sticky prices and monetary policy evidence from disaggregated us data this paper disentangles fluctuations in disaggregated prices due to macroeconomic and sectoral conditions using a factor augmented vector autoregression estimated on a large data set on the basis of this estimation we establish eight facts 1 macroeconomic shocks explain only about 15 of sectoral inflation fluctuations 2 the persistence of sectoral inflation is driven by macroeconomic factors 3 while disaggregated prices respond quickly to sector specific shocks their responses to aggregate shocks are small on impact and larger thereafter 4 most prices respond with a significant delay to identified monetary policy shocks and show little evidence of a price puzzle contrary to existing studies based on traditional vars 5 categories in which consumer prices fall the most following a monetary policy shock tend to be those in which quantities consumed fall the least 6 the observed dispersion in the reaction of producer prices is relatively well explained by the degree of market power 7 prices in sectors with volatile idiosyncratic shocks react rapidly to aggregate monetary policy shocks 8 the sector specific components of prices and quantities move in opposite directions

effluent regulation and long run optimality a regulator faced with free entry of firms is concerned not only with the implications of public policy for the discharges from a representative firm but also with the total pollution observed at the long run market equilibrium the regulator must take into account not only the effects of regulations upon the net marginal returns of the firm but must also consider the total profit of the firm and incentives for entry and exit this paper shows that effluent charges and tradeable effluent permits lead to long run optimality with entry of small firms the difference between firm payments and environmental damages is interpreted as the rent accruing to the environmental resource this result applies only to the competitive case with small polluters the analysis presented here allows a comparison and clarification of the literature on small and large polluters in a multi input framework with social damages dependent upon total effluents effluent charges are shown here to result in socially optimal entry confirming an assertion of baumol and oates 2 p 179 fn 161 and the important result of schulze and d arge 15 by taking average as well as marginal damages into account the effluent charge results in optimal firm scale levels and the correct input mix at the free entry market equilibrium the firm subject to an effluent tax will operate above or below the private minimum efficient scale depending upon whether average external costs exceed or are less than marginal external costs since public policy to reduce effluents is often directed at reducing the effluentgenerating activity some policy recommendations include a tax on the final output of the polluting firm in some theoretical analyses a relation between the output of the firm and the effluent level is identified and a pigouvian output tax is applied this approach should not be followed by policymakers since an output tax does not provide firms with the correct incentives for either input substitution or market entry it is shown that while a lump sum transfer is needed to provide correct entry incentives when a pigouvian output tax is applied no such transfer is needed if the tax is correctly applied to effluents contrary to 5 even if optimal firm scale and i thank the referees for helpful suggestions the support of the national science foundation under grant ses 82 19121 is gratefully acknowledged any errors are my responsibility 103

using contests to allocate pollution rights in this paper we advocate a new initial allocation mechanism for a tradable pollution permit market we outline a permit allocation contest pac that distributes permits to firms based on their rank relative to other firms this ranking is achieved by ordering firms based on an observable external action where the external action is an activity or characteristic of the firm that is independent of their choice of emissions in the tradable permit market we argue that this mechanism has a number of benefits over auctioning and grandfathering using this mechanism efficiently distributes permits allows for the attainment of a secondary policy objective and has the potential to be more politically appealing than existing alternatives

does the energy efficiency paradox exist technological progress and uncertainty we explain why firms may choose not to undertake investments inenergy saving technologies that appear profitable from a net presentvalue perspective as future technological advances are inherentlyuncertain and investments in new technology are at least partly irreversible it may pay to postpone investments in energy savingand wait for the arrival of improved varieties this insight casts doubton the existence of so called low hanging fruits in energy saving although we do not wish to deny that organisational failures may alsobe important failure to appreciate the underlying stochasticity oftechnological progress may obscure the insight that there is value inwaiting and costs involved in terminating the option to invest theappetite for low hanging fruits will be less when these costs areincorporated in the analysis we demonstrate that the effect of thearrival rate of new technologies on the adoption lag for a rational firmis ambiguous the same holds for the effect of the expected jump inefficiency of new technologies government policies aimed at enhancingthe adoption of new technologies through stimulation of r d maytherefore be counterproductive

environmentalizing economic development a south asian perspective south asia s pursuit of economic development has entailed considerable damage to and exposed the fragility of the physical environment of the region this paper provides an analytical overview of the of the environmental problem that manifest themselves in south asia in a comparative perspective with east and southeast asian countries as well as selected developed market economics to date south asian development process has been environment intensive and environment depleting it is argued that environmental problems are likely to set serious constraints to sustain growth in production to support a growing population by exploring the relationship between indices of human welfare and bio diversity conservation the paper exposes the dichotomy of the development process finally the study underscores the need for a range of policy options that rely both based and non market based instruments in an integrated setting to enviromnentalize south asian economic development c 2004 elsevier b v all rights reserved

