emissions trading and competitiveness pros and cons of relative and absolute schemes emissions trading is a hot issue at national as well as supranational levels proposals for introduction of emissions trading schemes have been made this paper assesses alternative emissions trading schemes at domestic level 1 schemes where the total level of emissions is fixed absolute cap and trade 2 schemes where the allowable level of emissions per firm is related to some firm specific indicator relative cap and trade and 3 mixed schemes which combine elements of the above alternatives we present a quantitative assessment of these alternatives for climate change policy in the netherlands it is concluded that while relative cap and trade would avoid negative effects on competitiveness it would not reduce emissions at the lowest costs besides the addition of a trade system to existing relative standards does not result in additional emission reduction it should be combined with other policy measures such as energy taxes in order to realise further reduction absolute cap and trade leads to efficient emissions reduction but implemented at the national level its overall macroeconomic costs may be significant the mixed scheme has as drawback that it treats firms unequal which leads to high administrative costs we conclude that none of the trading schemes is an advisable instrument for domestic climate policy

trading for the future signaling in permit markets abstract permit markets are celebrated as a policy instrument since they allow i firms to equalize marginal costs through trade and ii the regulator to distribute the burden in a politically desirable way these two concerns however may conflict in a dynamic setting anticipating the regulator s future desire to give more permits to firms that appear to need them firms purchase permits to signal their need this raises the price above marginal costs and the market becomes inefficient if the social cost of pollution is high and the government intervenes frequently in the market the distortions are greater than the gains from trade and non tradable permits are better the analysis helps to understand permit markets and how they should be designed

exploring the price dynamics of co2 emissions allowances in china s emissions trading scheme pilots establishing regional emissions trading scheme pilots in china is a newly transformative and explorative practice in this paper we examine the spot price dynamics asymmetric clustering and regime switching behaviors of co2 emissions allowances in the new china wide emissions trading scheme cets pilots using ar garch ar tarch and mrs ar garch models the regional ets pilots design in china vary widely in their coverage thresholds sector coverage emissions allocation and caps setting methods market trading rules and price stabilization provisions our empirical results indicate that the spot prices of regional emissions allowances exhibit significant dynamic behaviors asymmetric leverage effects and regime switching behaviors in the entire period considered previous market overreactions in the beijing tianjin and guangdong pilots have stronger price clustering effects on future conditional variances than do the shanghai and hubei pilots unexpected market shocks and greater persistence in the beijing tianjin and guangdong ets pilots display stronger market volatility and higher market risks and their asymmetric leverage effects display a decreasing trend in the volatility of the bea tjea and gdea prices the bea and shea prices exhibit significant regime switching behaviors price jumps and higher volatility in addition the changes in the regime switching phases are often related to the political mechanism design and the fundamental market factors those empirical results are beneficial for government decision makers and market participants to strengthen risk management strategies support emission related investment decisions and optimize co benefits of alternative energy environmental policies

inspiration coalition and substitution external influences on postcommunist transformations there has been a recent explosion of interest in the external influences on the political and economic transformations of postcommunist states this article consolidates several analytical advances in this literature and distills three main functions of external actors namely to lengthen the time horizons of postcommunist politicians to expand the circle of interested reformers and to deter opponents of reform the article argues that a focus on external influences is a growth area for good conceptual work only if it addresses the union of foreign and domestic influences rather than treating them as stylized alternative explanations the central point is that outside actors should be considered as striving to influence the choices of existing domestic actors with whom they can be seen to form a kind of informal coalition at bottom outsiders do best through a combination of strategies strengthening domestic actors already committed to their approach winning over new domestic actors to their priorities and preventing the unconvinced from obstructing reforms

impact of pension privatization on foreign direct investment summary we explore the causal effect of market oriented pension reform on net foreign direct investment fdi inflows in latin america and among the transitional economies of eastern europe and central asia both of which have experienced waves of pension privatization and fdi over the last two decades with our balanced panel of 42 countries over the 1991 2006 period we implement fixed effects models controlling for the decision to enact full or partial privatization of the public pension system and several other covariates whose choice is informed by the rich empirical literature on fdi our econometric results indicate that pension privatization triggers a significant increase in net fdi inflows and that the effect does not wane over time we estimate that full privatization increases fdi as a percentage of gdp by about 57 ceteris paribus

