emerging biofuels outlook of effects on u s grain oilseed and livestock markets projections of u s ethanol production and its impacts on planted acreage crop prices livestock production and prices trade and retail food costs are presented under the assumption that current tax credits and trade policies are maintained the projections were made using a multi product multi country deterministic partial equilibrium model the impacts of higher oil prices a drought combined with an ethanol mandate and removal of land from the conservation reserve program crp relative to baseline projections are also presented the results indicate that expanded u s ethanol production will cause long run crop prices to increase in response to higher feed costs livestock farmgate prices will increase enough to cover the feed cost increases retail meat egg and dairy prices will also increase if oil prices are permanently 10 per barrel higher than assumed in the baseline projections u s ethanol will expand significantly the magnitude of the expansion will depend on the future makeup of the u s automobile fleet if sufficient demand for e 85 from flex fuel vehicles is available corn based ethanol production is projected to increase to over 30 billion gallons per year with the higher oil prices the direct effect of higher feed costs is that u s food prices would increase by a minimum of 1 1 over baseline levels results of a model of a 1988 type drought combined with a large mandate for continued ethanol production show sharply higher crop prices a drop in livestock production and higher food prices corn exports would drop significantly and feed costs would rise wheat feed use would rise sharply taking additional land out of the crp would lower crop prices in the short run but because long run corn prices are determined by ethanol prices and not by corn acreage the long run impacts on commodity prices and food prices of a smaller crp are modest cellulosic ethanol from switchgrass and biodiesel from soybeans do not become economically viable in the corn belt under any of the scenarios this is so because high energy costs that increase the prices of biodiesel and switchgrass ethanol also increase the price of corn based ethanol so long as producers can choose between soybeans for biodiesel switchgrass for ethanol and corn for ethanol they will choose to grow corn cellulosic ethanol from corn stover does not enter into any scenario because of the high cost of collecting and transporting corn stover over the large distances required to supply a commercial sized ethanol facility

consumer preference and willingness to pay for a renewable fuel standard rfs policy focusing on ex ante market analysis and segmentation abstract total energy consumption of oil in 2050 is expected to increase to 1 6 times its level in 2005 and greenhouse gas ghg emissions in the transportation sector will be second only to the electricity sector in order to reduce ghg emissions in transportation leading countries have started to implement renewable fuel standard rfs policies other countries such as korea have recently started implementing rfs policies in order to comply with the proposed global ghg reduction target however previous research did not consider the impact of rfs policy on consumer acceptance levels therefore this study analyzes consumer preferences and willingness to pay wtp for rfs to provide detailed policy strategies this study conducts additional analysis using market segmentation and sensitivity analysis the results indicate that consumers generally accept the cost of implementing an rfs policy if the cost falls between krw 101 78 liter usd 0 33 gal and krw 187 26 liter usd 0 60 gal in addition consumer wtp for implementing an rfs policy changes when the income exceeds krw 5 million usd 4229 1 in driver group and relatively lower income groups tend not to support rfs policies based on the results of this study we can suggest proper pricing policies for each income group and a public relations strategy to improve the level of policy acceptance

rural transformation inequality and the origins of microfinance abstract what determines the development of rural financial markets starting from a simple theoretical framework we derive the factors shaping the market entry of rural microfinance institutions across time and space we provide empirical evidence for these determinants using the expansion of credit cooperatives in the 236 eastern counties of prussia between 1852 and 1913 this setting is attractive as it provides a free market benchmark scenario without public ownership subsidization or direct regulatory intervention furthermore we exploit features of our historical set up to identify causal effects the results show that declining agricultural staple prices as a feature of structural transformation leads to the emergence of credit cooperatives similarly declining bank lending rates contribute to their rise low asset sizes and land inequality inhibit the regional spread of cooperatives while ethnic heterogeneity has ambiguous effects we also offer empirical evidence suggesting that credit cooperatives accelerated rural transformation by diversifying farm outputs

option value empirical evidence from a case study of recreation and water quality a procedure for measuring option value and other preservation values of water quality is developed and applied to a case study area in the south platte river basin colorado benefits from water based recreation activities are the focus of the study the results provide an empirical test and confirmation of weisbrod s proposal that option value and other preservation values represent important social benefits and should be added to the aggregate consumer surplus of recreation activities to determine the total benefit of environmental amenities to society in the absence of such an estimate insufficient resources would be allocated by society to preservation of unique environments such as pristine mountain streams where mineral and energy development may irreversibly degrade water quality

costs and benefits of investment in electronic design abstract appraising any investment requires reliable quantification of the costs and benefits associated with the project this paper addresses the measurement of the value of investment in design in electronic industries it discusses a staged approach to the measurement of costs and benefits within the design activity itself and resulting from changes in downstream activities in manufacturing and test it considers the problems of estimating revenues resulting from strategic implications of investment in design and suggests a possible approach to evaluating those benefits difficult to quantity

