attitudes toward risk and compliance in emission permit markets we investigate the effects of uncertainty and concomitant risk aversion as they impact the incentive structure and subsequent operation of an emissions permit market modeled after the u s s02 market our theoretical results suggest that uncertainty dulls incentives to achieve cost savings through permit trading and inhibits efficient allocation of abatement efforts by firms we test hypotheses in an experimental laboratory setting and find that the irreversibility of investment in abatement technology may present countervailing incentives for potential sellers of permits resulting in a wait and see attitude toward adoption of efficient levels of abatement technology

the winner s curse experiments with buyers and with sellers this paper explores the winner s curse phenomena as it was studied experimentally by kagel and levin experiments with the winner s curse are complicated by the fact that subjects can lose money and the experimenter has only a limited means of collecting it from them thus subjects enjoy only limited liability which has theoretical implications for behavior in the kagel and levin experiments subjects were removed from the bidders competition after losses reached a predetermined value this experimental procedure has unknown implications for the results so ambiguity exists about whether the winner s curse was actually observed in this study their results were replicated in an environment in which subjects were not removed the case in which competitors are sellers is also studied bankruptcy cannot be a problem in sellers competition in both cases the winner s curse is observed thus the limited liability cannot be an explanation for the phenomenon reported by kagel and levin in addition the paper examines the bidding behavior of all individuals and shows that this behavior does not fit any of the tested theories either on the aggregate or individual level the winner s curse did not disappear over time during the conduct of the research

on stationarity and cointegration of international health expenditure and gdp this paper examines stationarity and cointegration of health expenditure and gdp for a sample of 21 oecd countries using data for the period 1960 1997 by applying a test battery that allows robust inference to be made on the stationarity and cointegration issue trend stationarity and no cointegration are tested using new country by country and panel tests not previously applied in this setting new results for country by country and panel tests of non stationarity and cointegration are presented our unit root and trend stationarity results indicate that both health expenditure and gdp are non stationary the no cointegration and cointegration results indicate that health expenditure and gdp are cointegrated

measuring international capital mobility a review many barriers to the international movement of capital across national boundaries have been dismantled over the course of the last 20 years financial integration was greatly enhanced by the removal of capital controls on the part of the united states germany canada switzerland and the netherlands after 1973 the recycling of surpluses to developing countries through the euromarkets in the 1970 s the removal of capital controls in the united kingdom and japan beginning in 1979 financial integration among european community countries including france and italy in preparation for 1992 recent moves toward financial liberalization in smaller countries in the pacific and the steady process of technical and institutional innovation that has proceeded around the world some popular tests of international capital mobility however appear to show anomalous results martin feldstein and charles horioka upset conventional wisdom in 1980 when they concluded that changes in countries rates of national saving had very large effects on their rates of investment and interpreted this finding as evidence of low capital mobility the argument

does globalization affect growth evidence from a new index of globalization the study develops an index of globalization covering its three main dimensions economic integration social integration and political integration using panel data for 123 countries in 1970 2000 it is analysed empirically whether the overall index of globalization as well as sub indexes constructed to measure the single dimensions affect economic growth as the results show globalization indeed promotes growth the dimensions most robustly related with growth refer to actual economic flows and restrictions in developed countries although less robustly information flows also promote growth whereas political integration has no effect

the global side of the investment saving puzzle in this paper we reexamine the long standing and puzzling correlation between national saving and investment in industrial countries we apply an econometric methodology that allows us to separate idiosyncratic correlation at the country level from correlation at the global level in a major break with the existing literature we find no evidence of a long run relationship in the idiosyncratic components of saving and investment we also find that the global components in saving and investments commove indicating that they react to shocks of a global nature

environmental policy incentives to adopt advanced abatement technology abstract we investigate incentives through environmental policy instruments to adopt advanced abatement technology first we study the case where the regulator makes long term commitments to policy levels and does not anticipate arrival of new technology we show that taxes provide stronger incentives than permits auctioned and free permits offer identical incentives and standards may give stronger incentives than permits second we investigate scenarios where the regulator anticipates new technologies we show that with taxes and permits the regulator can induce first best outcomes if he moves after firms have invested whereas this does not always hold if he moves first