theories of policy diffusion lessons from latin american pension reform what accounts for the waves of policy diffusion that increasingly sweep across regions of the world why do many diverse countries adopt similar changes focusing on the spread of chilean style pension privatization in latin america this article assesses the relative merit of four theoretical explanations that scholars of diffusion have proposed as the principal mechanism driving innovations spread these approaches emphasize external pressures emanating especially from international financial institutions the quest for symbolic or normative legitimacy rational learning and cost benefit calculation and cognitive heuristics respectively the article assesses which one of these frameworks can best account for the three distinctive features of diffusion namely its wavelike temporal pattern its geographical clustering and the spread of similarity amid diversity while several approaches contribute to understanding policy diffusion the analysis suggests that the cognitive psychological framework offers a particularly persuasive account of the spread of pension reform

ideas versus resources explaining the flat tax and pension privatization revolutions in eastern europe and the former soviet union this article examines the rapid spread of pension privatization and the flat tax in former communist countries to understand why new policy ideas take hold and to elucidate the role played by mater

on the design of optimal grandfathering schemes for emission allowances to meet its commitment under the kyoto protocol the eu plans to implement an emissions trading system whith grandfathering of allowances besides having distributional impacts the choice of the grandfathering scheme may affect efficiency if firms anticipate how future allocations depend on upcoming decisions in this paper we determine central design rules for optimal grandfathering within a simple two period model we find that for small open trading systems where allowance prices are exogenous first best second period grandfathering schemes must not depend on firm specific decisions in the first period second best schemes correspond to a ramsey rule of optimal tax differentiation and are generally based on both previous emissions and output however ofr closed emissions trading systems i e endogeneous allowance prices firstand second best rules coincide and must not depend on previous output levels they consist of an assignment proportional to the emissions in the first period plus a term which does not depend on firm specific decisions in either of the two periods

myth and reality of flat tax reform micro estimates of tax evasion response and welfare effects in russia we examine the effects of russia s 2001 flat rate income tax reform on consumption income and tax evasion we use the gap between household expenditures and reported earnings as a proxy for tax e

emissions trading with updated allocation effects on entry exit and distribution allocation of emissions allowances may have significant distributional and efficiency effects it is well known that cost efficiency may be achieved if allowances are auctioned or distributed in a lump sum manner e g based on emissions levels before the start of the system grandfathering bohringer and lange eur econ rev 49 2041 2055 2005 show that a cost effective outcome can also be achieved if the base year for allocation is continually updated updating given that banking and borrowing are prohibited in this paper we examine whether updating alters the entry and exit conditions for firms compared to grandfathering and how it affects profits for new and existing firms we find that the two schemes function surprisingly similar first the incentives to entry and exit are identical second the total value of free quotas to existing firms based on emissions before the system starts is also identical without any auctioning with updating initial claims for free allowances have a shorter lifetime compared to grandfathering but quota prices are higher as firms anticipate the effect of current emissions on future claims to free allowances the two effects exactly cancel each other out if there is some combination of auction and free allocation the total value of free quotas will always be highest under grandfathering if the auction rate is the same entry and exit incentives are still equal

designing climate mitigation policy this us paper provides an exhaustive review of critical issues in the design of climate mitigation policy by pulling together key findings and controversies from diverse literatures on mitigation costs damage valuation policy instrument choice technological innovation and international climate policy the authors begin with the broadest issue of how high assessments suggest the near and medium term price on greenhouse gases would need to be both under cost effective stabilization of global climate and under net benefit maximization or pigouvian emissions pricing the remainder of the paper focuses on the appropriate scope of regulation issues in policy instrument choice complementary technology policy and international policy architectures

international actors on the domestic scene membership conditionality and socialization by international institutions international relations scholars increasingly debate when and how international institutions influence domestic policy this examination of ethnic politics in four baltic and east european countries during the 1990s shows how european institutions shaped domestic policy and why these institutions sometimes failed comparing traditional rational choice mechanisms such as membership conditionality with more socialization based efforts i argue that conditionality motivated most behavior changes but that socialization based efforts often guided them furthermore using new case studies statistics and counterfactual analysis i find that domestic opposition posed far greater obstacles to socialization based methods than it did to conditionality when used alone socialization based methods rarely changed behavior when they did the domestic opposition was usually low and the effect was only moderate in contrast incentive based methods such as membership conditionality were crucial in changing policy as domestic opposition grew membership conditionality was not only increasingly necessary to change behavior but it was also surprisingly effective many panel and seminar participants have offered useful comments on this work but my thanks goes in particular to michael zurn alexandra gheciu frank schimmelfennig jeff checkel robert keohane steven wilkinson robert putnam milada vachudova and the editors and anonymous reviewers of international organization i also thank princeton university press for allowing me to use material from my book ethnic politics in europe the power of norms and incentives the usual caveats apply this research was funded by a grant from the danish research academy former forskerakademiet and by travel support from the weatherhead center for international affairs at harvard