flexibility and uncertainty the preserving of flexibility when faced with uncertainty is a neglected aspect of behaviour under risk yet it is an important factor in decisions to hold liquid assets or delay irreversible investment this paper formalizes the notion of flexibility in a sequential decision context and relates its value to the amount of information an agent expects to receive a rudimentary money demand model is developed embodying these ideas and the history of flexibility as an economic concept is traced choices are frequently made between alternatives that imply different degrees of future commitment between a short term investment that leaves future options open for example and a long term one that by its very nature forecloses those options the relative attractiveness of the two depends on their probability distributions of payoffs over time a basic consideration in this choice is the recognition that beliefs about the risks governing these payoffs may change current doubts may be partially resolved in the near future this prospect decreases the attractiveness of the longer term commitment in that one is able to respond less fully to new information and even if it does not directly affect the risks associated with shorter term choices enhances their appeal this paper formalizes the above remarks by establishing connections between the following two partial orderings the first is an ordering based on variability of beliefs one set of beliefs is more variable than another if more final risk is resolved at an intermediate stage the more one expects to learn by an intermediate period relative to what one knows today the more variation one is anticipating in beliefs about the final outcome the second is an ordering of current actions or positions based on flexibility one position is more flexible than another if it leaves available a larger set of future positions at any given level of cost these two orderings are incorporated in a simple sequential decision model to suggest the following behavioural principle the more variable are a decision maker s beliefs the more flexible is the position he will choose this principle potentially applies whenever i there will be opportunities to act after further information is received and ii current actions influence either the attractiveness or availability of different future actions

transport and low carbon fuel a study of public preferences in spain abstract transport is essential for the control of future greenhouse gas ghg emissions and thus a target for active policy intervention in the future yet social preferences for policies are likely to play an important role in this paper we first review the existing literature on preferences regarding low ghg car fuels but also covering policy instruments and strategies in this area we then present the results of a survey of spanish households aimed at measuring preferences for climate change policies we find a positive willingness to pay wtp in the form of higher car fuel prices for a policy to reduce ghg emissions through biofuels there is however significant heterogeneity in public preferences due to personal motivations accounted for via factor analysis of responses to attitudinal questions and to socio demographic variables

hicks s thread out of the equilibrium labyrinth the work of john hicks is an unending source of inspiration for many economists and an unsolved dilemma for historians of economic thought these pages highlight the fact that hicks peculiar perspective on the economic agent constitutes the substructure underlying his research path and the common premise to his theories of markets liquidity capital and risk hicks theory of the agent was intended to address the factual role of non measurable risk i e learning management and was primarily concerned with the price and wealth effects that the transaction costs costs of learning and moving entail for learning induced behaviours

some macroeconomics for the 21st century this note describes a numerical simulation of a model of economic growth a simplified version of robert tamura s 1996 model of world income dynamics based on technology diffusion the model makes predictions for trends in average world income growth and about the evolution of the relative income distribution that accord well with observation the model is used to forecast the course of world income growth and income inequality over the century to come

structural change in an open economy we study the importance of international trade in structural change our framework has both productivity and trade cost shocks and allows for non unitary income and substitution elasticities we calibrate our model to investigate south korea s structural change between 1971 and 2005 we nd that the shock processes propagated through the model s two main transmission mechanisms non homothetic preferences and the open economy explain virtually all of the evolution of agriculture and services labor shares and the rising part of the hump shape in manufacturing counterfactual exercises show that the role of the open economy is quantitatively important for explaining south korea s structural change

learning by doing and the introduction of new goods a dynamic general equilibrium model is developed in which goods are valued according to the characteristics they contain the set of goods produced in any period is endogenously determined and learning by doing is the force behind sustained growth it is shown that the set of produced goods changes in a systematic way over time with goods of higher quality entering each period and those of lower quality dropping out the model is then used to study the effect of introducing a traditional sector in which there is no learning

the drivers of structural change the main goal of this paper is to provide an integrated survey of the literature devoted to identifying the drivers of structural change broadly defined as the process of reallocation of economic activity across the three broad sectors agriculture manufacturing and services using the ggdc 10 sector database this paper first presents the empirical facts associated with structural change in different regions of the world that is europe and the usa asia latin america and africa then reviews four determinants of structural change i changes in income ii changes in relative sectoral prices iii changes in input output linkages and iv changes in comparative advantage s via globalization and trade

the irreversibility effect in environmental decisionmaking we provide a new more general definition for the irreversibility effect and demonstrate its relevance to problems involving environmental and other decisions under uncertainty we establish several analytical and numerical results that suggest both that the effect holds more widely than generally recognized and that an existing result epstein s theorem giving a sufficient condition for determining whether the effect holds can be applied more widely than previously indicated in particular to problems involving intertemporally nonseparable benefit functions we further show that a low elasticity of intertemporal substitution will however result in failure of the effect

costly and bounded rationality in individual and team decision making the savage paradigm of rational decision making under uncertainty has become the dominant model of human behavior in mainstream economics and game theory however under the rubric of bounded rationality this model has been criticized as inadequate form both normative and descriptive viewpoints this paper sketches the historical roots and some current development of this movement distinguishing between attempts to extend the savage paradigm costly rationality and the need for more radical departures truly bounded rationality copyright 2000 by oxford university press

public attitudes toward political and technological options for biofuels abstract this paper explores detailed public attitudes regarding the expanding range of biofuels technologies and policy options subjects from 34 in depth focus groups in central indiana were fairly knowledgeable about biofuels technologies but uninformed about biofuels policies despite being from a state where biofuels are a salient political issue a narrow majority was supportive of biofuels in general but expressed greater enthusiasm about second generation biofuels subject beliefs about biofuels economic and environmental impacts were most important in shaping these opinions rather than concerns about energy independence or other issues in terms of policy options subjects were most supportive of an alternative fuels standard and least supportive of a fixed subsidy and a cap and trade policy in contrast to arguments about technologies participants primarily framed their attitudes toward policies in terms of fairness although discussion did not substantially change aggregate preferences for most policies it did increase support significantly for at least one policy proposal a variable subsidy for ethanol it is particularly noteworthy that subjects generally did not support the most common biofuel technology corn based ethanol or the most prominent biofuels policy option the fixed subsidy despite residing in a state hosting a strong corn industry and staunch political advocates for both positions

