price formation in electricity forward markets and the relevance of systematic forecast errors since the liberalisation of the european electricity sector forward and futures contracts have gained significant interest of market participants due to risk management reasons for pricing of these contracts an important fact concerns the non storability of electricity in this case according to economic theory forward prices are related to the expected spot prices which are built on fundamental market expectations in the following article the crucial impact parameters of forward electricity prices and the relationship between forward and future spot prices will be assessed by an empirical analysis of electricity prices at the european energy exchange and the nord pool power exchange in fact price formation in the considered markets is influenced by historic spot market prices yielding a biased forecasting power of long term contracts although market and risk assessment measures of market participants and supply and demand shocks can partly explain the futures spot bias inefficiencies in the analysed forward markets cannot be ruled out

stochastic modeling of financial electricity contracts abstract we discuss the modeling of electricity contracts traded in many deregulated power markets these forward futures type contracts deliver either physically or financially electricity over a specified time period and is frequently referred to as swaps since they in effect represent an exchange of fixed for floating electricity price we propose to use the heath jarrow morton approach to model swap prices since the notion of a spot price is not easily defined in these markets for general stochastic dynamical models we connect the spot price the instantaneous delivery forward price and the swap price and analyze two different ways to apply the heath jarrow morton approach to swap pricing either one specifies a dynamics for the non existing instantaneous delivery forwards and derives the implied swap dynamics or one models directly on the swaps the former is shown to lead to quite complicated stochastic models for the swap price even when the forward dynamics is simple the latter has some theoretical problems due to a no arbitrage condition that has to be satisfied for swaps with overlapping delivery periods to overcome this problem a practical modeling approach is analyzed the market is supposed only to consist of non overlapping swaps and these are modelled directly a thorough empirical study is performed using data collected from nord pool our investigations demonstrate that it is possible to state reasonable models for the swap price dynamics which is analytically tractable for risk management and option pricing purposes however this is an area of further research

raising children to work hard altruism work norms and social insurance children who can count on support from altruistic parents may not try hard to succeed in the labor market moreover parental altruism makes withdrawal of such support non credible to promote work

social norms and moral hazard the probability of income loss depends on talent and effort effort has positive externalities and therefore individuals are awarded status in proportion to their perceived diligence the social no

individual morality and reputation costs as deterrents to tax evasion abstract empirical evidence suggests some taxpayers never evade evasion increases with the tax rate and evasion decisions are interdependent these findings are not easily explained by the existing theory which models evasion as an independently made amoral gamble this paper uses nonpecuniary costs of evasion to reconcile theory with evidence once individuals are assumed to differ by an honesty characteristic taxpayers dichotomise into groups the more honest of which responds to a tax change as the evidence suggests a further extension is to introduce an endogenous reputation cost this suggests a positive relationship between the number of evaders and the tax rate

pricing of electricity futures based on locational price differences the case of finland abstract we find that the pricing of finnish electricity market futures has been inefficient during the latest 10 years when the trading volumes of electricity price area differentials epads have more than doubled even though the calculated futures premium on epads is related to some risk measures and the variables capturing the demand and supply conditions in the spot electricity markets there has been a significant positive excess futures premium in the finnish market and financial market participants should have been able to utilize this also in economic terms this finding is new and relevant for the participants of the nordic electricity markets also in the future because both the speculative and hedging based trading is increasing in the nordic markets

welfare state disincentives with endogenous habits and norms it is assumed in this paper that habits and social norms constrain the influence of economic disincentives on individual behavior but that these constraints themselves may subsequently be influenced by the very same disincentives it is also assumed that an individual is more likely to obey such habits and norms if many individuals in society do so though such constraints on economic behavior usually recede only gradually in response to changes in economic incentives it is argued that major macroeconomic shocks may drastically speed up the process a ketchup effect these features may generate multiple equilibria and vicious dynamics

social mobility and redistributive politics just like economists voters have conflicting views about redistributive taxation because they estimate its incentive costs differently we model rational agents as trying to learn from their dynastic income mobility experience the relative importance of effort and predetermined factors in the generation of income inequality and therefore the magnitude of these incentive costs in the long run left wing dynasties believing less in individual effort and voting for more redistribution coexist with right wing dynasties this allows us to explain why individual mobility experience and not only current income matters for political attiitudes and how persistent differences in perceptions about social mobility can generate persistent differences in redistribution across countries