instrument choice for environmental protection when technological innovation is endogenous this paper compares qualitatively and quantitatively the welfare effects of emissions taxes auctioned emissions permits and free grandfathered permits when technological innovation is endogenous we find that there is no unambiguous case for preferring any of these policy instruments the relative welfare ranking of instruments depends on the costs of innovation the extent to which innovations can be imitated the slope and level of the marginal environmental benefit function and the number of polluting firms we illustrate the types of situations when there can be significant welfare discrepancies between the policies and when there are not

saving investment correlations and capital mobility on the evidence from annual data this paper evaluates the use of saving investment correlations to measure capital mobility it is argued that the intertemporal approach to the balance of payments predicts that the practice of calculating the correlation coefficient using long term averages of saving and investment shares biases the result toward accepting the hypothesis of capital immobility calculations based on annual data show that the correlation coefficient is much lower and that is varies considerably estimates of intranational capital mobility based on saving and investment shares of u s federal states show that the saving and investment link is much looser within a nation than among nations copyright 1992 by royal economic society

country specific effect in the feldstein horioka paradox a panel data analysis abstract using panel data methods this study leads to a new interpretation of the feldstein horioka paradox a high estimated saving investment coefficient may be due less to low capital mobility than to the existence of specific individual country effects

explaining saving investment correlations national saving and investment rates are highly positively correlated in virtually all countries this is puzzling as it apparently implies a low degree of international capital mobility this paper shows that the observed positive correlation between national saving and investment rates arises naturally within a quantitatively restricted equilibrium model with perfect mobility of financial and physical capital the model is consistent with the fact that saving investment correlations are larger for larger countries but are still substantial for small countries further the model is consistent with the finding that current account deficits tend to be associated with investment booms copyright 1993 by american economic association

the new keynesian phillips curve closed economy versus open economy abstract the paper extends woodford s optimizing models with nominal rigidities chapter 3 of interest and prices foundations of a theory of monetary policy princeton university 2000 unpublished manuscript analysis of the closed economy phillips curve to an open economy with both commodity trade and capital mobility we show that consumption smoothing which comes with the opening of the capital market raises the degree of strategic complementarity among monopolistically competitive suppliers thus rendering prices more sticky and magnifying output responses to nominal gdp shocks

auctions and alternative procedures for allocating pollution rights this paper considers two different types of auctions which the government could use to sell discharge rights 1 an auction where rights are sold for a single clearing price and 2 a special type of discriminating auction that discourages strategic manipulation of bids by individual dischargers based on both theoretical and practical considerations there appears to be a fundamental trade off between reducing the financial burden of rights purchases and eliminating the incentives for strategic behavior very few discharges in either case study would have lower expenses under government sales of rights than under uniform treatment the simulations also suggest that there may be opportunities for strategic behavior under nonincentive compatible procedures because of small numbers of dischargers despite its problems with respect to incentive compatibility the right allocation approach of free distribution followed by exchange may offer the most desirable package of features this approach can yield dischargers savings over the expenses of present uniform regulations as well as provide incentives for efficient allocation of treatment efforts 25 references 1 figure 5 tables

domestic saving and international capital movements in the long run and the short run the evidence and analysis in this paper support the earlier findings of feldstein and horioka 1980 that sustained increases in domestic savings rates induce approximately equal increases in domestic rates of investment new estimates for the post opec period 1974 79 imply that each extra dollar of domestic saving increases domestic investment by approximately 85 cents in a sample of 17 oecd countries an explicit analysis of the problems of identification and simultaneous equations bias suggests that the regression estimates are more relevant as a guide to the long run response of international capital flows than to their short run behavior coefficient estimates based on annual variations in savings and investment are subject to potentially severe simultaneous equations bias that is not present when annual observations are averaged over a decade or more and the regression is estimated with a cross country sample of these averages a portfolio model of international capital allocation that is presented in the paper indicates that the short run change in the rate of net foreign investment in response to a sustained increase in domestic saving is likely to be substantially greater than the ultimate steady state response this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