structural transformation and the deterioration of european labor market outcomes this paper examines hours worked in continental europe and the united states from 1956 to 2003 the empirical work establishes two results first hours worked in europe decline by almost 45 percent compared to the united states over this period second this decline is almost entirely accounted for by the fact that europe develops a much smaller market service sector than the united states a simple model of time allocation is used to understand these patterns i find that relative increases in taxes and technological catch up can account for most of the differences between the european and american time allocations over this period

what explains the industrial revolution in east asia evidence from the factor markets this paper presents dual estimates of total factor productivity growth tfpg for east asian countries while the dual estimates of tfpg for korea and hong kong are similar to the primal estimates they exceed the primal estimates by 1 percent a year for taiwan and by more than 2 percent for singapore the reason for the large discrepancy for singapore is because the return to capital has remained constant despite the high rate of capital accumulation indicated by singapore s national accounts this discrepancy is not explained by financial market controls capital income taxes risk premium changes and public investment subsidies jel o11 o16 o47 o53

uncertain irreversibility information and transformation costs abstract the problem of allocation of a given stock of land between two alternatives uses preservation and development is analyzed in a two period model with initial uncertainty about future benefits of those uses and about the irreversibility of development arrival of information at the end of the first period and costs of changing the allocation of the resource it is shown how the consideration of those costs may imply results that do not coincide with the ones presented in the previous literature on irreversibility

transportation costs agricultural productivity and cross country income differences i document large difierences in domestic transport costs and transportation infrastructure across nations the richest countries have 5 times lower transport costs and 32 times more infrastructure per capita than the poorest countries of the world are these difierences a source of aggregate labor productivity difierences across nations using a three sector two region general equilibrium model i show that high transport costs can distort the allocation of resources not only across geographically dispersed production units within sectors but also between agriculture and non agriculture taking as given the observed difierences in transportation costs and transportation infrastructure per capita i quantify the role of transportation for cross country income difierences the calibrated model produces an income disparity of 7 5 between the 5 rich and 5 poor countries this corresponds to an improvement of 50 relative to the disparity predicted by a two sector model of agriculture and non agriculture furthermore the efiects of advancements in transportation are non linear the elasticity of aggregate labor productivity with respect to transport labor productivity in the poorest nations is 6 times higher than in the richest ones the efiects of transport frictions are even more pronounced when restrictions to regional migration are introduced

labeling renewable energies how the language surrounding biofuels can influence its public acceptance abstract despite growing interest and investments in biological fuels little is known of how the public form opinions toward this alternative fuel technology this study examines public opinion of biofuels by focusing on several factors that can be expected to influence citizens opinions about the issue first we tested the results of a framing experiment that was embedded within a public opinion survey this experiment explored how the public responded to the term biofuels as compared to the term ethanol our results suggest that overall respondents tended to react more favorably to the former as opposed to the latter term second we examined the impacts of sociodemographics on public attitudes toward biofuels we found that while sociodemographics did little to consistently explain attitudes toward biofuels there was clear evidence of ideological influences on attitudes with self identifying democrats showing more positive attitudes overall finally we explored the interaction between political partisanship and our experimental manipulation we found evidence that our wording manipulation differed based on the political party identification of our respondents with democrats fluctuating greatly in their assessments depending upon whether they were asked to evaluate biofuels or ethanol

competitive incentives for manufacturing flexibility abstract a game theoretic model is used in this paper to analyze firms incentives to acquire product flexibility the degree of product flexibility is determined by the cost a firm must incur to produce a new product the model helps to identify characteristics of industries which are likely to encourage product flexibility strategies the model suggests that firms in industries where the ratio of price to variable cost is high are likely to expend more effort to increase product flexibility this hypothesis is then tested empirically

looking for a guide to protect the environment the development of the precautionary principle abstract if the precautionary principle is to become the guide of the international community for environmental protection policies an economic interpretation of the principle is in order the analysis of case studies and a survey of the recent decision theoretic literature show the lack of a fully satisfactory economic model more generally various theoretical and empirical results show that the principle cannot be assumed to apply a priori though it has been proposed by international treaties as a rule of thumb for situations of scientific uncertainty the precautionary principle could actually be inefficient

optimal investment strategies for flexible resources considering pricing and correlated demands we study the optimal resource investment decision faced by a two product price setting firm that operates in a monopolistic setting and employs a postponed pricing scheme the firm has the option to invest in dedicated resources as well as a more expensive flexible resource that can satisfy both products while the resource investment decision is made under demand uncertainty pricing and resource allocation decisions are postponed to the time when demand curves are realized our analysis provides the structure of the firm s optimal resource investment strategy as a function of demand parameters and investment costs and shows that the flexible resource investment decision follows athreshold policy we also show that it can be optimal for the firm to invest in the flexible resource even when demand patterns are perfectly positively correlated the reason for flexible capacity investment in this case is financial rather than risk pooling on the other hand we show that it can be optimal for the firm not to invest in the flexible resource even when demand patterns are perfectly negatively correlated the flexible resource investment decision in this case depends on the profitability of the two products based on our analysis we provide principles on the firm s optimal resource investment decision

the role of trade in structural transformation abstract low agriculture productivity is considered a key obstacle to economic development for many countries international trade in agricultural goods can help overcome this barrier and facilitate structural transformation because it allows countries to import part of their food needs this article quantifies the role of trade in this context through the examples of south korea during the last 50 years and great britain in the 19th century to do the analysis i calibrate and simulate a two sector neoclassical growth model to match the data and perform the policy experiments i find that agricultural imports played a crucial role in the early transformation of great britain while in south korea trade also had a positive impact on its structural transformation but it could have played a much larger role if the country had not introduced agricultural protection policies

