partnerships lemons and efficient trade we analyze the possibility of efficient trade with informationally interdependent valuations and with a dispersed ownership a crucial role is played by the sign of the derivatives that measure how valuation functions depend on others signals if valuations are increasing functions of other agents signals it is more difficult to achieve efficient trade with interdependent values than with private values where the respective derivatives are zero in contrast if valuations are decreasing functions of other agents signals it is easier to achieve efficient trade with interdependent values our results unify and generalize the insights of cramton et al 1987 myerson and satterthwaite 1983 and akerlof 1970

efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

tax distortions and global climate policy abstract we consider the efficiency implications of policies to reduce global carbon emissions in a world with pre existing tax distortions we first note that the weak double dividend the proposition that the welfare improvement from a tax reform where environmental taxes are used to lower distorting taxes must be greater than the welfare improvement from a reform where the environmental taxes are returned in a lump sum fashion need not hold in a world with multiple distortions we then present a large scale computable general equilibrium model of the world economy with distortionary taxation we use this model to evaluate a number of policies to reduce carbon emissions we find that the weak double dividend is not obtained in a number of european countries results also demonstrate the point that the interplay between carbon policies and pre existing taxes can differ markedly across countries thus one must be cautious in extrapolating the results from a country specific analysis to other countries

ex ante incentive efficient trading mechanisms without the private valuation restriction abstract the private valuation assumption found in most trading mechanism design papers rules out markets whose valuation structure generates externalities between traders this paper characterizes the set of ex ante incentive efficient trading mechanisms for a large class of markets that do admit such externalities and for bilateral trade markets establishes the impossibility of a first best solution across a class of trading problems employing uniform priors and linear valuation structures this paper also compares levels of market efficiency for varying numbers of traders

property rights and efficiency of voluntary bargaining under asymmetric information we show that in public good problems under asymmetric information the success of voluntary bargaining is closely related to the structure of property rights we characterize property rights structures and mediated bargaining procedures that either lead to an efficient voluntary resolution to public good problems or achieve the efficient outcome but slightly coerce the agents into participation in this respect we identify efficient property rights structures in this paper we show that in public good problems under asymmetric information the success of any voluntary bargaining procedure is closely related to the structure of property rights in the economy for clarity of exposition we focus our attention on the following example in a town inhabited by n residents a firm is considering whether to operate a factory that generates pollution as an inevitable by product a higher level of production generates a correspondingly higher level of pollution the firm s profits are increasing with the level of production and the welfare of the residents is decreasing with the level of pollution the firm s profitability and residents preferences are assumed to be private information the structure of property rights specifies the level of pollution that the firm is entitled to emit into the environment for every such economy we describe and prove the existence of efficient property rights structures we characterize property rights structures and voluntary mediated bargaining procedures that maximize the sum of residents utilities and the firm s profit and thus lead to an efficient resolution to the public good problem furthermore we show that these efficient property rights structures are robust to changes in the underlying environment this suggests that the combination of efficiency minded legislation that would set the initial structure of property rights appropriately and a mediator who would base his recommendations on an efficient decision mechanism could facilitate the achievement of the efficient outcome under some circumstances however we show that the mediated voluntary bargaining procedure has to be replaced by compulsory arbitration that coerces agents into agreement we provide results that show that when the efficient property rights structure is adopted the degree of coercion that is necessary to obtain the efficient outcome is small thus in contrast to rob 1989 and mailath and postlewaite 1 our results apply to any public good problem where the costs and benefits of providing the public good are monotonically increasing in the level of provision and where some additional restrictions to be specified later are imposed on the form of the utility and profit functions and on the information structure

technological leadership and persistence of monopoly under endogenous entry static versus dynamic analysis abstract we build a dynamic oligopoly model with endogenous entry in which a particular firm leader invests in an innovation process facing the subsequent entry of other firms followers we identify conditions that make it optimal for the leader in the initial oligopoly situation to undertake pre emptive r d investment strategic predation eventually resulting in the elimination of all followers compared to a static model the dynamic one provides new insights into the leader s intertemporal investment choice its optimal decision making and the dynamics of the market structure over time we also contrast the leader s investment decisions with those of the social planner