understanding welfare stigma taxpayer resentment and statistical discrimination abstract welfare stigma is widely regarded to be of central importance in understanding the impact of welfare programs in their goal of alleviating poverty it affects both the decision to take up benefits and the well being of those who actually do this paper develops alternative models of the determinants of welfare stigma we identify two views a statistical discrimination approach and a taxpayer resentment view we discuss how each may be formalized and derive their implications we then examine what they imply about the relationship between stigma and program design

belief in a just world and redistributive politics international surveys reveal wide differences between the views held in different countries concerning the causes of wealth or poverty and the extent to which people are responsible for their own fate at the same time social ethnographies and experiments by psychologists demonstrate individuals recurrent struggle with cognitive dissonance as they seek to maintain and pass on to their children a view of the world where effort ultimately pays off and everyone gets their just deserts this paper offers a model that helps explain i why most people feel such a need to believe in a just world ii why this need and therefore the prevalence of the belief varies considerably across countries iii the implications of this phenomenon for international differences in political ideology levels of redistribution labor supply aggregate income and popular perceptions of the poor the model shows in particular how complementarities arise endogenously between individuals desired beliefs or ideological choices resulting in two equilibria a first american equilibrium is characterized by a high prevalence of just world beliefs among the population and relatively laissez faire policies the other european equilibrium is characterized by more pessimism about the role of effort in economic outcomes and a more extensive welfare state more generally the paper develops a theory of collective beliefs and motivated cognitions including those concerning money consumption and happiness as well as religion

locational price spreads and the pricing of contracts for difference evidence from the nordic market in electricity markets not only does the risk of substantial price variations over time exist but so does the risk of price variations over space as prices between locations can differ due to transmission congestion to manage this risk contracts for difference cfds i e forwards on the spread between a particular area price and the unconstrained system price were introduced at the scandinavian electricity exchange nord pool at the end of 2000 we empirically investigate the pricing of these cfds over the period 2001 through 2006 and find that cfd prices contain significant risk premia their sign and magnitude however differ substantially between areas and delivery periods because areas are subject to transmission congestion to a varying extent while the relation between risk premia and time to maturity is not uniform for cfds there is a negative relation for implied area and system forwards which can be explained by the relative hedging demand of market participants in addition we find that risk premia of cfds and implied area forwards vary systematically with the variance and skewness of the underlying spot prices this confirms both implications of the bessembinder and lemmon bessembinder h lemmon m l 2002 equilibrium pricing and optimal hedging in electricity forward markets journal of finance 57 1347 1382 model

estimating the co2 abatement cost substitute price of avoiding co2 emission spae by renewable energy s feed in tariff in selected countries abstract many renewable energy policies are looking into new incentives to absorb investments by targeting abating co 2 emission and fixing energy price fluctuation feed in tariff fit is a policy for rebating the amount of generated renewable electricity to investor fit is also defined as a co 2 mitigation policy in electricity generation from renewable sources this paper presents a cost benefit survey that estimates the real produced carbon dioxide for electricity generation in selected countries this study introduces the substitute price of avoiding co 2 emission as an indicator the new indicator shows how much is paid for avoiding co 2 by each selected countries through the fit policy for renewable technologies the amount calculated for solar energy is taken as a case in this paper the result confirms that the fit policy reasonably works for solar energy in absorbing investment however the fit policy claims a large portion of liquidity compared with other approaches hence makes this mechanism inept as a co 2 mitigation policy

optimization of electricity retailer s contract portfolio subject to risk preferences when an electricity retailer faces volume risk in meeting load and spot price risk in purchasing from the wholesale market conventional risk management optimization methods can be quite inefficient for the management of an electricity contract portfolio in this context we develop a multistage stochastic optimization approach which accounts for the uncertainties of both electricity prices and loads and which permits the specification of conditional value at risk requirements to optimize hedging across intermediate stages in the planning horizons our experimental results based on real data from nordpool suggest that the modeling of price and load correlations is particularly important the sensitivity analysis is extended to characterize the behavior of retailers with different risk attitudes thus we observe that a risk neutral retailer is more susceptible to price related than load related uncertainties in terms of the expected cost of satisfying the load and that a risk averse retailer is especially sensitive to the drivers of the forward risk premium