valuation of ecosystem goods and services part 1 an integrated dynamic approach abstract this is the first part of a two part paper which offers a new approach to the valuation of ecosystem goods and services the existing literature on environmental valuation is based on two distinct foundations the ecological valuation methods derive values by a cost of production approach their common characteristic is the neglect of consumer preferences the economic valuation methods focus on the exchange value of ecosystem services their common characteristic is that they are finally based on consumer preferences and do not adequately take account of the complex internal structure of ecosystems as the existing methods for the valuation of ecosystem services emphasize either the economic system or the ecosystem the main objective of part 1 is to provide the conceptual foundations for a new method of valuation of ecosystem services which deals simultaneously with the ecosystem the economic system and society in a balanced way within a simple pre industrial model it is shown how the interdependencies between the three subsystems influence values and how values change over time

time to build and aggregate fluctuations some new evidence this paper presents maximum likelihood estimates and tests of a model similar to one kydland and prescott 1982 suggested for this purpose it derives equilibrium laws of motion for a set of aggregate variables as functions of the model s parameters and the innovation to the technology shock the paper shows that a single unobservable index can explain the variability in the observed series but identifying the single index with the innovation to the technology shock implies that per capita hours is not well explained it also shows that time separable preferences with respect to leisure are consistent with the data copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

firm incentives to promote technological change in pollution control reply abstract the process of technological change in pollution control is broken into three basic steps innovation diffusion and optimal agency response firm incentives to promote these steps are then examined under five regulatory regimes direct controls emission subsidies emission taxes free marketable permits and auctioned marketable permits on a relative basis emission taxes and auctioned permits provide the highest firm incentives to promote technological change at times free permits generate lower incentives direct controls which are common regulatory tools usually provide the lowest relative firm incentives to promote technological change

the influence of black markets on a queue rationed centrally planned economy abstract in centrally planned economies in which prices are fixed and the rationing mechanism is waiting line queues we show that an equilibrium of waiting times exists we then introduce a black market in which individuals can trade commodities that they have acquired through the official economy an equilibrium of black market prices and waiting times is shown to exist further the economy with a black market is queue efficient however the introduction of black markets is not necessarily a pareto improvement over an economy without black markets even when we allow winners to compensate losers

pollution taxes when firms choose technologies we consider the properties of a pollution tax when the regulated firm has a discrete choice of technologies with which to reduce pollution the firm s technology choice makes possible two sequences of play the traditional one in which the regulator moves first committing to a tax rate before the firm adopts a technology and an alternative one in which the firm moves first by adopting a technology we find that a range of pollution levels including possibly the first best one are unattainable when the regulator moves first the regulator may be better able to achieve the first best outcome when the firm moves first

pollution permits and environmental innovation abstract this paper starts with a warning about the negative impact of plain pollution allowance markets on environmental pollution innovation stand alone spot markets enable the government to expropriate an innovation by offering a competing technology pollution permits that puts an arbitrary downward pressure on the licensing price advance allowances reduce expropriation but still create suboptimal incentives for innovation they have the further drawback that permits are inefficiently used when the innovation occurs options to pollute at a given striking price fare better than allowances because they create private incentives to phase out pollution in the case of innovation we characterize the social optimum and show that it can be implemented by issuing options to pollute inter alia finally the paper compares ex ante and ex post government procurement surprisingly ex post licensing by the innovator to the government may yield a higher licensing fee than an ex ante contract

innovation policy for directing technical change in the power sector this paper discusses policy instruments for redirecting technical change within the electricity sector to mitigate climate change first we unravel the mechanism behind directed technical change explaining why markets may underprovide innovations in expensive renewable technologies in comparison to innovations in energy efficient fossil fuel generators subsequently we characterize technical change in electricity generation technologies stressing the heterogeneity of knowledge spillovers both within and between clean electricity generation technologies we argue that there exists a rationale for a portfolio approach to innovation in the electricity sector i e optimal innovation policies are neither fully generic nor fully specific and they need to be adapted in response to new information learned by the government the existing innovation literature does not however provide a clear cut answer for designing such a policy we compare policy instruments and argue that public r d support to clean technologies either in the form of subsidies or prizes seems to be the prime candidate for implementing non generic innovation policy

environmental innovation and environmental performance abstract by estimating a simultaneous panel data model of environmental innovation and toxic air pollution this paper identifies bi directional causal links between the two we study a panel of 127 manufacturing industries over the period 1989 2004 pollutant emissions are an implicit measure of policy stringency and environmental patent counts are used to measure environmental innovation after accounting for the joint endogeneity we find that environmental innovation is an important driver of reductions in us toxic emissions conversely we find that tightened pollution targets induce environmental innovation however our estimates indicate that the environmental policy multiplier the proportionate contribution of induced innovation to long run emission reduction is small