how important are dual economy effects for aggregate productivity this paper brings together development accounting techniques and the dual economy model to address the role that factor markets have in creating variation in aggregate total factor productivity tfp development accounting research has shown that much of the variation in income across countries can be attributed to differences in tfp the dual economy model suggests that aggregate productivity is depressed by having too many factors allocated to low productivity work in agriculture data show large differences in marginal products of similar factors within many developing countries offering prima facie evidence of this misallocation using a simple two sector decomposition of the economy this article estimates the role of these misallocations in accounting for the cross country income distribution a key contribution is the ability to bring sector specific data on human and physical capital stocks to the analysis variation across countries in the degree of misallocation is shown to account for 30 40 of the variation in income per capita and up to 80 of the variation in aggregate tfp

food security and agricultural protection in south korea south korea has been pursuing food self sufficiency using high tariffs and high administrative prices in key agricultural and food markets using a dual approach to trade and trade restrictiveness indices we analyze the impact of these market distortions on welfare and trade volume then we compute second best distortions which minimize the welfare cost of meeting observed levels of self sufficiency and production we rationalize these second best distortions to what could be claimed as legitimate protection under a food security fs box in world trade organization wto negotiations fs box protection is sensitive to changes in the definition and the extent of the fs objectives we show that fs via production targets and reliance on imports would be more palatable to consumers and trade partners while preserving income transfer to the farm sector the republic of korea has supported its agricultural sector at a relatively high level compared to that of other member countries of the organisation for economic cooperation and development oecd public intervention mainly consists of high production prices supported by government purchases together with high tariffs that protect domestic producers from foreign competition and implicitly tax consumers trade liberalization recently took place in certain sectors and korea is now a major importer of oilseeds and coarse grains however korea only reluctantly exposed its agricultural sector to the provisions of the uruguay round agreement on agriculture uraa iatrc 1997 it has kept very high tariffs in the rice meat and dairy sectors high production subsidies in most other sectors and significant nontariff trade barriers on many commodities including administra

regulatory actions under adjustment costs and the resolution of scientific uncertainty food system regulators often decide whether to ban existing practices or approve new technologies without conclusive scientific evidence on possible damage and knowing that resolution is likely in the future in a model with three decision points and stochastic resolution of uncertainty we study interactions between expected losses due to regulation and information availability when a regulator is deciding on an early reversible ban and on a later reversible ban adjustment costs create inertia concerning intermediate signals such that earlier decisions are not overturned and also a bias against imposing an early ban the prospect of more later stage information can increase or decrease the incentive to ban early but research decreases the incentive to ban early

ecological economics and scientific controversies lessons from some recent policy making in the eec abstract contrasting the very limited scientific evidence on the forest dieback issue with the sudden adoption of policies on air pollution decided in the frg 1983 1984 and extended to the european community 1985 we propose an interpretative framework for the real internalization process at work in what was tantamount to a social crisis for public opinion the media and political actors we conclude that open scientific controversies on some environmental issues effects causes solutions pave the way for some actors to use the issue for their own techno industrial strategies quite alien to ecological constraints in cases of very high uncertainties on impacts it becomes impossible to apply conventional social cost benefit analysis scba as an optimizing tool we propose to develop economic analysis as a negotiation language and to give pride of place to the value of learning time and to the crucial role of technological pluralism as a condition for flexibility in the future

the food problem and the evolution of international income levels in most poor countries large fractions of land labor and other productive resources are devoted to producing food for subsistence needs we show that a model incorporating the food problem can provide new and useful insights into the evolution of international income levels in particular we find that the food problem can explain why some countries started to realize increases in per capita output more than 250 years later in history than others we also show that the food problem has important implications for growth miracles and the speed at which a country converges to its balanced growth path

flexibility and the theory of the firm abstract the object of this paper is 1 to bring together and integrate the various concepts of flexibility found in the economic literature 2 to flesh out the meaning of various aspects of flexibility and their implications thereby bridging the gap between the existing highly abstract theories and the empirical facts and 3 in the process to give a rich and comprehensive enough description of an industry to stimulate further theoretical as well as empirical work the study tries to combine inductive and deductive reasoning using empirical observations based on indepth interviews with manufacturers in the metalworking industry in the united states and sweden

organizational inertia and dynamic incentives abstract we model the level of inertia as an endogenous rational choice made by the organization principal we show that the efficient organizational response to the presence of private information on the value of change will in general be to bias the decision rule towards the status quo the compensation of the agent differs significantly according to whether the information is private to the principal or the agent and the efficient distribution of real authority in an organization need not always be profitably retained by the principal

differentiating use and nonuse values for coastal pond water quality improvements this paper measures the benefits of water quality improvements in three coastal ponds on the island of martha s vineyard massachusetts u s a use option and existence values were elicited from martha s vineyard property owners by the contingent valuation method on average more than half of the total benefits are attributed to existence value results from the heckman selection model show that the exclusion of protest as well as missing bids does not cause significant bias in estimating respondents willingness to pay socioeconomic characteristics are found to have distinctively different influences on use option and existence values different model parameters are likely to be estimated depending on which value categories are measured by a selected valuation technique these findings emphasize the importance of nonuse values from water quality improvements and of socioeconomic characteristics for measuring different categories of values