climate policies in a second best world a case study on india abstract the aim of this article is to analyze the potential for synergies between climate policies and development in a case study on india focusing on the power sector sub optimalities to do so we use imaclim r a dynamic recursive energy economy model that represents a second best world with market imperfections and short run adjustments constraints along a long term growth path the analysis suggests i global carbon pricing induces prohibitive macroeconomic costs for the indian economy even in the case of significant financial transfers associated with a global cap and trade system and a contraction and convergence in 2100 allocation scheme and ii the most cost efficient climate policies are not uniform carbon pricing only the implementation of domestic policies suited to the national context for instance targeting sub optimalities in the power sector for india allows reducing significantly the macroeconomic costs induced by international mitigation policies

inflexible rules in incentive problems in practice contracts involve standard terms or rules allowing for variations only under exceptional circumstances we develop a simple model in which optimal contracts display this feature even in the absence of transactions costs rules arise when an agent has countervailing incentives to misrepresent private information these incentives are created by endowing the agent with a critical factor of production ex ante applications in regulatory labor and legal settings

environmental taxation and unemployment some evidence on the double dividend hypothesis in europe abstract the employment double dividend hypothesis suggests that an appropriately designed fiscal reform in which emission charges are used to subsidize employers social security contributions may realize at least two relevant policy goals a better quality of the environment and at the same time an increase in employment levels this paper uses a newly developed econometric general equilibrium model for the european union as well as for each member country and presents simulation results up to the year 2010 of the effects of a european carbon tax the revenues from which are recycled to reduce employers social security contributions the results show that recycling carbon tax revenues may provide an employment double dividend only in the short run

the problem of global environmental protection what distinguishes global common property problems and global unidirectional externalities from the ones that arise under a single jurisdiction is that there is no global authority empowered to intervene and regulate use of global environmental resources cooperation is needed the paper discusses when cooperation is most needed and how it might be obtained cooperation might emerge from a noncooperative setting if supergames are played if the actions of any one country are explicitly contingent on the actions undertaken by other countries or if moral concerns lead countries to consider the consequences of their actions for others cooperation emerges in an explicit though limited form when countries commit to regulate themselves in signing international agreements in these cases the signatories cooperate but the agreements are self enforcing an attempt is made to relate these theoretical concepts to the practice of global environmental protection copyright 1990 by oxford university press

mechanism design with interdependent valuations efficiency ggagents valuations are interdependent if they depend on the signals or types of all agents under the implicit assumption that agents cannot observe their outcome decision payoffs previous literature has shown that with interdependent valuations and independent signals efficient design is impossible this paper shows that an efficient mechanism exists in an environment where first the final outcome e g allocation of the goods is determined then the agents observe their own outcome decision payoffs and then final transfers are made

selected international aspects of carbon taxation in accord with the principle of common but differentiated responsibilities cbdr in the un framework convention on climate change fccc the kyoto protocol did not require developing countries to reduce greenhouse gas ghg emissions because producers in exempt countries would have an artificial competitive advantage the united states rejected the protocol also increased emissions in exempt countries could partially offset the actions of countries reducing emissions creating competition related carbon leakage leakage also occurs if lower fossil fuel consumption in non exempt countries leads to lower world fuel prices and increased fuel consumption in exempt countries this type of leakage which most models show exceeds competition related leakage is not considered here nor are possible sources of negative leakage post kyoto voluntary approaches also risk negative competitive effects and leakage because of fears of competitive effects and leakage the possibility of imposing border carbon adjustments bcas was included in us legislative proposals for a cap and trade system and in a directive modifying the european union s emissions trading system ets imports would pay the same carbon price as domestic products and exports might be exempt but bcas involve serious economic and administrative issues also developing countries which objected to the eu s attempt to extend the ets to international aviation might challenge

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

property rights and the efficiency of bargaining we show that efficient bargaining is impossible for a wide class of economic settings and property rights these settings are characterized by i the existence of adverse efficient opt out types whose participation does not change the efficient allocation and who when they opt out are the worst type other agents can face and ii non existence of the marginal core and its multivaluedness with a positive probability we also examine the optimal allocation of property rights within a given class that satisfies i such as simple property rights liability rules and dual chooser rules we characterize property rights that minimize the expected subsidy required to implement efficiency with two agents simple property rights that are optimal in this way maximize the expected surplus at the status quo allocation but this no longer holds with more agents we also study second best budget balanced bargaining under a liability rule the optimal second best liability rule may differ from but is often close to the expectation of the victim s harm which would be optimal if there were no bargaining however liability rules that are close to a simple property right result in a lower expected surplus than the simple property right they are near