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

incentives for investment in advanced pollution abatement technology in emission permit markets with banking we examine the incentives that firms have to invest in cleaner abatementtechnology when the banking of permits is allowed in emission permittrading schemes we show that under certainty permit banking can distortincentives for investment and lead to a sub optimal amount of investmentspending under imperfect information aggregate abatement costuncertainty and investment irreversibility provide arguments for allowingbanking we generalize the model to consider these showing that somebanking is desirable but that it need not be the case that the privatebanking solution is optimal

structural dynamic factor analysis using prior information from macroeconomic theory dynamic factor models are becoming increasingly popular in empirical macroeconomics due to their ability to cope with large datasets dynamic stochastic general equilibrium dsge models on the other hand are suitable for the analysis of policy interventions from a methodical point of view in this article we provide a bayesian method to combine the statistically rich specification of the former with the conceptual advantages of the latter by using information from a dsge model to form a prior belief about parameters in the dynamic factor model because the method establishes a connection between observed data and economic theory and at the same time incorporates information from a large dataset our setting is useful to study the effects of policy interventions on a large number of observed variables an application of the method to u s data shows that a moderate weight of the dsge prior is optimal and that the model performs well in terms of forecasting we then analyze the impact of monetary shocks

learning about environmental damage implications for emissions trading in this paper the impact of adjusting the supply of tradeable emission permits on incentives for cleaner technology adoption is examined two policy rules for adjusting the supply of permits are considered open market operations and a proportional adjustment rule under which the regulator expropriates permits from individual firms in proportion to their existing permit holdings adjustment via open market operations is neutral with respect to cleaner technology investment decisions but may be politically difficult to implement the proportional adjustment rule is also neutral with respect to investment decisions and at the same time allows more flexibility from a political perspective

incentives to diffuse advanced abatement technology under environmental liability law polluting firms with advanced abatement technology at their disposal have incentives or disincentives to share this technology with other polluting firms the direction and extent of those incentives depends on the liability rule applicable and the way technical change impacts marginal abatement costs we establish that incentives for diffusion are socially optimal under strict liability and socially suboptimal under negligence if technical change lowers marginal abatement costs for all levels of abatement negligence may however induce better diffusion incentives than strict liability if technical change decreases increases marginal abatement costs for low high levels of abatement

a laboratory study of auctions for reducing non point source pollution abstract non point source pollution such as nutrient runoff to waterways from agricultural production is an environmental problem that typically involves asymmetric information land use changes to reduce pollution incur opportunity costs that are privately known to landholders but these changes provide environmental benefits that may be more accurately estimated by regulators this paper reports a testbed laboratory experiment in which landholder sellers in sealed offer auctions compete to obtain part of a fixed budget allocated by the regulator to subsidize abatement in one treatment the regulator reveals to landholders the environmental benefits estimated for their projects and in another treatment the regulator conceals the potential projects environmental quality the results show that sellers offers misrepresent their costs more for high quality projects when quality is revealed so total abatement is lower and seller profits are higher when landholders know their projects environmental benefits this suggests that concealing this information may improve regulatory efficiency

targeting conservation efforts in the presence of threshold effects and ecosystem linkages abstract the prevailing federal policy of targeting conservation programs on the basis of physical criteria tends to ignore the threshold effect of conservation efforts and the correlation between alternative environmental benefits in this article we examine the extent to which conservation funds will be misallocated when threshold effects and correlated benefits are ignored we show that targeting conservation efforts based on physical criteria or political equity concerns may actually lead to the lowest possible benefits to society from conservation expenditure ignoring correlated benefits may lead not only to misallocation of conservation funds among watersheds but also to incorrect resources e g land streams being targeted for conservation the empirical analysis focuses on riparian habitat investments for salmon restoration in the pacific northwest we show that a large portion of conservation benefits would be lost when threshold effects and correlated benefits are ignored and argue that funds should be allocated so that the total value of environmental benefits is maximized not the total amount of resources protected

the net present value method versus the option value of waiting a note on farzin huisman and kort 1998 abstract using the tools of real options theory farzin huisman and kort 1998 investigate the optimal timing of technology adoption in a model in which there is ongoing technological progress and the firm s investment decision is irreversible when the firm can switch technologies n farzin et al 1998 obtain the surprising result that the criterion for adopting a new technology derived from real options theory coincides with the net present value criterion for all but the last switch this note points out a mistake in farzin et al s 1998 derivations that leads to the above result we show that compared to the net present value approach the firm will defer the adoption of a new technology when it takes the option value of waiting into account

emission taxes and optimal refunding schemes abstract we examine how refunding emission taxes to firms dependent on market shares should be designed while refunding is harmful under perfect competition a first best self financing tax tax refunding scheme exists if the marginal damage from pollution exceeds the marginal distortion in an imperfectly competitive output market with symmetric firms under pre investment in cleaner technology with short term abatement opportunities a first best refunding scheme exists if pollution refunding can be made dependent on both market and investment shares