structural change and economic growth this paper presents a model in which a country s measured average propensity to save endogenously rises when its economy industrializes the model has agricultural and manufacturing sectors only agriculture uses land if at early dates income per capita is low agricultural consumption is important land is valuable and capital gains on land may constitute most wealth accumulation leaving the country s nipa aps low if exogenous technological progress raises incomes over time engel s law shifts demand to manufactured goods then land s portfolio importance relative to reproducible capital diminishes and the national income and products account saving rate can rise this paper presents a model illustrating that structural change due to the operation of engel s law can systematically affect an economy s measured saving rate according to the model a country s national income and product account average propensity to save will rise naturally if and when technological progress sufficiently lifts its income per capita this suggests a new interpretation of time series evidence while saving rates historically tend to be higher after industrialization than before one cannot automatically infer that changing wealth accumulation behaviour led to modernization rather structural change accompanying growth may have caused the rise in saving rates this paper also warns that international trade could lead to a contrasting pattern in cross sectional data highincome nations might contemporaneously have lower measured saving rates than poor countries recent work by mankiw romer and weil 1992 islam 1995 mankiw 1995 and others investigates long run patterns the analyses assume that each economy has attained or is moving toward a steady state equilibrium as in solow 1956 a country s steady state level of per capita gdp depends on its average propensity to save aps its rate of population growth the efficiency of its production sector etc regression outcomes seem consistent with the solow model s prediction that a higher aps will ceteris paribus lead to a higher level of income per capita the idea is that heterogeneity of exogenous preferences leads to international differences in aps s and in turn to long run differences

did lower unionization in the united states result in more flexible industries do unions really impede manufacturers output flexibility if so in what ways the authors propose a methodology for quantifying george stigler s concept of output flexibility and for decomposing the effects of unionization on average cost differences between union and non union plants using a recently compiled data set on u s three digit manufacturing industries from 1973 to 1996 they adapt this methodology to simulate the effects of unionization on flexibility and average costs for average size plants simulation results indicate that higher unionization was associated with higher average costs and lower flexibility than low unionization higher average costs appear to have been primarily due to higher fixed costs such as higher benefits

effect of information formats on information services analysis of four selected agricultural commodities in the usa we analyze sources of information in agricultural markets to understand patterns of demand for decision support services and the division of labor in the supply of these services information formatting qualitative variation that determines accessibility and relevance of information in specific contexts prohibits universal access to informational content information formats give rise to both transaction costs and complementarities reflected in patterns of information exchange in commodity systems controlling for actors structural roles and levels of education we develop a hedonic model of information demand such that actors seek information that is formatted to meet their needs and capabilities employing survey data we explain elements of observed patterns of information exchange in four commodity systems in the usa results point to opportunities to expand our understanding of socioeconomic processes underlying production and consumption of decision support

no regret potentials and technical innovation a viability approach to integrated assessment of climate policies abstract this paper aims to demonstrate the advantages of a sequential approach to decision making in climate policies this sequential approach is necessary because of the uncertainties regarding both the avoided costs of climate change and the costs of ghg emission abatement this assessment focuses on the minimization of learning time the reduction of technical and institutional inertia and the possible unexpected non linearities in abatement curves a stylized representation of so called no regret short term potentials of long term innovation trends and of backstop technologies is used we show that if we do take care of the inertia constraints in the decision process both policies namely the no regret and the innovation process exploitation becomes crucial in terms of minimization of the learning time

learning and stock effects in environmental regulation the case of greenhouse gas emissions abstract this paper concerns the optimal regulation of greenhouse gases that lead to global climate change in particular we focus on uncertainty and learning which over time resolves uncertainty we present an empirical stochastic model of climate economy interactions and present results on the tension between postponing control until more is known vs acting now before irreversible climate change takes place uncertainty in our model is in the damage caused by global warming the results suggest that a temporary carbon tax may dominate a permanent one because a temporary tax may induce increased flexibility

the role of the structural transformation in aggregate productivity we investigate the role of sectoral differences in labor productivity in explaining the process of structural transformation the secular reallocation of labor across sectors and the time path of aggregate productivity across countries using a simple model of the structural transformation that is calibrated to the growth experience of the united states we measure sectoral labor productivity differences across countries productivity differences between rich and poor countries are large in agriculture and services and smaller in manufacturing moreover over time productivity gaps have been substantially reduced in agriculture and industry but not nearly as much in services in the model these sectoral productivity patterns generate implications that are broadly consistent with the cross country evidence on the structural transformation aggregate productivity paths and relative prices we show that productivity catch up in industry explains about 50 percent of the gains in aggregate productivity across countries while low relative productivity in services and the lack of catch up explains all the experiences of slowdown stagnation and decline observed across countries

structural change accounting with labor market distortions abstract this paper quantifies the relative importance of sectoral productivity and labor market distortions for structural change in the u s india mexico and brazil between 1960 and 2005 i use census data to compute human capital by sector and infer labor market distortions as sectoral gaps in wage per unit of human capital i incorporate these distortions into a model of structural change and calibrate the model to reproduce the time paths of sectoral shares of labor and value added for each country counterfactuals reveal that 1 tfp growth in agriculture drives most of the decline in its share of labor 2 the role of labor market distortions is limited

investment projects and natural resources economic rationality in janus role abstract the evaluation of a public project or a public policy is in general based on scientific principles and methods however such an evaluation is not simply a logical and computational exercise there are uncertainties often severe ones in the way scientific knowledge is to be used hence there are degrees of freedom available to the promoters of the project or policy and possibly to other parties involved this paper discusses what use of these degrees of freedom has been made in western europe in situations where the conservation of natural resources has been a significant issue at stake we examine how scientific requirements on one hand and on the other hand the particular views held by the promoter and by other parties involved interact and how main features of the methodology of evaluation are influenced by this interaction which in some cases takes the form of an elaborated negotiation on methodological points