carbon markets and technological innovation this paper examines the effects of firm level innovation in carbon abatement technologies on optimal cap and trade schemes with and without price controls we characterize optimal cap and trade regulation with a price cap and a price floor and compare it to the special cases of pure taxation and a simple emissions cap innovation shifts the tradeoff between price and quantity based instruments towards quantitybased emissions trading schemes more specifically an increase in innovation effectiveness lowers the optimal emissions cap and leads to relaxed price controls unless the slope of the marginal environmental damage curve is small because of the decrease in the emissions cap innovation in abatement technologies can lead to a higher expected carbon price so as to provide sufficient incentives for private r d investments the expected carbon price decreases once innovative technologies are widely used

capital mobility and the relationship between saving and investment rates in oecd countries abstract this paper considers tests that use data on saving and investment rates to determine the degree of international capital mobility two types of evidence are presented to show that a high correlation between saving and investment rates across oecd countries can be consistent with a high degree of capital mobility this evidence qualifies the conclusions of previous studies and casts doubt on the usefulness of testing hypotheses about capital mobility with data on saving and investment rates

tradeable carbon permit auctions how and why to auction not grandfather abstract an auction of carbon permits is the best way to achieve domestic carbon caps designed to limit global climate change to minimize administrative costs permits would be required at the level of oil refineries natural gas pipe lines natural gas liquid sellers and coal processing plants to maximize liquidity in secondary markets permits would be fully tradable and bankable the government would conduct quarterly auctions a standard ascending clock auction in which price is gradually raised until there is no excess demand would provide reliable price discovery an auction is preferred to grandfathering giving companies permits based on historical output or emissions because it allows reduced tax distortions provides more flexibility in distribution of costs provides greater incentives for innovation and reduces the need for politically contentious arguments over the allocation of rents

adam smith s answer to the feldstein horioka paradox the invisible hand revisited abstract adam smith explained the feldstein horioka paradox arguing that it is the pursuit of security that leads owners of capital to invest at home and that it is the pursuit of security not profit that leads them to promote the good of society

on the dynamic efficiency of bertrand and cournot equilibria abstract this paper compares bertrand and cournot equilibria in a differentiated duopoly with r d research and development competition it shows that cournot competition induces more r d effort than bertrand competition however the price is lower and output is larger in bertrand than in cournot competition furthermore the bertrand equilibrium is more efficient than the cournot equilibrium if either r d productivity is low or spillovers are weak or products are very different if r d productivity is high spillovers are strong and goods are close substitutes then the bertrand equilibrium islessefficient than the cournot equilibrium journal of economic literatureclassification number l13

does global slack matter more than domestic slack in determining u s inflation abstract this paper employs a structural model to estimate whether global output gap has become an important determinant of u s inflation dynamics the results provide support for the relevance of global slack as a determinant of u s inflation after 1985

cointegration of long span saving and investment abstract we find that saving and investment cointegrate in all or most countries in maddison s research memorandum no 443 1991 long span data set by a variety of time series and panel data tests we interpret our results as reflecting current account solvency and not capital immobility

current account solvency and the feldstein horioka puzzle in this paper we suggest an alternative explanation of the high cross section association between shares of saving and investment in gdp which feldstein and horioka 1980 interpret as evidence of low capital mobility in oecd countries saving and investment shares appear to be i i we show that a solvency constraint implies that the current balance is stationary and thus that saving and investment cointegrate with a unit coefficient irrespective of the degree of capital mobility it is this long run relation that the fh cross section regression captures econometric results for 23 oecd countries over the 1960 92 period are consistent with this explanation

opportunity cost for free allocations of emissions permits an experimental analysis an important feature of emissions trading is how emissions permits are allocated the choice between an auction and free allocation should not influence firms production choices nor consumer prices according to economic theory however many parties expect the method of allocation to affect product prices this paper describes an experimental investigation into price determination under a cap and trade program with different allocation methods participants initially display diverse pricing strategies however given a simple economic setting in which earnings depend on behavior we find that subjects learn to consider the opportunity cost of permits and overall behavior moves toward the economic prediction