did financial factors matter during the great recession abstract yes they mattered to reply to this question we assess the predictive content of macroeconomic and financial latent factors on the key variables industrial productivity short term interest rate and inflation during the great recession period 2007 2009 in the united states in this respect we propose a forecasting analysis using a factor augmented var model when we estimate the model with only financial factors we improve the predictions in the short and medium horizons meanwhile when we estimate the model with only macroeconomic factors we improve the forecasting performance in the longer horizon

a note on privileges in a queue rationed cpe with black markets abstract in a centrally planned economy with fixed prices rationing by waiting in queues black markets and different waiting times for each agent existence of an equilibrium is demonstrated also welfare characteristics of equilibrium allocations are discussed non uniform waiting times decrease the allocative efficiency of black markets and may lead to pareto inferior in a compensated sense equilibria compared to a model with uniform waiting times

the stahl alexeev paradox a note abstract we offer a simple proof of the paradox discovered by stahl and alexeev that the introduction of black markets in a fixed price economy with a rationing mechanism consisting of waiting line queues is not necessarily a pareto improvement we show that the paradoxical result arises from the fact that queue length is endogenous and illustrates the general principle that permitting an additional market may be undesirable in an economy which has other distortions

forest biodiversity and timber extraction an analysis of the interaction of market and non market mechanisms abstract forest ecosystems provide a range of products and services for human use primarily due to the biodiversity inherent in them from the ecological viewpoint this diversity is of different kinds and has the potential to cater to human well being in multifarious ways however the mix of services that is available to any economy from forests depends in addition to their biological characteristics on the nature of the economic regime within which they are exploited some commodities such as timber are extracted in a regime driven in the main by market forces others such as non timber forest products may be extracted under a variety of arrangements the range varying from open access to common property regimes services such as those of water cycle augmentation and micro climate regulation are typically available to communities as free goods it is hypothesized that this difference in institutional regimes has implications for the mix of products and services that are extracted in different ways through its effect on the extraction efforts for the marketed product because of policies such as plantation which are intended to increase the supply of the marketed product typically timber through a change in biodiversity of the forest stock which in turn results in a decreased availability of the non marketed products the present paper studies conditions under which timber has been extracted from forests of the north indian state of uttar pradesh up during the 1975 2000 period to examine this proposition it is postulated that extraction of timber at any point of time depends on the stock the effort involved in extraction as represented by the per unit cost of extraction the biodiversity index defined as a product biodiversity index and a variable depicting ecological characteristics of the forests using a modified gordon schaefer production function and the assumption that forests are managed for sustainable timber extraction the reduced form equations are derived and estimated using data from uttar pradesh forests for the 1975 2000 period the results suggest that in the absence of variables representing the plantation area and biodiversity corrected stocks the explanatory power of the model is low even though extraction is seen to be significantly impacted by effort if however the ratio of plantation area and biodiversity adjusted extraction are introduced as explanatory variables interesting results with respect to the trend of extraction over time are obtained as stocks of woody biomass increase extraction increases a decrease in biodiversity of the stock may be accompanied under a certain set of circumstances with a rising trend in extraction and at a rising rate as explained above however an increased biodiversity may imply a decreasing trend in the extraction in the future provided that present extraction y does not rise at a rate faster than the rate of increase in the biodiversity these two results seen together are we believe significant they point to the fact that policies aimed at increasing plantation increase short run timber extraction further if biodiversity increases the impact on future extraction of timber depends on relative rates of change in biodiversity and extraction per unit effort it is clear that trade offs between timber extraction and existence of biodiverse forests providing a variety of goods and services

bringing biophysical models into the economic laboratory an experimental analysis of sediment trading in australia abstract experimental economics has emerged and matured as a formal method for questioning and testing economic theory and assumptions concerning individual behavior more recently experimental methods have been used successfully in an economic laboratory to test alternative environmental policy options the data underpinning these experiments is often stylized or hypothetical in nature ecologists and experimental economists have much to gain by exploring ways to underpin economic experiments with data generated from biophysical models the study makes a contribution by demonstrating how underpinning experiments with regionally modeled biophysical data may give insights which would not necessarily arise from stylized data in this study sediment data generated from an environmental management support system emss a software model of sediment runoff in catchments was used to populate the players decision space the study investigated the relative performance of four different instruments closed first and second price call tenders cap and trade and command and control regulation these market instruments will be compared with the aim of promoting riparian management and reducing total suspended solids exiting a catchment the study finds that the cost of meeting regulatory requirement of sediment reduction through command and control is less than either first or second price auction however cap and trade produced high levels of convergence and production which moved towards minimizing the cost of achieving the cap reduction level