the depressing effect of agricultural institutions on the prewar japanese economy why didn t the japanese miracle take place before world war ii the culprit we identify is a barrier that kept prewar agricultural employment constant using a standard neoclassical two sector growth model we show that the barrier induced sectoral distortion and an ensuring lack of capital accumulation account well for the depressed output level without the barrier japan s prewar gnp per worker would have been at least about a half of that of the united states not about a third as in the data the labor barrier existed because we argue the prewar patriarchy forced the son designated as heir to stay in agriculture

ordering ambiguous acts we investigate what it means for one act to be more ambiguous than another the question is evidently analogous to asking what makes one prospect riskier than another but beliefs are neither objective nor representable by a unique probability our starting point is an abstract class of preferences constructed to be strictly partially ordered by a more ambiguity averse relation we define two notions of more ambiguous with respect to such a class a more ambiguous i act makes an ambiguity averse decision maker dm worse off but does not affect the welfare of an ambiguity neutral dm a more ambiguous ii act adversely affects a more ambiguity averse dm more as measured by the compensation they require to switch acts unlike more ambiguous i more ambiguous ii does not require indifference of ambiguity neutral elements to the acts being compared second we implement the abstract definitions to characterize more ambiguous i and ii for two explicit preference families maxmin expected utility and smooth ambiguity our characterizations show that the outcome of a more ambiguous act is less robust to a perturbation in probability distribution governing the states third the characterizations also establish important connections between more ambiguous and more informative as defined on statistical experiments by blackwell 1953 and others fourthly we give applications to defining ambiguity in the small and to the comparative statics of more ambiguous in a standard portfolio problem and a consumption saving problem

structural transformation and comparative advantage implications for small open economies data from the last half century show that revealed comparative advantage in agriculture manufacturing is negatively positively associated with the rate of decline in labour share in agriculture motivated by this finding the author constructs and calibrates a simple open economy model where there is learning by doing in manufacturing and industry supplied inputs to agricultural production this paper focuses on the effects of comparative advantage and learning by doing on structural transformation and calibrate the model to the us and the uk data to estimate key parameters of the model quantitative experiments show that holding constant other factors a small difference in a country s comparative advantage can account for a large variation in structural transformation for open economies which does not require nearly as much differential productivity growth as in closed economy models

valuing environmental functions tropical wetlands recent studies have suggested that tropical wetland systems may have a crucial economic role to play in development the following paper provides an overview of these benefits using the general framework of cost benefit analysis as the methodological approach to assessing wetland values an analysis of trade offs between conserving or converting tropical wetlands demonstrates that taking into account the opportunity cost of wetland loss leads to a lower level of conversion than would otherwise be the case finally the paper discusses the extensions and limitations of the production function approach as applied to valuing nonmarketed wetland benefits

in flexibility and the level of output a word of caution abstract it is widely believed that more flexibility stimulates output and investment in this letter we show that this view is too optimistic indeed with the help of a simple model improvements in flexibility are shown to have opposite effects on the level of output

nonuse values in benefit cost analysis benefit cost analysis bca is a pragmatic realization of the theory of welfare economics much of the research associated with bca has sought to expand the types of benefits that can be measured in dollar terms with this research there has been a progressive movement of goods and services from the set without measures usually designated as intangibles in bca terminology to the set with for example the recreational services provided by projects associated with dams for hydroelectric power or flood control were regarded as intangible until the development of the travel cost model for estimating the demand for outdoor recreation sites one of the current frontiers in bca research is associated with modeling and measuring nonuse benefits in contrast to the past efforts with intangibles research on this topic has remained controversial with few direct effects on the practice of applied welfare economics there are two principal reasons for this outcome first there has not been an accepted set of definitions for nonuse benefits and second applied studies with empirical estimates of nonuse benefits have until recently been non existent clearly these problems are related a consistent set of definitions is a necessary prerequisite for empirical implementation i will argue that consistent definitions for nonuse benefits have been elusive because the conceptual frameworks used in the literature to describe its primary components option value and existence values are not mutually consistent in the process of demonstrating this result i will describe the elements of a consistent framework for treating both use and nonuse benefits and apply it in explaining some of the problems with the available empirical estimates of nonuse benefits

pre commitment and flexibility abstract this paper considers several related strategic duopoly settings in which uncertainty creates an option value from retaining flexibility by delaying investment or output decisions until after uncertainty is resolved this value of flexibility must be weighed against the strategic value of pre commitment yielding a trade off between flexibility and pre commitment we obtain a simple characterization of the timing of output decisions as a consequence of the degree of uncertainty particular attention is paid to the implications for entry deterrence by an incumbent firm and to the possible flexibility enhancing effects of investment in capital

structural change in a multisector model of growth we study a multi sector model of growth with differences in tfp growth rates across sectors and derive sufficient conditions for the coexistence of structural change characterized by sectoral labour reallocation and constant aggregate growth path the conditions are weak restrictions on the utility and production functions commonly applied by macroeconomists we present evidence from us two digit industries that is consistent with our predictions about structural change and successfully calibrate the historical shift from agriculture to manufacturing and services we show quantitatively that reasonable deviations from our conditions do not have a big impact on the properties of the model

beyond balanced growth balanced growth models are commonly used in macroeconomics because they are consistent with the well known kaldor facts regarding economic growth these models however are inconsistent with one of the most striking regularities of the growth process the massive reallocation of labour from agriculture into manufacturing and services this paper presents a simple model consistent with both the kaldor facts and the dynamics of sectoral labour reallocation