incentives and prices in an emissions trading scheme with updating abstract emissions trading schemes where allocations are based on updated baseline emissions give firms less incentive to reduce emissions for a given quota or allowance price nevertheless according to bohringer and lange on the design of optimal grandfathering schemes for emission allowances europ econ rev 49 2005 2041 2055 such allocation schemes are cost effective if the system is closed and allocation rules are identical across firms in this paper we show that the cost effective solution may be infeasible if marginal abatement costs grow too fast moreover if a price cap or banking borrowing is introduced the abatement profile is no longer the same as in the case with an auction or lump sum allocation in addition we show that with allocation based on updated emissions the quota price will always exceed marginal abatement costs possibly misguiding policy makers and investors about abatement costs numerical simulations indicate that the quota price most likely will be several times higher than marginal abatement costs unless a significant share of allowances is auctioned

intergenerational persistence of earnings the role of early and college education recent empirical evidence from the united states indicates a high degree of persistence in earnings across generations designing effective public policies to increase social mobility requires identifying and measuring the major sources of persistence and inequality in earnings we provide a quantitative model of intergenerational human capital transmission that focuses on three sources innate ability early education and college education we find that approximately one half of the intergenerational correlation in earnings is accounted for by parental investment in education in particular early education we show that these results have important implications for education policy

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

the effect on black white wage differences of differences in the quantity and quality of education using data from the national longitudinal survey of youth for the years 1979 88 the author examines the extent to which black white differences in educational attainment educational quality and unmeasured individual ability can explain black white wage differences an analysis that corrects for both selectivity and ability biases inherent in estimating the education wage relationship shows that the main source of the black white wage differential is the racial difference in the quality rather than quantity of schooling in fact the author concludes closing the racial gap in the basic skills learned in school could reduce the wage differential by two thirds

evidence on discrimination in employment codes of color codes of gender there is substantial racial and gender disparity in the american economy as we will demonstrate discriminatory treatment within the labor market is a major cause of this inequality the evidence is ubiquitous careful research studies that estimate wage and employment regressions help wanted advertisements audit and correspondence studies and discrimination suits that are often reported by the news media yet there appear to have been periods of substantial reductions in economic disparity and discrimination for example donohue and heckman provide evidence that racial discrimination declined during 1965 1975 1 gottschalk has produced statistical estimates that indicate that discrimination against black males dropped most sharply between 1965 and 1975 and that discrimination against women declined during the interval 1973 1994 2 but some unanswered questions remain why did the movement toward racial equality stagnate and eventually decline after the mid 1970s what factors are most responsible for the remaining gender inequality what is the role of the competitive process in the elimination or reproduction of discrimination in employment

when can carbon abatement policies increase welfare the fundamental role of distorted factor markets abstract this paper employs analytical and numerical models to assess the welfare effects of a revenue neutral carbon tax and nonauctioned carbon emissions permits taking into account preexisting tax distortions in factor markets the presence of preexisting taxes significantly raises the general equilibrium costs of both policies this cost increase is much greater under emissions permits since this policy does not generate revenues to reduce distortionary taxes under our central estimates emissions permits cannot increase welfare unless environmental damages exceed about 18 per ton of carbon in contrast an appropriately scaled carbon tax is welfare improving so long as environmental damages are positive

a ten year rule to guide the allocation of eu emission allowances abstract member states in the european union eu are responsible for national allocation plans governing the initial distribution of emission allowances in the co2 emission trading system including rules governing allocations to installations that close and to new entrants the european commission has provided guidelines to discourage the use of allocation methodologies that provide incentives affecting firms compliance behavior for example by rewarding one type of compliance investment over another we find that the treatment of closures and new entrants by member states is inconsistent with the general guidelines provided by the eu we propose stronger eu guidance regarding closures and new entrants a more precise compensation criterion on which to justify free allocations and a ten year rule as a component of future eu policy that can guide a transition from current practice to an approach that places greater weight on efficiency