the optimal allocation of conservation funds abstract this paper presents a framework to evaluate alternative designs of conservation programs and their implications for the allocation of conservation funds we show that the efficient allocation of conservation funds must consider two important pooling effects cumulative effects and interrelationships among alternative environmental benefits ignoring the cumulative effects of environmental benefits may cause conservation funds to be overly dispersed geographically and as a result may result in minimum environmental benefits when the budget is small ignoring the interrelationships among alternative environmental benefits may result in not only misallocation of conservation funds among geographical areas but also incorrect resources being targeted for conservation practices implications of these results for the design of conservation programs are discussed

market power and transferable property rights the appeal of using markets as a means of allocating scarce resources stems in large part from the assumption that a market will approximate the competitive ideal when competition is not a foregone conclusion the question naturally arises as to how a firm might manipulate the market to its own advantage this paper analyzes the issue of market power in the context of markets for transferable property rights first a model is developed that explains how a single firm with market power might exercise its influence this is followed by an examination of the model in the context of a particular policy problem the control of particulate sulfates in the los angeles region

economic crisis in a shortage economy it is not unusual for reforming socialist economies to relax wage controls without hardening budget constraints on enterprises or freeing consumer goods prices this policy can be dangerously destabilizing while higher wages permit workers to purchase more of some goods they also tend to exacerbate shortages and to breed waste and corruption beyond a certain level economywide wage hikes will worsen worker welfare this is true regardless of whether deficit goods are strictly rationed are sold randomly at official prices to queuing workers or are offered to workers by insiders only at black market prices however the form of allocation does influence the levels of output and welfare

pollution permits and compliance strategies abstract this paper analyzes the impact of spot and futures markets for tradeable pollution permits on the potential polluters compliance decisions polluters can buy permits invest in pollution abatement or else stop production or source out we show that stand alone spot markets induce excessive investment the introduction of a futures market reduces this incentive to invest but is not the optimal way to control pollution a menu of options on pollution rights possibly coupled with intertemporally bundled sales yields higher welfare because of its focus on long run demand elasticities and rent extraction this paper can be applied to a variety of situations such as demand side management public transportation bypass in telecommunications or forward sales by a private monopolist

incentives for advanced pollution abatement technology at the industry level an evaluation of policy alternatives abstract in this research we evaluate the incentive effects of five environmental policy instruments to promote the development and adoption of advanced pollution abatement technology in a heterogenous industry from most to least incentive the policy instruments can be rank ordered as follows i auctioned permits ii emissions taxes and subsidies iii issued marketable permits iv performance standards including performance standards in this list necessitates the assumption that they are differentiated between heterogeneous firms before the technology adoption in a way which replicates the initial emissions control distribution of the efficient incentive based instruments with the starting point normalized in this fashion the instrument rankings are invariant with respect to the size of firms the size of the industry or the industry s abatement cost structure

inducing innovation in the environmental technology of oligopolistic firms this paper characterizes environmental regulations which induce polluting bertrand competitors to invest efficiently in environmental r d post innovation benefits to raising rivals costs provide firms with incentives to innovate although optimal behavior cannot be elicited with pollution taxes alone an optimum can be achieved by combining emission taxes with environmental performance standards that are higher for firms which reveal superior environmental technologies faced with this policy successful innovators voluntarily reveal their technological discovery to the government despite the apparent regulatory penalty that results implications for automotive fuel regulation are discussed

optimal pollution standards and non compliance in a dynamic framework in this paper we present a stackelberg differential game to study the dynamic interaction between a polluting firm and a regulator who sets pollution limits overtime at each time the firm settles emissions taking into account the fine for non compliance with the pollution limit and balances current costs of investments in a capital stock which allows for future emission reductions we derive two main results first we show that the optimal pollution limit decreases as the capital stock increases while both emissions and the level of non compliance decrease second we find that offering fine discounts in exchange for firm s capital investment is socially desirable we numerically obtain the optimal value of such discount which crucially depends on the severity of the fine in the limiting scenario with a very large severity of the fine the optimal discount implies that no penalties are levied since the firm shows adequate adaptation progress through capital investment

markets and regulatory hold up problems abstract many regulatory programs such as environmental regulation are effective only if firms make irreversible investments that reduce the cost of compliance a firm potentially subject to regulation may therefore behave strategically by not investing thereby forcing the regulator to void the proposed regulation we show that such incentives which resemble a hold up problem may not be overcome when government s only tool is the imposition of an emissions tax the hold up problem can be overcome by the issuance of tradeable permits a time consistent equilibrium exists with all firms investing and the government imposing regulations even if no permits are traded and their market price is low indeed an observation of no trade may indicate that pollution abatement is great

