duopoly supergames with product differentiation abstract when goods are complements or very close substitutes more tacit collusion is supported by trigger strategies in price setting supergames than in quantity setting supergames for moderate or poor substitutes the situation is reversed this contrasts with the static situation where price setting strategies always lead to higher welfare

enterprises compliance with government carbon reduction labelling policy using a system dynamics approach abstract a carbon reduction labelling scheme is an effective policy tool for motivating enterprises or organizations to reduce their life cycle based carbon emissions to benefit the environment this paper uses system dynamics to model enterprises compliance with a combined government policy instrument for a carbon reduction labelling scheme that is government subsidies and economic sanctions a case study of paper enterprises in china is provided to demonstrate the application of the proposed model in which two optional technological plans to reduce the enterprises carbon emissions are examined the technological plans are categorized as a low cost and high cost plan the simulation results show that both the technological plans are vulnerable to the combined policy making and the high cost plan shows superior environmental performance for carbon emissions reduction however the enterprises are more inclined to choose the low cost plan because of superior economic performance the study offers insights to help enterprises select optimal actions on carbon emissions reduction and to inform government of possible sustainable policy design to promote low carbon development the model limitations are discussed as a basis for further improvements in low carbon development

risk aversion revisited in order to supply additional empirical evidence of the effect of wealth on relative risk aversion this study investigates households demand for risky assets using analysis of covariance techniques applied to the asset holdings of canadian individual households the extent and pattern of life cycle effects are also examined results generally point to decreasing relative risk aversion when housing is either excluded from the definition of wealth or treated as a riskless asset the investor s life cycle plays a prominent role in portfolio selection behavior with risk aversion increasing uniformly with age tax differentials do not seem to be an important element in investment decisions with respect to risk when the sample and wealth definitions are censored in order to approximate those of previous empirical studies their findings on relative risk aversion are generally corroborated this study presents an empirical investigation of the demand for risky assets of individual canadian households using data from the survey of consumer finances the results generally point to decreasing relative risk aversion when housing is either excluldied from the definition of wealth or treated as a riskless asset even when life cycle effects are controlled the investor s life cycle plays a prominent role in portfolio selection behavior with risk aversion increasing uniformly with age cohn lewellen schlarbaum 6 also found evidence of decreasing relative risk aversion using a restricted sample of stockowning investors while friend blume 12 concluded that constant relative risk aversion characterized household behavior the present study also finds that by restricting the sample and the wealth definitions to approximate those of cohn lewellenschlarbaum and those used by friend blume their empirical findings on relative risk aversion are generally corroborated the paper is divided into five sections the first reviews the literature on risk aversion and the second briefly describes the theory underlying the empirical tests the third section describes the data and statistical techniques used the empirical results are presented and discussed in the fourth section where the aggregate demand for risky assets is estimated and where the role of life cycle variables is examined the final section summarizes the main conclusions of the study

wealth accumulation over the life cycle and precautionary savings this article constructs and simulates a life cycle model of wealth accumulation and estimates the parameters of the utility function the rate of time preference and the coefficient of risk aversion by matching the simulated median wealth profiles with those observed in the panel study of income dynamics and in the survey of consumer finances the estimates imply a low degree of patience and a high degree of risk aversion the results are used to study the importance of precautionary savings in explaining wealth accumulation they imply that wealth accumulation is driven mostly by precautionary motives at the beginning of the life cycle whereas savings for retirement purposes become significant only closer to retirement

emissions trading and technology deployment in an energy systems bottom up model with technology learning abstract an important criterion in the analysis of climate policy instruments is their ability to stimulate the technological change necessary to enable the long term shift towards a low carbon global energy system in this paper some effects of emissions trading on technology deployment when technology learning is endogenized are examined with a multi regional bottom up energy systems optimization markal model of the global energy system in this framework due to the action of spillovers of learning imposing emission constraints on a given region may affect the technology choice and emissions profiles of other unconstrained regions the effects depend on the geographical scale of the learning process but also on the presence of emissions trading the regions that join the trade system and their timing for doing so incorporating endogenous technology learning and allowing for spillovers across regions appears as an important mechanism for capturing the possibility of induced technological change due to environmental constraints in bottom up models

myths and facts of the utility death spiral abstract as the electricity industry is changing worldwide the swift expansion of basic forms of distributed generation dg particularly photovoltaic deployment threatens the current utility business models that during the transitional stages may challenge the reliability of electricity systems and societal welfare these findings are matters of major concern to policy makers as the shift towards more decentralized power systems must be sustainable and although this brings great opportunities it also pauses important challenges the transition calls for policy and regulation attention for some researchers dg development should be accompanied with design changes to distribution tariffs the addition of connection charge and modifications to net metering while for others certain of these measures could discourage dg investments in this context and given multiple uncertainties the authors propose a system dynamics model to examine the effect of the diffusion of photovoltaic technology on the revenues of utilities and customers the paper concludes that for the colombian case it is possible under certain conditions to attain a balance between social welfare and the aversion of the utility death spiral through systemic interventions