has the rise in globalization reduced u s inflation in the 1990s juann h hung this article investigates whether increased globalization of the u s economy has helped hold down inflation in the 1990s based on several measures we find that globalization has increased further we find that import prices exert a greater impact on prices of products in industries faced with greater import penetration high foreign excess capacity accounts for much of the recent decline in u s inflation our results suggest that the decline in inflation is explained by the interaction of increased globalization and high excess foreign capacity globalization by itself does not lead to less inflation just greater sensitivity to foreign economic conditions jel e3 i introduction has the rise in globalization helped reduce u s inflation in the 1990s two hypotheses have been proposed for how the rise in globalization may have held down inflation the first is the so called competing goods effect hypothesis which contends that greater competition from foreign producers has limited the ability of domestic producers to raise prices the second hypothesis maintains that excess capacity abroad has helped u s manufactures meet the robust domestic demand in the united states without straining domestic resources and pushing up inflationary pressures this article first lays out a general framework that integrates these two hypotheses and then investigates each of them empirically we find evidence in support of both hypotheses to examine the competing goods effect hypothesis we estimate panel data regressions to find whether import prices have indeed exerted a greater impact on product prices in industries that are faced with greater import penetration the results are affirmative we study the second more general hypothesis by making two inquiries first has the rise in globalization coincided with the breakdown of the traditional phillips curve s ability to predict inflation that began in the early 1990s that is has the united states become considerably more open in the 1990s than in previous years when the phillips curve tracked inflation with reasonable accuracy second has foreign capacity utilization played an important role along with traditional explanatory variables in predicting inflation our empirical evidence suggests that the answers to both inquires are also positive most striking is the finding that by including foreign capacity utilization in the estimation of a phillips curve equation almost all of the missing inflation the difference between actual inflation and predicted inflation based on the traditional phillips curve since 1994 disappears our findings suggest that the interaction of slack foreign economic conditions and greater openness to trade may have helped tame the u s inflation in the 1990s but globalization alone has not permanently reduced the threat of recession or inflation indeed greater globalization may even help increase inflation when the u s and foreign economic expansions are synchronized no single researcher has looked at all of the questions posed in this article but each question has been investigated separately before krugman 1994 1995 and irwin 1996 have looked at whether the united states has become more globalized over the past decade they find that trade with the rest of the world is not a significant or rapidly growing influence on the u s economy the question of whether prices of foreign goods influence domestic prices through the competing goods effect has been investigated by swagel 1997 he finds a statistically significant but small impact in 10 of the 19 industries in his sample similarly slaughter and swagel 1997 find that increased globalization has had only a modest impact on wages in industrialized economies finally orr 1994 and tootel 1998 find very little or no impact of foreign capacity utilization on domestic inflation

globalization and the feldstein horioka puzzle capital account liberalization and the integration of world financial markets should increase capital mobility across countries this article uses the feldstein horioka savings investment methodology to examine the impact of economic globalization on the degree of capital mobility in 99 countries over the period 1970 to 2005 our findings suggest that economic openness and financial market integration have led to increased capital mobility in developed as well as developing countries however their effect appears to be larger for the latter this also implies that countries with more financial openness can run higher current account deficits due to better access to external capital markets our results also support the previous findings that foreign aid supplements domestic savings for investment in developing countries

panel stationarity tests for purchasing power parity with cross sectional dependence we investigate the purchasing power parity ppp hypothesis for a group of 17 countries using a new panel based test of stationarity that allows for arbitrary cross sectional dependence we treat the short run time series dynamics nonparametrically and thus avoid the need to fit separate and potentially misspecified models for the individual series the statistic is simple to compute and uses standard normal critical values even in the presence of a wide range of different deterministic components we also evaluate the behavior of the test using a factor model to approximate cross sectional dependence and find that it generally improves finite sample performance taken together these features provide a widely applicable solution to the problem of testing for stationarity versus unit roots in macro panel data the test finds significant evidence against the ppp null hypothesis being true even when allowance is made for structural breaks

