endogenous growth convexity of damage and climate risk how nordhaus framework supports deep cuts in carbon emissions to slow or not to slow nordhaus 1991 was the first economic appraisal of greenhouse gas emissions abatement and founded a large literature on a topic of worldwide importance we offer our assessment of the original article and trace its legacy in particular nordhaus s later series of dice models from this work many have drawn the conclusion that an efficient global emissions abatement policy comprises modest and modestly increasing controls we use dice itself to provide an initial illustration that if the analysis is extended to take more strongly into account three essential elements of the climate problem the endogeneity of growth the convexity of damage and climate risk optimal policy comprises strong controls

rebates matches and consumer behavior an experiment conducted to examine the effects of different discount formats on consumer purchases is reported participants made a series of purchase decisions for chocolate bars given 1 rebates from the listed price 2 matching quantities of chocolates for each bar purchased and 3 simple price reductions contrary to standard theoretical predictions and consistent with results in the context of charitable contributions by eckel and grossman 2003 we find that participants purchase significantly more chocolate bars under a matching sales format than under a comparable rebate format inattention to the net consequences of decisions as well as some rebate aversion explain the preference for matching discounts

stability of zero growth economics analysed with a minskyan model abstract as humanity is becoming increasingly confronted by earth s finite biophysical limits there is increasing interest in questions about the stability and equitability of a zero growth capitalist economy most notably if one maintains a positive interest rate for loans can a zero growth economy be stable this question has been explored on a few different macroeconomic models and both yes and no answers have been obtained however economies can become unstable whether or not there is ongoing underlying growth in productivity with which to sustain growth in output here we attempt for the first time to assess via a model the relative stability of growth versus no growth scenarios the model employed draws from keen s model of the minsky financial instability hypothesis the analysis focuses on dynamics as opposed to equilibrium and scenarios of growth and no growth of output gdp are obtained by tweaking a productivity growth input parameter we confirm that with or without growth there can be both stable and unstable scenarios to maintain stability firms must not change their debt levels or target debt levels too quickly further according to the model the wages share is higher for zero growth scenarios although there are more frequent substantial drops in employment

economic growth income distribution and climate change we present a model based on keynesian aggregate demand and labor productivity growth to study how climate damage affects the long run evolution of the economy climate change induced by greenhouse gas lowers profitability reducing investment and cutting output in the short and long runs short run employment falls due to deficient demand in the long run productivity growth is slower lowering potential income levels climate policy can increase incomes and employment in the short and long runs while a continuation of business as usual leads to a dystopian income distribution with affluence for few and high levels of unemployment for the rest

climate change financial stability and monetary policy using a stock flow fund ecological macroeconomic model we analyse i the effects of climate change on financial stability and ii the financial and global warming implications of a green qe programme emphasis is placed on the impact of climate change damages on the price of financial assets and the financial position of firms and banks the model is estimated and calibrated using global data and simulations are conducted for the period 2015 2115 four key results arise first by destroying the capital of firms and reducing their profitability climate change is likely to gradually deteriorate the liquidity of firms leading to a higher rate of default that could harm both the financial and the non financial corporate sector second climate change damages can lead to a portfolio reallocation that can cause a gradual decline in the price of corporate bonds third financial instability might adversely affect credit expansion and the investment in green capital with adverse feedback effects on climate change fourth the implementation of a green qe programme can reduce climate induced financial instability and restrict global warming the effectiveness of this programme depends positively on the responsiveness of green investment to changes in bond yields

the financial instability hypothesis a stochastic microfoundation framework this paper examines the dynamics of financial distress and in particular the mechanism of transmission of shocks from the financial sector to the real economy the analysis is performed by representing the linkages between microeconomic financial variables and the aggregate performance of the economy by means of a microfounded model with firms that have heterogeneous capital structures the model is solved both numerically and analytically by means of a stochastic approximation that is able to replicate quite well the numerical solution these methodologies by overcoming the restrictions imposed by the traditional microfounded approach enable us to provide some insights into the stabilization policies which may be effective in a financially fragile system

an integrated biophysical and economic modeling framework for long term sustainability analysis the harmoney model abstract this paper derives a long term dynamic growth model that endogenously links biophysical and economic variables in a stock flow consistent manner the two industrial sector harmoney human and resources with money model enables exploration of interdependencies among resource extraction rate and depletion the accumulation of population capital and debt and the distribution of money flows within the economy using a post keynesian economic framework we find that wage share declines after the model reaches a constant per capita resource extraction rate with the level of investment and markup on costs determining the rate of decline this pattern is consistent with data for the united states thus the model framework enables realistic investigation of trade offs between economic distribution size and resources consumption between sectors as well as between labor and capital these trade offs are core to the debates regarding environmental and socioeconomic sustainability this model serves as a platform upon which to add features to explore long term sustainability questions such as a transition to low carbon energy