monetary growth innovations in a simple cash in advance asset pricing model abstract this paper contributes to the existing literature in the rational expectations cash in advance asset pricing general equilibrium model in two directions first we show that by allowing a variable velocity of circulation an increase in the conditional variance of the money growth process triggers an increase in the demand for money relative to stocks and bonds with a consequent reduction in stock and bond prices which is the opposite of the current result in the literature with constant unitary velocity second we explicitly show how the sequential markets and specific timing of information fits exactly into the notion of irreversibility in the sense that when faced with uncertainty agents might find optimal to delay decisions in order to wait for the arrival of new information

coordinating the resource investment decision for a two market price setting firm abstract we study the capacity investment decision of a two product firm that is a price setter for both products the products are of varying complexities such that the resource that can be used to produce the higher level product can also be used to produce the lower level one but not vice versa although the firm needs to make its capacity investment decision under demand uncertainty it can utilize this limited downward resource flexibility in addition to pricing to more effectively match its supply with demand as an example consider a firm that owns a main plant satisfying both end product and intermediate product demand and a subsidiary satisfying the intermediate product demand only we formulate this decision problem as a two stage stochastic programming problem with recourse and analyze the impact of coordinated decision making when the resource flexibility is taken into account in the investment decision and demand correlation on the firm s optimal investment strategy our results offer managerial principles on the firm s optimal resource investment strategy

changes in sectoral composition associated with economic growth in this paper the author uses dynamic general equilibrium methods to examine the interrelationship between sectoral composition and growth she shows that growth is affected by sectoral composition and vice versa the model is basically a solow model of sustained growth with multiple consumption goods and nonhomothetic preferences each consumption good is produced using different factor intensities the rate of exogenous technological change is different in each sector nonhomotheticity of preferences drives the result that sectoral composition affects growth rates copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

public attitudes to biofuel use in aviation evidence from an emerging tourist market abstract aviation generates substantial carbon footprint which is projected to increase due to the continuous growth in international tourism especially in emerging markets this carbon footprint should be mitigated to bring the tourism industry towards its sustainability goals within a portfolio of prospective carbon mitigation measures biofuels represent a technological innovation which holds substantial potential to reduce the carbon significance of aviation the success of technological innovations often depends on public opinion the role of public opinion is particularly relevant in the aviation context where safety considerations of technological innovations may determine consumer choice focusing on poland an emerging tourist market in europe this study explored public opinion on biofuel use in aviation it found that public understanding of the perspectives of aviation biofuel technology including its safety is limited and needs to be reinforced public distrust in the national institutions of power and the industry sector representatives in poland calls for educational and public awareness raising campaigns to be delivered by the third sector organisations

do multinationals operate flexibly theory and evidence do multinational enterprises operate flexibly i e do they shift production in response to currency changes three theoretical perspectives are developed flexibility optimism premised on information and sunk cost advantages takes a macro efficiency perspective and predicts sizable responses flexibility pessimism premised on inertia and internal opportunism takes an organizational perspective and predicts sticky responses flexibility realism premised on the view that to be flexible in the current period multinational enterprises need to have planned and invested accordingly in previous periods predicts positive but relatively modest responses empirical analysis spanning the period 1977 1993 finds that multinational enterprises systematically exploit currency shifts but even in the face of large exchange rate changes their operational responses are relatively modest the results appear most consistent with flexibility realism and this hypothesis is selected over the alternatives considered

can traditional theories of structural change fit the data two traditional explanations for structural changes are sector biased technological progress and non homothetic preferences this paper integrates both into an otherwise standard growth model and quantitatively evaluates them vis a vis time series the exercise identifies a set of puzzles for standard theories i the model cannot account for the steep decline in manufacturing and rise in services in the later data ii the standard model requires implausibly low elasticity of substitution across goods to match the consumption and output data and iii the behavior of consumption and output shares differs significantly from that of employment shares we argue that models that incorporate home production sector specific factor distortions and differences across sectors in the accumulation of human capital are promising avenues to amend the standard models jel o11 o14 o41

optimal investment in product flexible manufacturing capacity this paper presents a model and an analysis of the cost flexibility tradeoffs involved in investing in product flexible manufacturing capacity flexible capacity provides a firm with the ability to respond to a wide variety of future demand outcomes but at the expense of the increased cost of acquiring flexible manufacturing capacity as compared with dedicated or nonflexible capacity we formulate the product flexible manufacturing capacity investment decision as a two stage stochastic program in the first stage the firm must make its investment decision in manufacturing capacity before the resolution of uncertainty in product demand in the second stage after demand for products are known the firm implements its production decisions constrained by the first stage investments the main contributions of this paper are threefold first we develop a model of the firm s flexible manufacturing investment decision that conceptually captures some of the key characteristics of this complex decision probl

scientific progress and irreversibility an economic interpretation of the precautionary principle abstract we consider the problem of the optimal use of a good whose consumption can produce damages in the future scientific progress is made over time that provides information on the distribution of the intensity of damages we show that this progress induces earlier prevention effort only if prudence is larger than twice absolute risk aversion this paper thus identifies the class of quite restrictive but plausible conditions such that scientific uncertainties justify an immediate reduction of the consumption of a potentially toxic substance

structural change in an interdependent world a global view of manufacturing decline this paper presents a simple model of the world economy in which productivity gains in manufacturing are responsible for the global trend of manufacturing decline and yet in a cross section of countries faster productivity gains in manufacturing do not necessarily imply faster declines in manufacturing in doing so it aims to draw attention to the common pitfall of using the cross country evidence to test a closed economy model and argues for a global perspective in order to understand cross country patterns of structural change one needs a world economy model in which the interdependence across countries is explicitly spelled out jel f43 o11 o14 o19