potentials and challenges in implementing feed in tariff policy in indonesia and the philippines abstract located in southeast asia indonesia and the philippines are characterized by a tropical climate and high amounts of rainfall that render their high potential for hydro power and wind energy deployment the volcanic geography of both countries also indicates their high geothermal potential compared with that of other countries and their high solar radiation level makes them suitable areas to establish power plants the present study is an archival statistical overview of the potential generation of renewable energy in indonesia and the philippines and the implementation of the feed in tariff fit policy this research focuses on the challenges encountered by politicians and policymakers and confirms the insufficient production of energy from wind solar and bio gas sources despite the potential and the attempts to deploy fit results show that the role of the government in providing support to investors is not clear in both countries in addition inflation rates have not been calculated however fit has benefitted both countries by preventing degression during the primary years

optimal income transfer programs intensive versus extensive labor supply responses this paper analyzes optimal income transfers for low incomes labor supply responses are modeled along the intensive margin intensity of work on the job and along the extensive margin participation into the labor force when behavioral responses are concentrated along the intensive margin the optimal transfer program is a classical negative income tax program with a substantial guaranteed income support and a large phasing out tax rate however when behavioral responses are concentrated along the extensive margin the optimal transfer program is similar to the earned income tax credit with negative marginal tax rates at low income levels and a small guaranteed income carefully calibrated numerical simulations are provided

review of co2 price in europe using feed in tariff rates abstract the price of carbon emitted by thermal plants has always been a favorite topic of researchers and policy makers a substitute price for co2 is calculated in this study based on real time payments through government tariffs these payments aim to mitigate co2 emission caused by unregulated electricity generation the total co2 produced by the thermal plants of 10 european countries is shown in this study the government s payment for each technology is utilized to clear the final co2 abatement cost the substitute price of avoiding co2 emission spac for each technology and country is estimated spac is basically the price that each country pays to avoid producing co2 the conducted survey shows that the spac of the 10 european countries ranges from 63 to 2951 euros depending on the type of technology used and the country s policy results confirm a competitive payment by governments only for german and uk hydro and uk wind technologies comparison of the countries payments for renewable energies and co2 market price shows that governments incurred an inefficient payment of liquidity as a carbon mitigation policy

hedging local volume risk using forward markets nordic case abstract with focus on the nordic electricity market this paper develops hedging strategies for an electricity distributor who manages price and volume risk from fixed price agreements on stochastic electricity load whereas the distributor trades in the spot market at area prices the financial contracts used for hedging are settled against the system price area and system prices are correlated with electricity load as are price differences in practice however this is often disregarded here we develop a joint model for the area price the system price and the load accounting for correlations and we suggest various strategies for hedging in the presence of local volume risk we benchmark against a strategy that ignores correlation and hedges at expected load as is common practice in the industry using data from 2013 and 2014 for two danish bidding areas we show that our best hedging strategy reduces gross loss by 5 8 and 13 6 and increases gross profit by 3 8 and 9 5 respectively although this is partly due to the inclusion of correlation we show that performance improvement is mainly driven by the choice of risk measure

determining commercially viable two way and one way contract for difference strike prices and revenue receipts abstract in this article we investigate the role that a contract for difference cfd might play in increasing investment in renewable energy in australia two cfd schemes are investigated two way and one way cfd a financial model is developed that determines commercially viable cfd strike prices account is taken of revenue from wholesale electricity market and renewable energy certificate sales capital and operational costs of the project including distribution of funds to holders of equity and debt are also included findings based on analysis of the solar array located at the university of queensland gatton campus in australia is presented employing a typical meteorological year framework the major finding was that government will prefer a two way cfd scheme and single axis tracking solar pv array technology in contrast project proponents will strongly prefer a one way cfd design