the price elasticity of warm glow giving abstract we examine the charitable giving behavior of warm glow givers in response to the same donation incentive structure but with formally different schemes at this aim we implement a large online survey n 1655 using the amazon mechanical turk platform first we elicit and measure warm glow giving then we employ a between subjects design in which each warm glow donor n 881 is randomly assigned to one of two treatment groups that differ for the subsidy rebate or matching and is asked to make a series of allocation decisions between himself and a charity of his choice the results show that contributions are significantly more responsive to matching 1 15 than to rebate subsidies 0 17 moreover we provide evidence that under rebate price elasticity decreases as the warm glow magnitude increases for weak warm glow givers price elasticity is double that for strong warm glow donors

bankruptcy limited liability and the modigliani miller theorem this paper examines the validity of the modigliani miller theorem in the presence of bankruptcy the theorem asserts that the value of a firm and the set of return patterns that the capital markets offer to private investors are independent of firm debt equity ratios the usual proof of the theorem is based on the presumption that in perfect capital markets borrowing by firms and borrowing by individuals can be perfect substitutes it is unclear whether this presumption is valid when there is a positive probability that either the firm or the individual who borrows to invest in the firm goes bankrupt on the one hand joseph stiglitz 1969 and robert merton have argued that the modigliani miller theorem remains valid even with bankruptcy if agents who borrow to invest in a firm can limit their liability to the amount of collateral they put up on the other hand vernon smith 1972 has argued that a margin loan which is secured by a pure equity collateral has a different return pattern from a direct loan to the firm and cannot serve as a substitute for the latter see also david baron smith s argument raises a number of issues first it brings out the important fact that return patterns for limited liability borrowing and lending depend on the composition of the portfolio that serves as collateral if a firm goes bankrupt a pure equity collateral is worthless whereas a collateral that contains some bonds may still earn a positive return because the bonds have a privileged claim to the firm s remaining assets in general margin contracts with different collateral compositions will generate different return patterns both for the borrower and the lender given this multiplicity of return patterns on margin loans one would not expect that all margin loans can be used as substitutes for direct loans to the firm this intuition is confirmed by smith s demonstration that a particular margin loan namely the loan on pure equity collateral cannot serve this purpose the question remains open whether this is actually needed for the modiglianimiller theorem it might be enough if some appropriate margin loan could be used as a substitute for lending to the firm in pursuing this problem one finds a gap in the standard proof of the modiglianimiller theorem usually one applies an arbitrage argument to show that as a firm changes its debt equity ratio investors in shares and bonds adjust their portfolios so as to leave their overall return patterns unchanged no such arguments are given for other securities related to the firm in particular for margin investments and for margin loans that serve to finance those margin investments without an analysis of professor of economics university of bonn research on this paper was supported by nsf grant soc 75 13437 at princeton university and by the deutsche forschungsgemeinschaft i have benefited from the advice of dwight jaffee and an anonymous referee in a similar vein stiglitz 1972 asserts the value of the firm decregses because there is a divergence in the estimation of the chances of bankruptcy between the lender and the borrower p 467 this analysis rests upon a form of market segmentation that is without economic merit in his model there are two groups of agents optimists and pessimists the optimists invest all their wealth in the firm s equity valued to make the rate of return equal to that on the riskless asset the pessimists are indifferent between the risky firm s bonds and the riskless asset it follows that the optimists being more optimistic than the pessimists must prefer the risky bond to the riskless asset and hence to the equity yet stiglitz assumes that the optimists invest in the equity and not in the risky bond of course if one group invests all its wealth into one asset that asset need not satisfy a marginal equality condition at all a correct analysis of his model leads to the results of this paper

the welfare effects of environmental taxation recent literature has investigated whether the welfare gains from environmental taxation are larger or smaller in a second best setting than in a first best setting this question has mainly been addressed indirectly by asking whether the second best optimal environmental tax is higher or lower than the first best pigouvian rate even this indirect question has itself been approached indirectly comparing the second best optimal environmental tax to a proxy for its first best value marginal social damage msd on closer examination however msd becomes ambiguously defined and variable in a second best setting making it an unreliable proxy for the pigouvian rate given these observations the current analysis reevaluates these welfare questions and finds that when compared directly to its first best value the second best optimal environmental tax generally rises with increased revenue requirements even in cases where the second best environmental tax is lower than its first best value the welfare gains may be greater than in a first best setting these results suggest that the marginal fiscal benefit revenue recycling effect exceeds the marginal fiscal cost tax base effect over a range of environmental tax rates that for benchmark models extends above the first best pigouvian rate these findings reinforce the intuition that environmental policy complements rather than competes with the provision of other public goods