a science driven market based instrument for determining the cost of environmental services a comparison of two catchments in australia abstract an auction based approach or mbi for market based instrument was used to purchase environmental services from landowners and to establish a long term economic resource forest plantations in two catchments in the state of victoria australia the policy goal of the mbi was to encourage the conversion of cleared land to forest plantations it was desired to achieve this while also reducing the amount of land affected by dryland salinity with minimum impact on water available for irrigation operationally interested landowners identified areas on which they would be willing to establish forest plantations and stated the amount of money they would require from the government to undertake plantation establishment this constituted a landowner bid the proposed planting area associated with each bid was processed through a quantitative hydrological model to estimate off site impacts on dryland salinity and the change in water yield resulting from the conversion of individual non forested areas to forest plantations landowner bids were then accepted or not based on the economic trade offs among dollars requested by a landowner reduction in water yield and decrease in dryland salinity to enable a comparison of costs the mbi was independently trialled in two catchments for both the cost to government of a hectare of plantation and or a hectare of salinity benefit was calculated a number of ways assuming the existence of a calibrated hydrological model costs associated with distributing money via such an mbi were publicity fieldwork processing the bids through the model probity legal and administration in the gippsland catchment the total cost to establish forest plantations was 5340 per ha whereas it was 1635 per ha in the corangamite catchment no salinity benefit was obtained in gippsland but in corangamite if considered in isolation of the economic forest plantation benefit the cost per hectare of salinity benefit was 5020 operational aspects of the mbi are presented and discussed and a comparison is made to the expected costs of a conventional non science driven approach to landowner incentives

optimal timing of technology adoption abstract in a dynamic programming framework this paper investigates the optimal timing of technology adoption by a competitive firm when technology choice is irreversible and the firm faces a stochastic innovation process with uncertainties about both the speed of the arrival and the degree of improvement of new technologies a numerical example illustrates how the optimal timing decision is affected by changes in parameter values reflecting market conditions the firm s initial technological attributes and the characteristics of the stochastic innovation process some of these effects turn out to be in sharp contrast to common intuition contrasting the optimal decision rule derived here with the rule obtained under the net present value shows that the former implies a slower pace of adoption than implied by the latter the optimal decision rule is generalized for the case of multiple technology switches and it is shown that for all the switching decisions except the last one the optimal rule satisfies the net present value criterion

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

innovation in pollution control comparisons of the various institutional arrangements for controlling pollutant emissions from individual sources effluent fees effluent control subsidies marketable permits and direct command and control regulation have usually focused on their static efficiency properties and institutional feasibility e g dales 1968 zerbe 1970 baumol and oates 1975 kneese and schultze 1975 marin 1978 mills and white 1978 spence and weitzman 1978 russell 1979 a relatively neglected area has been the study of how each arrangement influences innovation in pollution control a few studies e g kneese and schultze 1975 marin 1978 mills and white 1978 russell 1979 have casually claimed that the control methods that rely on economic incentives provide superior incentives for innovation but there have been few systematic studies of the question this paper provides a simple model of pollution control innovation by a profitmaximizing polluter who is subject to the various control methods the consequences of the methods will be explored in three major contexts first we assume that the polluter and the innovation is a small enough part of the overall pollution problem so that none of the important marginal conditions are changed by the innovation second we assume that the polluter and the innovation are important enough so that marginal conditions are changed by the innovations but that the governmental authority determining pollution control incentives or levels fails to make the appropriate adjustments third we again assume that the innovation causes marginal conditions to change but in this case the governmental authority makes the appropriate adjustments we use the term ratcheting to describe this last phenomenon in all cases we assume that the innovating polluter correctly predicts the reactions of the governmental authority and bases his innovation decisions on that prediction a profit maximizing entrepreneur would normally be expected to adopt any innovation that promised gains present discounted value to him in excess of initial

does host market regulation induce cross border environmental innovation this paper evaluates the effect of host country environmental policy stringency on the offshoring of environmental patents for 2000 top world r d performers it is shown that a more stringent environmental regulation triggers both the extensive and intensive margin of patent offshoring in the field of environmental technologies results are robust to various different specifications alternative definitions of innovation offshoring and of regulation restrictions and to the consideration of possible endogeneity of regulation it is suggested inter alia that r d subsidies and non market based regulatory measures are more important than market based instruments as drivers of cross border environmental innovation length 26 pages

the effects of climate policy on corporate technological upgrading in energy intensive industries evidence from china abstract the innovation effect is an important component when measuring the performance of environmental policy instruments based on a questionnaire survey this research has examined corporate energy conservation and emission reduction efforts in energy intensive industries in china under the pressure of different climate policies and in particular looked into their adoption of those technological innovation and diffusion activities the results show a large variety of corporate adoption of energy saving practical activities in general climate policies have played a greater role in promoting the adoption of managerial energy saving activities in respondent companies while comparatively their influences on the adoption of technology upgrading activities are relatively weak regulatory measures have exerted greater pressure and influence on corporate short term behavioural change as stated by the respondent companies however market based instruments show greater incentive effect in promoting adoption of energy conservation and emission reduction activities that refer to corporate long term oriented strategic planning or adjustment for instance they exert a significant incentive effect on increasing long term research and development investment for technological innovation and also play an important role in optimising corporate organisational structure the econometric analysis further proves the influences of market based instruments in promoting corporate adoption of technological innovation and diffusion activities