cost effectiveness of renewable electricity policies we analyze policies to promote renewable sources of electricity a portfolio standard rps raises electricity prices and primarily reduces gas fired generation a knee of the cost curve exists between 15 and 20 goals for 2020 in our central case and higher natural gas prices lower the cost of greater reliance on renewables a renewable energy production tax credit lowers electricity price at the expense of taxpayers which limits its effectiveness in reducing carbon emissions and it is less cost effective at increasing renewables than a portfolio standard neither policy is as cost effective as a cap and trade policy for achieving carbon emission reductions

democracy and the washington consensus abstract this paper argues that there is a substantial body of economic advice roughly summarized in the washington consensus that deserves to be endorsed across the political spectrum such endorsement would still leave a series of major economic issues most notably the tradeoff between efficiency and equity to be determined by the outcome of the political process it is argued that the left interpreted as those who give relatively more weight to equity will advance its cause by embracing the mainstream economics summarized by the consensus

economic implications of alternative allocation schemes for emission allowances political feasibility of emission trading systems may crucially depend on the free initial allocation of emission allowances to energy intensive industries in order to ameliorate adverse production and employment effects we investigate the potential trade off between such compensation and economic efficiency for alternative allocation rules where emission allowances are based on either emissions or output based on analytical partial equilibrium and numerical general equilibrium analysis we show that in open trading systems the trade off becomes the more severe the higher the international permit price is whenever the permit price can be considered exogenous to firms or industries the output based allocation rule is distinctly less costly than the emission based rule to preserve output and employment in energy intensive sectors the reason is that emission based allocation of allowances not only provides an implicit output subsidy but also lowers the effective price of emission inputs to regulated firms emissionbased allocation is particularly expensive towards higher international permit prices where the implicit subsidies to emission use in energy intensive sectors produce drastic efficiency losses since they imply high expenditures for carbon permit imports rather than high net revenues from efficient carbon permit exports

the environment as a factor of production the authors develop a model of environmental resource use in production with an empirical analysis of how electric power companies consume and bank sulfur dioxide pollution permits the model considers emissions fuels and labor as variable inputs with quasi fixed inputs of permits and capital incorporating information from permit markets allows the authors to distinguish between user costs and asset shadow values their findings indicate that firms are holding stocks of pollution permits for reasons other than short term cost savings the results also reveal substantial substitution possibilities between emissions permits stocks and other factors of production the authors speculate that anticipated secondary markets for carbon offset inventories related to the flexibility mechanisms of the kyoto protocol will have similar effects for greenhouse gas emitting firms

the effect of allocation above emissions and price uncertainty on abatement investments under the eu ets abstract the european union emission trading scheme eu ets by far the largest in its kind has inspired several other carbon markets in the world based on interviews with plant managers from almost all belgian ceramics lime and cement producers this study describes how manager s perceptions on emission trading affected investment decisions in line with behavioural economics reference dependence is found to explain why free allocation below emissions creates a greater incentive to abatement investment compared to allocation above emissions in the ceramics sector allocation above emissions refrained managers from including carbon gains in payback times this contradicts the famous coase theorem which predicts that free allocation has no effect on abatement incentives the results indicate that auctioning part of the emission rights will reduce barriers to abatement investment carbon price uncertainty is seen as a disincentive for abatement investment by some managers and as an incentive by others intermediate levels of uncertainty add option value to abatement investments because the associated gradual learning adds flexibility in an uncertain carbon constrained future however high levels of uncertainty creating a risk of offshoring even when companies innovate creates an option value to postpone abatement investments narrow framing misperceiving the risk hedging counter cyclicality of carbon costs reinforces the option value to wait therefore policy should aim to reduce price uncertainty for very low and very high carbon prices not for an intermediary price range

the russian flat tax reform in 2001 russia dramatically reduced its higher rates of personal income tax pit establishing a single marginal rate at the low level of 13 in the following year real revenue from the pit increased by about 26 this flat tax experience has attracted much attention and emulation making it perhaps the most important tax reform of recent years but it has been little studied this paper asks whether the strong performance of pit revenue was itself a consequence of this reform using both macro evidence and in particular micro level data on the experiences of individuals and households affected by the reform to varying degrees it concludes that there is no evidence of a strong supply side effect of the reform compliance however does appear to have improved quite substantially by about one third according to our estimates though it remains unclear whether this was due to the parametric tax reform or to accompanying changes in enforcement anna ivanova michael keen and alexander klemm