the price elasticity of charitable giving new experimental evidence abstract we examine the charitable giving decisions of donors under two subsidy mechanisms rebate and matching and we calculate the price elasticity of giving we implement an online survey using the amazon mechanical turk platform participants are asked to make a series of allocation decisions between themselves and a charity of their choice we vary endowment and subsidy rates in line with the literature the results show that contributions under matching subsidies are significantly higher than contributions under rebate subsidies participants who usually make a donation are more likely to give and are less responsive to price changes moreover the probability of giving increases monotonically along with subsidy rates

the identification of urban employment subcenters abstract the purpose of this paper is to propose empirical criteria for the identification of urban employment subcenters it is suggested that gross employment density employment divided by total land area and the employment population ratio are the best measures to identify an urban zone as an employment subcenter these measures are used to identify employment subcenters in the chicago smsa in 1970 and previous studies of housing and land prices in chicago are reviewed

subsidizing charitable giving with rebates or matching further laboratory evidence we examine two different ways to subsidize charitable giving by a rebate returning a portion of the donation to the giver or by a match adding additional donations to the giver s donation in previous experimental research we have shown that participants give more to charity under the match than under an equivalent rebate the previous within subject experimental design required participants to make a series of decisions under both types of subsidy each decision consisted of an allocation of an endowment between the subject and a charity chosen by the subject from a specified list this article examines whether that result is an artifact of the previous within subjects design subjects may have failed to fully distinguish the two types of subsidy in the current article we report results from a between subjects design where participants are required to make only one type of decision involving rebates or involving matching subsidies our results confirm previous findings

coping with collapse a stock flow consistent monetary macrodynamics of global warming abstract this paper presents a macroeconomic model that combines the economic impact of climate change with the pivotal role of private debt using a stock flow consistent approach based on the lotka volterra logic we couple its nonlinear monetary dynamics of underemployment and income distribution with abatement costs a calibration of our model at the scale of the world economy enables us to simulate various planetary scenarios our findings are threefold 1 the 2 c target is already out of reach absent negative emissions 2 the long term resp short term results of climate change on economic fundamentals may lead to severe economic consequences without the implementation resp in case of too rapid an application of proactive climate policies global warming resp too fast transition forces the private sector to leverage in order to compensate for output and capital losses resp to lower carbon emissions thus endangering financial stability 3 implementing an adequate carbon price trajectory as well as increasing the wage share fostering employment and reducing private debt make it easier to avoid unintended degrowth and to reach a 2 5 c target

a stock flow fund ecological macroeconomic model this paper develops a stock flow fund ecological macroeconomic model that combines the stock flow consistent approach of godley and lavoie with the flow fund model of georgescu roegen the model has the following key features first monetary and physical stocks and flows are explicitly formalised taking into account the accounting principles and the laws of thermodynamics second georgescu roegen s distinction between stock flow and fund service resources is adopted third output is demand determined but supply constraints might arise either due to environmental damages or due to the exhaustion of natural resources fourth climate change influences directly the components of aggregate demand fifth finance affects macroeconomic activity and the materialisation of investment plans that determine ecological efficiency the model is calibrated using global data simulations are conducted to investigate the trajectories of key environmental macroeconomic and financial variables under i different assumptions about the sensitivity of economic activity to the leverage ratio of firms and ii different types of green finance policies

leverage and default in binomial economies a complete characterization our paper provides a complete characterization of leverage and default in binomial economies with financial assets serving as collateral our binomial no default theorem states that any equilibrium is equivalent in real allocations and prices to another equilibrium in which there is no default thus actual default is irrelevant though the potential for default drives the equilibrium and limits borrowing this result is valid with arbitrary preferences and endowments contingent or noncontingent promises many assets and consumption goods production and multiple periods we also show that only no default equilibria would be selected if there were the slightest cost of using collateral or handling default our binomial leverage theorem shows that equilibrium loan to value ltv for noncontingent debt contracts is the ratio of the worst case return of the asset to the riskless gross rate of interest in binomial economies leverage is determined by down risk and not by volatility

