt using the mortgage market as a laboratory we conjecture that lenders with a large share of outstanding mortgages on their balance sheets internalize the negative spillovers associated with the liquidation of defaulting mortgages and thus are less inclined to foreclose we provide evidence consistent with our conjecture arguably as a consequence zip codes with a higher concentration of outstanding mortgages experience smaller house prices declines these results are not driven by unobservable zip code or lender characteristics

debt relief and slow recovery a decade after lehman abstract we follow a representative panel of millions of consumers in the united states from 2007 to 2017 and document new facts on the long term effects of the great recession there were about six million foreclosures over this period only a quarter of foreclosed households regained homeownership taking an average four years to do so this persistent loss of homeownership accounts for most of the decline in the u s homeownership rate despite massive stimulus and debt relief policies house prices consumption and unemployment remained below precrisis levels in about half of the zip codes in the united states regions that recovered to precrisis levels took on average four to five years regional variation in the extent and speed of recovery is strongly and persistently associated with frictions affecting the pass through of lower interest rates and debt relief to households

extracting the resource rent from the cdm projects can the chinese government do better the revenue generated from a cdm project in china will be shared by the government and the project owner and is also subject to the corporate income tax this paper studies the impacts of the revenue sharing policy and income tax on the cdm market the economic model presented in this paper shows that higher cost cdm projects will be more affected by the cdm policies than lower cost projects in addition the majority of cers will be generated from lower cost projects this kind of distribution of cers across different types of cdm projects which is in line with the current picture of the cdm market in china is not consistent with the goal of sustainable development a simulation shows that a type by type tax fee scheme would be more effective in assisting sustainable development than the current cdm policies the study also suggests the government use negative tax fee with the type by type scheme to subsidize the cdm projects that generate large sustainability benefits but would otherwise not be developed due to high costs if all of the revenue from the cdm is recycled it is estimated that cers generation will increase by 98 28 mtc mainly from the cdm projects that have substantial sustainability benefits for the host country

nondiscriminating foreclosure and voluntary liquidating costs since liquidation and bankruptcy are costly researchers have tried to find out why the claimants of a troubled firm do not work out a deal to avoid these costs in this article we show that if a creditor has to deal with multiple borrowers who might default it may be optimal for the creditor to randomly reject requests for a loan workout we further demonstrate that the optimal acceptance rate used by a creditor is positively related to the liquidating cost and negatively related to the default benefit our model is particularly relevant when analyzing the default decisions of mortgage borrowers and small business owners copyright 2002 oxford university press