allocation of co2 emissions permits a general equilibrium analysis of policy instruments what are the effects of different ways of allocating co2 emissions permits under a tradable permit scheme numerical simulations show that using the permit revenue to lower existing taxes implies by far the lowest welfare cost but also a large reduction in employment in energy intensive sectors and substantial stranded costs grandfathering the permits compensates owners for losses on stranded investments but comes at a welfare cost and does not mitigate the adjustment imposed on the economy finally distributing the permits according to market shares reduces the degree of sectoral adjustment but also comes at a high welfare cost

the wage earnings impact of historically black colleges and universities author affiliation elton mykerezi department of applied economics university of minnesota twin cities 231 classroom office building 1994 buford avenue st paul mn 55108 6040 usa e mail myker001 umn edu corresponding author bradford f mills department of agricultural and applied economics virginia polytechnic and state university 314 hutcheson hall blacksburg va 24060 usa e mail bfmills vt edu acknowledgment the authors thank george norton julie hotchkiss and two anonymous referees for helpful comments and suggestions funding from the national research initiative competitive grants program usda cress grant number 2003 35401 12915 is also gratefully acknowledged 1 introductionhistorically black colleges and universities hbcus were originally founded to provide postsecondary educational opportunities to blacks since the end of de jure segregation in public education under the supreme court brown v the board of education of topeka 1954 ruling the hbcu mandate has become the subject of considerable debate the supreme court ruling in united states v fordice 1992 may be interpreted to indicate that continued state and federal support of hbcus as racially distinct institutions must be justified by educational benefits beyond the provision of a low cost educational alternative moore 2000 differential post college labor market success is an important indicator of the value of unique hbcu benefits and thus is of considerable interest in terms of postsecondary education policy previous studies by ehrenberg and rothstein 1994 and constantine 1995 1998 use data from the national longitudinal study of the high school class of 1972 to examine the impact of hbcu attendance relative to attendance of other colleges on the wages of blacks however the findings of these studies are somewhat conflicting ehrenberg and rothstein 1994 find a 0 12 wage loss for hbcu attendees relative to their counterparts who attended other four year colleges or universities constantine 1995 on the other hand finds that hbcu attendees realize 38 higher wages than black college attendees at other four year institutions constantine 1998 finds that black males who attend hbcus realize 7 higher wages than black attendees at other four year colleges and universities and that wages would be 25 higher for the general college attendee population of black males with hbcu attendance black females who attend an hbcu show 15 higher wages relative to black females who attended other four year colleges but there are no significant wage gains from hbcu attendance for the general population of black females the conflicting findings in these studies potentially arise from changes in the differential return on hbcu education with post college experience in the labor market as the median age in the ehrenberg and rothstein 1994 sample is 25 years compared to 32 years in the constantine 1995 1998 sample this paper augments the existing literature on the wage earnings impact of blacks hbcu attendance in two important ways first the age earnings profiles of hbcu attendees and other college educated blacks are examined using data from a more recent cohort of blacks in the 1979 national longitudinal survey of youth specifically the current study examines the impact of hbcu attendance on the initial post college wage on the most recent survey wage observation and on the average annual growth rate in wages measuring labor market success by the age earnings profiles of individuals over time provides more complete information about patterns of labor market success than does a wage observation at a single point in time second the study explicitly accounts for the impact of location of hbcus of particular note the distance from one s residence at age 14 years to the nearest hbcu and to other colleges and universities is controlled for in the college selection decision as are the local economic conditions for the individual s place of residence at age 14

invested interests the politics of national economic policies in a world of global finance capital moves more rapidly across national borders now than it has in at least fifty years and perhaps in history this article examines the effects of capital mobility on different groups in national societies and on the politics of economic policymaking it begins by emphasizing that while financial markets are highly integrated within the developed world many investments are still quite specific with respect to firm sector or location it then argues that contemporary levels of international capital mobility have a differential impact on socioeconomic groups over the long run increased capital mobility tends to favor owners of capital over other groups in the shorter run owners and workers in specific sectors in capital exporting countries bear much of the burden of adjusting to increased capital mobility these patterns can be expected to lead to political divisions about whether or not to encourage or increase international capital market integration the article then demonstrates that capital mobility also affects the politics of other economic policies most centrally it shifts debate toward the exchange rate as an intermediate or ultimate policy instrument in this context it tends to pit groups that favor exchange rate stability against groups that are more concerned about national monetary policy autonomy and therefore less concerned about exchange rate stability similarly it tends to drive a wedge between groups that favor an appreciated exchange rate and groups that favor a depreciated one these divisions have important implications for such economic policies as european monetary and currency union the dollar yen exchange rate and international macroeconomic policy coordination