on countervailing incentives abstract this paper extends and unifies previous work on optimal contracts under countervailing incentives shedding light in particular on the relation between countervailing incentives and pooling inflexible rules our main result is that the nature of the optimal contract depends crucially on whether the agent s utility is quasiconcave or quasiconvex in the private parameter the optimal contract is separated in the former case and it may entail pooling in the latter case journal of economic literature classification number d82

information revelation in the property right theory of the firms abstract i incorporate revelation of asymmetric information through shared ownership partnership into the property right theory of the firms shared ownership is optimal as a joint result of mitigating hold up and inducing truthful information revelation due to the incomplete contracting nature shared ownership is incentive compatible if it induces truthful information revelation within the relationship as well as when the relationship breaks off the equilibrium path incentive compatibility results in the optimality of partnership even for the most efficient type of the informed party inefficient investment thus arises the level of shared ownership depends on the relative magnitude of the information rent effect and the hold up effect shared ownership is robust to semi truthful information revelation under which hold up occurs in equilibrium with an endogenously determined probability related to the revelation strategy

the political economy of an energy tax the united kingdom s climate change levy energy taxes designed to control energy consumption and to assist the achievement of climate change control targets under the kyoto protocol are fairly common in european union countries yet many of these taxes bear little resemblance to the design guidance that is given in economics textbooks political economy analysis in which the interaction of economics and political reality is emphasised explains the gap between theoretical ideals and practical reality a closer look at the factors that influence real world policy design should help policy oriented economists in designing measures that have a greater chance of adoption the end result may well be nth best solutions which simply have to be lived with but there may also be room for design improvements that still honour the political constraints of policy design this paper illustrates these issues in the context of one tax the uk climate change levy

pretrial bargaining and the design of fee shifting rules legal rules for allocating the private costs of civil litigation or fee shifting rules provide powerful incentives for settlement within the context of a direct revelation mechanism the fee shifting rule that generates the highest probability of settlement bases the allocation of costs upon the proximity of the court s award to the pretrial announcements this mechanism resembles rule 68 of the federal rules of civil procedure and other offer based rules in a simple extensive form game if the litigants have asymmetric information about the level of damages probability of prevailing then rule 68 increases decreases the settlement rate

participation constraints in adverse selection models abstract this paper characterizes the optimal contract offered by an uninformed principal to an informed agent when the latter s reservation utility depends on his type the informational rent is nonmonotonic so that interior types may have a vanishing rent or be excluded from trade the paper identifies conditions for the optimal contract to be separating to be nonstochastic and to induce full participation it also discusses the nature of the solution when bunching occurs the results are applied to nonlinear pricing under price cap regulation and bypass competition and to competition in nonlinear pricing journal of economic literature classification numbers d82 d42 d23 d78 l51 l15

resale markets and the assignment of property rights the consumption of an indivisible good causes identity dependent externalities to non consumers we analyse resale markets where the current owner designs the trading procedure but cannot commit to future actions we ask the following questions 1 doer the identity of the initial owner matter for the determination of the final consumer 2 is the outcome always efficient the major conclusion of our paper is that the irrelevance of the initial structure of property rights arises in resale processes even if there are transaction costs that hinder efficiency this result complements the coasian view where the irrelevance of the assignment of property rights is a consequence of efficiency

carbon taxes and carbon emissions trading this paper surveys the literature on and examples of current implementation of carbon taxes and carbon emission permits it sets out the theoretical basis for these instruments with special reference to the revenue recycling and tax interaction effects this theoretical work concludes that instruments which raise revenue which can be recycled so as to reduce pre existing distortionary taxes are significantly less costly than those which do not the paper then reviews the sizable literature on the distributional effects of these instruments especially with regard to industrial competitiveness and regressive effects on low income groups evaluating attempts to mitigate these where they are perceived as unacceptable the paper concludes that such efforts at mitigation while possible can substantially reduce the efficiency benefits of the instruments the projected costs of carbon taxes depend on a wide range of assumptions this is still a contested area but the paper concludes that on a range of plausible assumptions these costs need not be high finally the paper notes that early evaluations of the environmental effectiveness of carbon taxes have been generally positive this suggests that if concern about anthropogenic climate change continues to increase more countries will introduce carbon taxes and emission permits with the latter increasingly auctioned

partnership dissolution with interdependent values we study partnership dissolution when valuations are interdependent and only one party is informed in contrast with the case of private values cramton gibbons and klemperer 1987 in which efficient trade is feasible whenever initial shares are about equal there exists a wide class of situations in which full efficiency cannot be reached in these cases i the subsidy required to restore the first best is minimal when the entire ownership is allocated initially to one of the parties and ii ruling out external subsidies the second best welfare is maximized when one of the parties initially has full ownership