decision making under environmental uncertainty abstract the paper s main concern is with different decision making models for environmental issues and with the hypotheses of rationality underlying such models the hypothesis supported here is that most environmental problems are in a context of uncertainty of irreversibility and of complexity we shall explain why stressing the role of these elements implies a reversal of the traditional attitude towards decision making this presupposes a paradigm of economic rationality much broader that that of orthodox economics called procedural rationality our paper is in two parts the first part concerns the limits of the stochastic environmental approaches based on the bayesian decision theory and on a substantive rationality hypothesis the second part concerns the decision making analyses based upon a procedural rationality as well as their ability to take account of the interactions between uncertainty irreversibility and complexity

technological competition uncertainty and oligopoly abstract in an oligopoly context the present technological choice of a firm which expects to receive private revelant information just prior to the uncertain market stage has both a flexibility value and a strategic commitment value in contrast to some common wisdom ideas we provide a natural two stage competition framework in which an increase in uncertainty always raises the commitment value of the technological choice of the firm and may decrease its flexibility value when the increased uncertainty takes the form of more variable beliefs the first result tends to reinforce therefore the findings of the strategic commitment literature under certainty

requiem for option value as freeman 1984 accurately notes a lot of ink has been spilled over the concept of option value during the last two decades graham in his seminal 1981 article outlined the specific conditions under which option price is and more significantly is not an appropriate and relevant measure of value under demand uncertainty while graham s article demonstrates that option value is relevant only under restrictive assumptions regarding preferences and the nature of the uncertainty both the tone and contents of recent articles on the

geographic proximity to coal plants and u s public support for extending the production tax credit abstract the production tax credit ptc is an important policy instrument through which the federal government promotes renewable energy development in the united states however the efficacy of the ptc is hampered by repeated expirations and short term extensions and by the general uncertainty surrounding its future status we examine the factors driving variation in public support for the extension of the ptc using a nationally representative internet based survey americans living near a coal fired power plant are significantly more likely to support extending the ptc than are their peers who are more insulated from the externalities of burning coal the evidence for this dynamic was strongest and most statistically significant among subjects experimentally primed to think about the adverse health effects of burning coal raising awareness of the public health ramifications of generating electricity from fossil fuels holds the potential to increase support for renewable energy policies among those living in proximity to coal plants even in a highly politicized policy debate

issues of social acceptance on biofuel development alongside with biofuel development social acceptance issues have been underestimated while social acceptance can emerge as powerful barrier for biofuel development this article provides discussion on social acceptance in biofuel context an acceptance framework based on life cycle biofuel production had been referred for a better understanding on social acceptance issues malaysia has been referred for the discussion as the country has faced with acceptance issue in their biofuel program the discussion point out different societal groups will demand specific consideration for either support or oppose biofuel this paper concludes that biofuel development will be constraint if social acceptance issues remain neglect

patterns of collaborative innovation in the us telecommunications industry after divestiture abstract this paper examines the implications of institutional change on collaborative innovation in the us telephone service industry the analysis relies on a database covering cooperative ventures in which two groups of firms were involved in the 1984 1990 period i e the regional holding companies and the independent holding companies in the post divestiture phase first it is shown that restrictions imposed on diversification may represent a strong mechanism inducing firms to collaborate with equipment suppliers and other service carriers through international cooperation companies attempt to exploit technological and market opportunities they cannot gain access to on the national arena moreover they take part in a number of agreements as a means to aggressively modernize their network equipment and to increase their own innovative capabilities on the markets they are allowed to enter second the paper discusses the consequences of the breaking up of r d manufacturer user integration on equipment procurement strategies on the one hand firms which were constrained in their vertical integration appear to have increased the number of sources as a protection against suppliers opportunistic behaviour on the other hand they tend to get involved into a larger and growing number of supply contracts which also have some collaborative implications in order to capture the value of their internally produced software it is further suggested that these areas of institutional intervention should be closely examined when discussing actual and potential patterns of collaborative ventures and innovation in other industrial contexts as well

how to design infrastructure contracts in a warming world a critical appraisal of public private partnerships we analyze how long term uncertainty for example regarding future climate conditions affects the design of concession contracts and organizational forms in a principal agent context with dynamic moral hazard limited liability and irreversibility constraints the prospect of future uncertain productivity shocks on the returns on the firm s effort creates an option value of delaying efforts a course that exacerbates agency costs contracts and organizational forms are drafted to control this cost of delegated flexibility the possibility for the agent to delay investment in response to uncertainty and irreversibility also elicits preference for unbundling different stages of the project through short term contracts our analysis is relevant to infrastructure sectors that are sensitive to changing weather conditions and sheds a pessimistic light on the relevance of public private partnerships in this context

an operational measure of liquidity embedding the process of selling an asset in a search environment enables one to provide an exact definition of liquidity an asset s liquidity is the expected time until it is sold while pursuing an optimal in the sense of maximization of expected discounted net proceeds policy this analysis reveals that this definition is compatible with most other notions of liquidity and in particular with those of john maynard keynes impatience the discount associatedwith a quick sale predictability and flexibility copyright 1986 by american economic association

malthus to solow a unified growth theory is developed that accounts for the roughly constant living standards displayed by world economies prior to 1800 as well as the growing living standards exhibited by modern industrial economies our theory also explains the industrial revolution which is the transition from an era when per capita incomes are stagnant to one with sustained growth the authors use a standard growth model with several technologies the first denoted the malthus technology requires land labor and reproducible capital as inputs the second denoted the solow technology does not require land the authors show that in the early stages of development only the malthus technology is used and due to population growth living standards are stagnant despite technological progress eventually technological progress causes the solow technology to become profitable and both technologies are employed at this point living standards improve since population growth has less influence on per capita income growth in the limit the economy behaves like a standard solow growth model excerpt