dynamic incentives by environmental policy instruments a survey abstract in this paper i survey and discuss recent developments on the incentives provided by environmental policy instruments for both adoption and development of advanced abatement technology a main conclusion to be drawn from the literature is that under competitive conditions market based instruments usually perform better than command and control moreover taxes may provide stronger long term incentives than tradable permits if the regulator is myopic if the government can anticipate new technology or is able to react on it optimally regulatory policies by virtue of administered prices taxes and policies by setting quantities issuing tradable permits are almost equivalent the literature also shows that under competitive conditions there is no difference between auctioning permits and grandfathering moreover timing and commitment of environmental policy is not crucial for adoption under competitive conditions commitment has positive incentive effects however if an r d sector has market power in the presence of market imperfections the ranking of the different policy instruments is ambiguous

heterogeneity irreversible production choices and efficiency in emission permit markets abstract this paper investigates a class of market mechanisms for environmental regulation based on the clean air act tradable discharge permit program laboratory market experiments capture some of the more salient institutional features and focus on issues of firm technological heterogeneity and irreversible investment regarding the operation of the permit market experimental results suggest that higher degrees of abatement cost heterogeneity may lead to reduced trade volume while the implications of increased cost heterogeneity regarding price volatility are mixed finally increased cost heterogeneity appears to result in decreased laboratory efficiency

saving investment and capital mobility in eu member countries a panel data analysis of the feldstein horioka puzzle in this paper we reexamine the long standing and puzzling correlation between national saving and investment in 14 european union eu countries we employ a panel data set for the period 1970 201

dynamic efficiency in experimental emissions trading markets with investment uncertainty this study employs a laboratory experiment to assess the performance of tradable permit markets on dynamic efficiency arising from cost reducing investment the permit allocation rule is the main treatment variable with permits being fully auctioned or grandfathered the experimental results show significant investment under both allocation rules in the presence of ex ante uncertainty over the actual investment outcome however auctioning permits generally provides stronger incentives to invest in r d leading to greater dynamic efficiency compared to grandfathering

savings investment and international capital flows abstract the high correlation between national savings and domestic investment rateshas been interpreted as evidence that capital is not internationally mobile this paper surveys the theory and evidence on the relationship between savings and investment in a sample of 23 oecd countries a positive correlation between savings and investment rates is found in both the short and long runs however a wide variety of models generate such co movements in savings and investment in response to exogenous disturbances even under conditions of complete financial markets thus the savings investment correlation provides little evidence on the question of international capital mobility

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite

trade linkages and the globalisation of inflation in asia and the pacific abstract some observers argue that increased real integration has led to greater co movement of prices internationally we examine the evidence for cross border price spillovers among economies participating in the pan asian cross border production networks starting with country level data we find that both producer price and consumer price inflation rates move more closely together between those asian economies that trade more with one another ie that share a higher degree of trade intensity next using a novel data set based on the world input output database wiod we examine the importance of the supply chain for cross border price spillovers at the sectoral level we document the increasing importance of imported intermediate inputs for economies in the asia pacific region and examine the impact on domestic producer prices of changes in costs of imported intermediate inputs our results suggest that real integration through the supply chain matters for domestic price dynamics in the asia pacific region

capital mobility and global factor shocks this paper focuses on the effects of global factors on the saving investment relationship we prove that if investments and savings are affected by idiosyncratic and global components they must be cointegrated to obtain reliable estimates of the saving retention coefficient when global shocks are taken into account through common factors we find that the estimated saving retention coefficient is close to zero for a panel of 21 oecd countries

the overvaluation of purchasing power parity abstract recent panel studies of purchasing power parity have reported strong evidence of mean reversion in real exchange rates however these studies fail to control for cross sectional dependence in the data this failure has dramatic consequences raising the significance level of tests with a nominal size of 5 percent to as much as 50 percent it is shown in this paper that controlling for cross sectional dependence no evidence against the random walk null can be found in panels of up to 64 real exchange rates this finding cannot be attributed to low power as there is ample power in panels of this size to reject the unit root null