how effective are us renewable energy subsidies in cutting greenhouse gases the federal tax code provides preferential treatment for the production and use of renewable energy we report estimates of the subsidies effects on greenhouse gases ghg emissions developed in a recent national research council nrc report due to lack of estimates of the impact of tax provisions on ghg emissions new modeling studies were commissioned the studies found at best a small impact of subsidies in reducing ghg emissions in some cases emissions increased the nrc report also identified the need to capture the complex interactions among subsidies pre existing regulations and commodity markets

targets for global climate policy an overview a survey of the economic impact of climate change and the marginal damage costs shows that carbon dioxide emissions are a negative externality the estimated pigou tax and its growth rate are too low to justify the climate policy targets set by political leaders a lower discount rate or greater concern for the global distribution of income would justify more stringent climate policy but would imply an overhaul of other public policies catastrophic risk justifies more stringent climate policy but only to a limited extent

countervailing incentives in agency problems abstract we analyze countervailing incentives in agency problem countervailing incentives exist when the agent has an incentive to understate his private information for some of its realizations and to overstate it for others when countervailing incentives arise pooling generally characterizes the equilibrium contract furthermore performance is distorted both above and below efficient levels in addition the agent s rents generally increase with the realization of his private information over some ranges and decrease over other ranges we demonstate that the creation of countervailing incentives can enhance aggregate welfare

foreign direct investment and environmental regulations a survey this paper presents a survey of the literature on the relationship between foreign direct investment fdi and environmental policy first i focus on empirical studies that analyse the impact of environmental costs on foreign investment locations next i review the main studies that attempt to explain the lack of evidence for the pollution haven hypothesis then i discuss the literature on the impact of fdi on local environmental regulations by concentrating on two recent political economy models finally i conclude by summarizing the main findings of the literature and suggesting some future research directions

a dark side of social capital kinship consumption and savings abstract we explore whether traditional sharing norms in kinship networks affect consumption and accumulation decisions of poor black households in kwazulu natal south africa using a proxy for the number of family dependents our results are consistent with the interpretation that households try to evade their sharing obligations by i accumulating durables that are non sharable at the expense of durables that may be shared and ii reducing savings in liquid assets by attenuating accumulation incentives kinship sharing may come at the expense of income growth if so a culturally induced poverty trap can possibly eventuate we demonstrate tentative evidence that more extensive kinship networks are associated with lower incomes

a regional dynamic general equilibrium model of alternative climate change strategies outcomes and noncooperative equilibria this study finds that cooperative policies show much higher levels of emissions reductions than do noncooperative strategies that there are substantial differences in the levels of controls in both the cooperative and the noncooperative policies among different countries and that high income countries may be the major losers from cooperation jel h41 q4 q2 q20

the structure of the climate debate first best climate policy is a uniform carbon tax which gradually rises over time civil servants have complicated climate policy to expand bureaucracies politicians to create rents environmentalists have exaggerated climate change to gain influence other activists have joined the climate bandwagon opponents to climate policy have attacked the weaknesses in climate research the climate debate is convoluted and polarized as a result and climate policy complex climate policy should become easier and more rational as the paris agreement has shifted climate policy back towards national governments changing political priorities austerity and a maturing bureaucracy should lead to a more constructive climate debate

challenges from state federal interactions in us climate change policy with a focus on two sorts of regulation renewable electricity and clean energy standards and automobile fuel economy standards we analyze problematic interactions that arise when state policies are nested within the domain of federal policy here state efforts may fail to reduce greenhouse gas emissions nationally and may compromise cost effectiveness difficulties from overlapping regulations are avoidable through price as opposed to quantity based federal policy we identify some potentially positive interactions between state and federal policies and identify rationales for state action when federal and state policies do not overlap

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

international aspects of pollution control pollution is a by product of production is only gradually dissolved by the environment and crosses national borders the market outcome ignores the adverse effects of pollution and thus yields higher levels of output and pollution than would prevail under a supranational social planner which does care about pollution in practice governments often do not cooperate and this leads to outcomes of pollution and production in between the market outcomes and the outcomes under supra national social planning absence of precommitment leads to lower emission charges less cleaning up activities and more pollution appropriate levels of emission charges under the various outcomes are a result of this analysis attention is also paid to investment in clean technology the debate between optimists who believe that higher production is compatible with sound environmental policy and pessimists can be analysed in this way