priors from general equilibrium models for vars abstract this paper uses a simple new keynesian dynamic stochastic general equilibrium model as a prior for a vector autoregression shows that the resulting model is competitive with standard benchmarks in terms of forecasting and can be used for policy analysis jel classification c11 c32 c53 key words bayesian analysis dsge models forecasting vector autoregressions 1 introduction dynamic stochastic general equilibrium dsge models are popular nowadays in macroeconomics they are taught in virtually every economics ph d program and represent a predominant share of publications in the field yet when it comes to policy making these models are scarcely used at least from a quantitative point of view the main quantitative workhorse for policy making at the federal reserve system is frb us a macro econometric model built in the cowles foundation tradition a style of macroeconomics that is no longer taught in many ph d programs 1 in their decision process fed policy makers rely heavily on forecasting they want to know the expected path of inflation in the next few quarters and by how much a 50 basis point increase in the federal funds rate would affect that path frb us offers answers to these questions answers that many macroeconomists would regard with suspicion given both the lucas 1976 critique and the fact that in general the restrictions imposed by cowles foundation models are at odds with dynamic general equilibrium macroeconomics sims 1980 general equilibrium models on the other hand have a hard time providing alternative answers the fact that these models are perceived to do badly in terms of forecasting as they are scarcely parameterized is perhaps one of the reasons why they are not at the forefront of policy making while progress is being made in the development of dsge models that deliver acceptable forecasts e g smets and wouters 2003 this paper proposes an approach that combines a stylized general equilibrium model with a vector autoregression var to obtain a specification that both forecasts well and is usable for policy analysis specifically the approach involves using prior information coming from a dsge model in the estimation of a vector autoregression loosely speaking this prior can be thought of as the result of the following exercise i simulate time series data from the dsge model ii fit a var to these data in practice we replace the sample moments of the simulated data by population moments computed from the dsge model solution since the dsge model depends on unknown structural parameters we use a hierarchical prior in our analysis by placing a distribution on the dsge model parameters a tightness parameter controls the weight of the dsge model prior relative to the weight of the actual sample markov chain monte carlo methods are used to generate draws from the joint posterior distribution of the var and dsge model parameters the paper shows that the approach makes even a fairly stylized new keynesian dsge model competitive with standard benchmarks in terms of forecasting real output growth inflation and the nominal interest rate the three variables that are of most interest to policy makers 2 up to this point our procedure borrows from the work of dejong ingram and whiteman 1993 and ingram and whiteman 1994 who are the first to use priors from dsge models for vars ingram and whiteman showed that prior information from the bare bones stochastic growth model of king plosser and rebelo 1988 is helpful in forecasting real economic activity such as output consumption investment and hours worked in addition to documenting the forecasting performance of a trivariate var with a prior derived from a monetary dsge model this paper makes two contributions that significantly extend the earlier work first we show formally how posterior inference for the var parameters can be translated into posterior inference for dsge model parameters

a note on permits standards and technological innovation abstract montero j environ econom manage 44 2002 23 contrasts the incentives to invest in new abatement technologies under different regulatory instruments and argues that one needs to consider the induced output effects that derive from lower abatement costs montero shows that once one takes into account these effects on output command and control instruments can generate stronger incentives to innovate than market based instruments this result rests on strategic output effects under command and control however he maintains that under perfectly competitive conditions market based instruments will continue to weakly dominate command and control regulation this note clarifies two issues raised by montero first i use montero s approach to show that in fact performance concentration standards will generate greater incentives to innovate than market based instruments in perfectly competitive markets one does not require strategic effects to get this result second montero abstracts from production costs and concentrates solely on abatement costs he implicitly assumes that marginal production costs are constant i show that some of montero s results change once increasing marginal production costs are considered when marginal costs are increasing the benefit of additional output is tempered and market based instruments again look more favorable

timing and commitment of environmental policy adoption of new technology and repercussions on r d we investigate the interplay between environmental policy incentives to adoptnew technology and repercussions on r d we study a model where a monopolistic upstream firm engages in r d and sells advanced abatement technology to polluting downstream firms we consider four different timing and commitment regimes of environmental tax and permit policies ex post taxation or issuing permits interim commitment to a tax rate a quota of permits after observing r d success but before adoption and finally two types of ex antecommitment before r d activity one with a unique tax rate quota of permits the other one with a menu of tax rates permit quotas we study the second best tax and permit policies and rank these with respect to welfare in particular we find that commitment to a menu of tax rate dominates all other policy regimes