the impact of phasing out fossil fuel subsidies on the low carbon transition abstract there is growing consensus on the fact that fossil fuel subsidies provided by governments in high income countries represent a misalignment on emissions reduction with the global climate agenda in addition a discussion emerged on the negative socio economic and environmental externalities associated with fossil fuel subsidies nevertheless pathways for phasing out fossil fuel subsidies in high income countries and their implications on the low carbon transition have not yet been assessed with the aim to narrow this knowledge gap we extend the eirin stock flow consistent behavioral model to study the implications on sustainable development of the gradual phasing out of fossil fuels subsidies whose revenues could be used by the government to subsidize energy investments in green capital e g solar panels either via fiscal policies or green bonds we assess the effects on green growth employment credit and bonds market as well as the distributive effects across heterogeneous households and sectors a smooth phasing out of fossil fuels subsidies contributes to improve macroeconomic performance to decrease inequality and helps the government to find fiscal space to support stable renewable energy policies renewable energy subsidies contribute to foster the low carbon transition but could imply distributive effects depending on the way in which they are implemented

ecological macroeconomics an application to climate change ecological economics has not paid sufficient attention to the macroeconomic level both in terms of theory and modeling yet key topics debated in the field of ecological economics such as sustainable consumption reduction in working time the degrowth debate the energy exergy link and the rebound effect require a holistic and macro perspective while this deficiency has been identified before and keynesian economics has been generally suggested as a potent vehicle to establish economic system s thinking very little concrete theorizing and practical suggestions have been put forward we give further credence to this suggestion and demonstrate the value of tackling key concerns of ecological economics within a keynesian growth framework contextualized by an application to climate change we suggest that policy relevant recommendations need to be based on a consistent view of the macroeconomy we end with laying out key building blocks for a keynesian model framework for an ecological macroeconomics authors abstract

the definition of housing market areas and strategic planning the purpose of this paper is to develop the concept of a housing market area thereby provide insights into our understanding of the sub regional structures of the housing system and hence propose a framework for strategic planning research in the housing market to tackle this task it is first necessary to consider the criteria for a local housing market area the paper begins by reviewing previous definitions by both academics and planners and their underlying assumptions based on the principle of spatial arbitrage a local housing market area is defined by reference to criteria linked to migration self containment parallels are drawn with the principles that have been applied to define a system of spatial labour markets using travel to work areas this spatial arbitrage definition is tested empirically by developing a system of housing market areas for west central scotland using data derived from the land registry finally the paper draws together the empirical findings to discuss the nature of s

a review of the stern review on the economics of climate change how much and how fast should we react to the threat of global warming the stern review argues that the damages from climate change are large and that nations should undertake sharp and immediate reductions in greenhouse gas emissions an examination of the review s radical revision of the economics of climate change finds however that it depends decisively on the assumption of a near zero time discount rate combined with a specific utility function the review s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today s marketplace real interest rates and savings rates

comparing specific and ad valorem pigouvian taxes and output quotas when the production or use of a good creates an external cost an unregulated market produces a socially inefficient quantity of output one remedy for this inefficiency is to impose a pigouvian tax equal to the marginal external damage associated with the good in many circumstances privately optimizing agents facing a pigouvian tax make decisions that are consistent with the maximization of social welfare

co2 stabilization may be a no regrets policy restricting co2 emissions requires changing today s consumption pattern away from energy and emission intensive commodities towards cleaner goods the cost of stabilizing co2 emissions at the 1990 level by the year 2000 say as compared to a business as usual trend is estimated by several researchers to be on the order of 1 of gnp we will argue that the cost may be overestimated because of a too simple model describing the working of the economic system and the evaluation of welfare we demonstrate that by expanding a model to include the actual tax system and negative externalities the cost to present generations from restricting emissions by a co2 tax may be negative that is some reduction may actually correspond to a no regrets policy the reasons are inefficiencies in today s tax system and non optimal handling of negative externalities our analysis suggests that a co2 tax and reduced emissions will lessen such inefficiencies

long waves and short cycles in a model of endogenous financial fragility this paper presents a stock flow consistent macroeconomic model in which financial fragility in firm and household sectors evolves endogenously through the interaction between real and financial sectors changes in firms and households financial practices produce long waves the hopf bifurcation theorem is applied to clarify the conditions for the existence of limit cycles and simulations illustrate stable limit cycles the long waves are characterized by periodic economic crises following long expansions short cycles generated by the interaction between effective demand and labor market dynamics fluctuate around the long waves

spatial impacts local labour market characteristics and housing prices this paper takes as a starting point a model where spatial variation in housing prices is explained by urban attraction and labour market accessibility effects using data from a region in south west norway estimation results are found to be encumbered however with significant spatial effects the spatial durbin model is used to account for this and to provide estimates of direct and indirect impacts in addition hypotheses are tested that some of the spatial variation in housing prices reflects local labour market characteristics some support is found for a hypothesis that a model specification should account for sub centres located at some distance from the central parts of the region the indirect impacts estimated in the spatial durbin model suggest that spatially related misspecifications of implicit elasticities in the ordinary least squares model are mainly due to negative externalities close to areas of high labour market accessibility