hybrid renewable energy support policy in the power sector the contracts for difference and capacity market case study abstract the article employs qualitative methods in contextualizing and conceptualizing the hybrid renewable energy support policy it claims that hybrid policies may combine distinct mechanisms to drive desirable objectives better than traditional policies a policy cycle helps to frame the united kingdom s contracts for difference and capacity market cfd cm scheme as a case study the cfd cm policy emerged to address environmental and energy challenges through the deployment of renewable energy re in a low carbon economy employing liberalization environmental protection is foremost in this scheme the policy combines and improves on the elements of feed in tariff fit and quota obligation qo and strives to solve the problems of these traditional policies it addresses regulatory uncertainty under fit by employing private law mechanics to guarantee above loss reward for low carbon generation and addresses market uncertainty under qo by incentivizing the capacity to supply future low carbon energy based on projected demand hence creating a predictable and stable market it also accommodates other important commitments overall the cfd cm scheme is a hybrid policy that engages the energy market mainly for advancing the end goal of environmental protection to thrive however it needs to meet private sector interests substantially

pricing of contracts for difference in the nordic market abstract the purpose of this paper is to give an introduction to and a pricing analysis of a new forward locational price differential product contracts for difference cfd introduced the 17th of november 2000 at nord pool the nordic electricity exchange to our knowledge there is no literature available of how the nordic cfds are priced the cfd is a forward market product with reference to the difference between the future seasonal area price and system price by using available historical trading prices and spot prices for four seasonal contracts and one yearly contract we analyze the relationships between the contract prices and the value of the underlying asset for the first four seasonal contracts it appears that cfds traded at nord pool are mostly over priced relative to the underlying asset pricing theory for forward contracts explains this by the presence of a majority of risk averse consumers who are willing to pay a risk premium for receiving the future price differential we utilize statistical analysis with regard to the contract prices and the underlying asset and find some interesting relationships the analysis is preliminary due to the fact that the cfd market is relatively new

optimal redistribution with endogenous social norms in this paper we examine the effect of social norms on redistributive policies where social norms are reflected in the degree of work participation among the different skill classes participation is driven both by the material incentives and heterogeneous preferences for leisure of each skill class and by an endogenous social norm results for optimal redistributive taxation show that when the social norm enters as a benefit or cost for participants participation taxes are generally lower than in its absence multiple participation equilibria can occur and an engineered shift from a low to a high participation equilibrium can be pareto improving in the long run

social norms and welfare state dynamics the paper analyses the interaction between economic incentives and work norms in the context of social insurance if the work norm is endogenous in the sense that it is weaker when the population share of beneficiaries is higher then voters will choose less generous benefits than otherwise we also discuss welfare state dynamics when there is a time lag in the adjustment of the norm in response to changes in this population share and show how a temporary shift in the unemployment rate may cause persistence in the number of benefi

generalized social marginal welfare weights for optimal tax theory this paper proposes to evaluate tax reforms by aggregating money metric losses and gains of different individuals using generalized social marginal welfare weights optimum tax formulas take the same form as standard welfarist tax formulas by simply substitut ing standard marginal social welfare weights with those generalized weights weights directly capture society s concerns for fairness without being necessarily tied to individual utilities suitable weights can help reconcile discrepancies between the welfarist approach and actual tax practice as well as unify in an operational way the most prominent alternatives to utilitarianism such as libertarianism equality of opportunity or poverty alleviation jel d60 d63 h21 h23 i38

short term market power assessment in a long term dynamic modeling of capacity investment this paper proposes a dynamic time simulation model for long term generation capacity investment decisions in the presence of either perfect or imperfect electricity market the model is based on system dynamics concept in which the dynamics of capacity construction is traced using the forecast of electricity price cleared in the short term electricity market both the perfect and oligopolistic competitions are considered and a market power index is defined to evaluate the competition level of the electricity market the short term and long term dynamic analysis are used to represent the generation firms behavior in bidding strategy and capacity investment respectively both possibilities of using forward bilateral contracts and application of wind power generation have been assessed individually in the proposed model in order to mitigate the market power the time simulation results derived from a case study demonstrate the effectiveness of the model in illustrating the oligopoly in electricity marketplace and also the alternative decisions to attenuate it such a decision tool enables both the generation firms and the regulators to gain perfect insight into the oligopoly and its consequences in the long term capacity investment in the electricity market