voluntary disclosure and investment in environmental technology abstract i examine the role of voluntary disclosure programs in creating market incentives for competing firms to invest in environmentally cleaner technology in an industry subject to environmental regulation such as emission taxes such programs may allow firms to credibly disclose their progress in achieving compliance cost reduction through investments in internal rd the outcome of the investment is private information i show that the ex ante incentive to invest is always higher in the presence of the voluntary disclosure program than without it in particular the opportunity to credibly disclose progress in cost reduction allows a successful firm to convey its true position of competitive advantage to the rival firm and realize higher market share and profit thus voluntary disclosure programs increase the efficacy of traditional forms of environmental regulation in creating incentives for green technological change even when buyers have no preference for greener technology i show that such programs generally increase social welfare

the role of policy labels keywords and framing in transitioning waste policy abstract the last decade has seen a new wave of ambitious policies in order to address the mounting ecological damage caused by high levels of consumerism and the depletion of resources to manufacture short life cycle products in this paper zero waste and sustainable materials management are examined as prominent labels of an evolving waste policy discourse towards waste prevention and reduction and material cycles using discourse analysis key documents are comparatively assessed presenting the origins of these two concepts and how they entered the waste policy domain the different framing tactics and governance models are then presented the findings demonstrate that the different discourse paradigms around the concept of waste and materials influences what policy initiatives measurement tools and outcomes are pursued although zero waste and sustainable materials management are gaining popularity as indicators of shifting waste policy towards sustainable production and consumption policy particularly with increasing discussion and application of circular economy governance models in europe and china a distinction still exists between the conceptualisation and implementation within and across the two concepts it is in this transition towards a circular economy that it is valuable to review the role of policy labels keywords and framing context in waste policy and the ability of enhanced waste management to assist in the development of more sustainable and environmentally acceptable economic and social behaviour models

innovation and the international diffusion of environmentally responsive technology abstract new evidence is presented on environmental innovation and diffusion over the 1970s and 1980s at a global level a substantial amount of innovations occurred in the united states japan and germany the share of environmental patents in all patents varied between 0 6 and 3 and as such was higher than the corresponding share of pollution abatement expenditure in gdp japanese environmental innovation rates were consistently high certain plausible connections between environmental regulation and innovation also emerge across these three countries and over time innovation responded to pollution abatement expenditure an indicator of the severity of environmental regulations environmental patenting rates in developing countries were also high reaching 2 in many years in brazil developing country innovators obtained a non trivial number of patents most of which appear geared towards adapting imported technologies to local conditions however domestic innovation was only one path to new technologies imports of disembodied environmental technologies foreign patents registered in developing countries were substantial foreign patents were typically important or generic patents evidence also suggests that such patents protected intellectual property in equipment exported developing countries especially in east asia often chose to obtain technologies embodied in pollution abatement equipment

inventor networks in renewable energies the influence of the policy mix in germany technological change and gains in efficiency of renewable power generation technologies are to a large extent driven by governmental support various policy instruments that can broadly be categorized as technology push demand pull or systemic constitute part of the policy mix for renewable energies our goal is to gain insights into the influence of this policy mix on the intensity and organization of inventive activities for wind power and photovoltaics in germany since the 1980s we examine the effect of different instruments on the size and structure of co inventor networks based on patent data our results indicate notable differences between the technologies the network size for wind power is driven by technology push and systemic instruments while in photovoltaics demand pull is decisive for network growth by and large the instruments complement each other and form a consistent mix of policy instruments the structure of the networks is driven by demand pull for both technologies systemic instruments increase interaction especially in the wind power network and are complementary to demand pull in fostering collaboration

the merits of new pollutants and how to get them when patents are granted the performance of market based environmental regulation is affected by patents and vice versa this interaction is studied for a type of innovation where a new technology reduces emissions of a specific pollutant but at the same time causes a new type of damage if the new pollutant associated with this technology is sufficiently different from existing ones such that marginal damage is increasing in each of them but additive across pollutants a diversification of the pollution portfolio is socially desirable in a situation where the incentives to develop such a technology are created by patents the efficiency of permits is affected by monopoly pricing of the patent holding firm this result carries over to other types of innovation the performance of taxes is limited by either the inability to implement specific pollution mixes or monopoly pricing for constant returns to scale at the industry level the combined use of taxes and permits ensures the first best mix of technologies and provides positive research incentives

macroeconomic forecasting using diffusion indexes this article studies forecasting a macroeconomic time series variable using a large number of predictors the predictors are summarized using a small number of indexes constructed by principal component analysis an approximate dynamic factor model serves as the statistical framework for the estimation of the indexes and construction of the forecasts the method is used to construct 6 12 and 24 monthahead forecasts for eight monthly u s macroeconomic time series using 215 predictors in simulated real time from 1970 through 1998 during this sample period these new forecasts outperformed univariate autoregressions small vector autoregressions and leading indicator models