to love or to pay savings and health care in older age this paper develops a dynamic structural lifecycle model to study how heterogeneous health and medical spending shocks affect the savings behavior of the elderly individuals are allowed to respond to health shocks in two ways they can directly pay for their health care expenses self insure or they can rely on health insurance contracts there are two possible insurance options one through formal contracts and another through informal care provided by family formal contracts may be affected by asymmetric information problems whereas informal insurance depends on social ties cohesion and on bequeathable wealth i estimate the model on share data using simulated method of moments for four levels of wealth in a sample of single retired europeans counterfactual experiments show that health medical spending and health insurance are indeed the main drivers of the slow wealth decumulation in old age i also find that social cohesion rises with age declines with wealth and is higher in mediterranean countries than in central european and scandinavian countries finally high social cohesion appears typically associated with increased life expectancy

bequests and informal long term care evidence from hrs exit interviews informal long term caregiving for frail elderly individuals by their children may induce parents to compensate their children for their help to test this hypothesis i use the exit interview from the health and retirement study hrs my results show that the decision to care for one s parents has a significant positive impact on the incidence and amount of bequests received in addition increasing the amount of care relative to one s siblings significantly increases the proportion of bequest within a family furthermore i find that the positive nexus of caregiving and bequest requires a written will as a contract between the parent and the helping child

stationary sunspot equilibria in a finance constrained economy abstract stationary sunspot equilibria are shown to exist in a production economy with infinite lived agents when it is not possible to borrow against future wage income equilibrium fluctuations exhibit persistence over time scales of the same order of magnitude as observed business cycles an active fiscal policy that stabilizes aggregate money expenditures can prevent such fluctuations

the strategic bequest motive although recent research suggests that intergenerational transfers play an important role in aggregate capital accumulation our understanding of bequest motives remains incomplete we develop a simple model of strategic bequests in which a testator influences the decisions of his beneficiaries by holding wealth in bequeathable forms and by conditioning the division of bequests on the beneficiaries actions the model generates falsifiable empirical predictions that are inconsistent with other theories of intergenerational transfers we present econometric and other evidence that strongly suggests that bequests are often used as compensation for services rendered by beneficiaries

modeling long term dynamics of electricity markets in the last decade many countries have restructured their electricity industries by introducing competition in their power generation sectors although some restructuring has been regarded as successful the short experience accumulated with liberalized power markets does not allow making any founded assertion about their long term behavior long term prices and long term supply reliability are now center of interest this concerns firms considering investments in generation capacity and regulatory authorities interested in assuring the long term supply adequacy and the stability of power markets in order to gain significant insight into the long term behavior of liberalized power markets in this paper a simulation model based on system dynamics is proposed and the underlying mathematical formulations extensively discussed unlike classical market models based on the assumption that market outcomes replicate the results of a centrally made optimization the approach presented here focuses on replicating the system structure of power markets and the logic of relationships among system components in order to derive its dynamical response the simulations suggest that there might be serious problems to adjust early enough the generation capacity necessary to maintain stable reserve margins and consequently stable long term price levels because of feedback loops embedded in the structure of power markets and the existence of some time lags the long term market development might exhibit a quite volatile behavior by varying some exogenous inputs a sensitivity analysis is carried out to assess the influence of these factors on the long run market dynamics

testing for indeterminacy an application to u s monetary policy reply this paper considers a prototypical new keynesian model in which the equilibrium is undetermined if monetary policy is passive the likelihood based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations we construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks according to the estimated model u s monetary policy post 1982 is consistent with determinacy whereas the pre volcker policy is not we find that before 1979 indeterminacy substantially altered the propagation of shocks

simulating price patterns for tradable green certificates to promote electricity generation from wind abstract this article uses computer simulation to anticipate the price dynamics in a market for tradable green certificates tgcs these markets have been used in europe to promote generation of electricity from renewable resources like wind similar markets have been proposed in the united states of america usa where the certificates are called renewable energy credits recs the certificates are issued to the generating companies for each megawatt hour of renewable electricity generation the companies may sell the certificates in a market and the revenues from certificate sales provide an extra incentive to invest in new generating capacity proponents argue that this market based incentive can be designed to support government mandates for a growing fraction of electricity generation from renewable sources in the usa these mandates are set by the states and are known as renewable portfolio standards rps we simulate the price dynamics of a market designed to support an aggressive mandate for wind generation in the northwestern usa the simulations show that the certificate price climbs rapidly to the cap in the early years after the market opens investors then react to these high prices with construction of new wind capacity after a few years wind generation meets and then exceeds the requirement we show that this pattern appears again and again when the simulations are repeated with wide variations in the estimates of behavioral parameters we use the model to study the impact of different trading strategies by the wind companies and by the distribution companies we also study the simulated market response if the usa adopts the carbon allowance market envisioned in the climate stewardship act the article concludes with recommendations for policy makers involved in tgc market design

cyclical productivity in europe and the united states evaluating the evidence on returns to scale and input utilization this paper studies procyclical productivity growth at the industry level in the united states and three european countries france germany and the netherlands industry specific demand side instruments are used to examine the prevalence of non constant returns to scale and unmeasured input utilization for the aggregate us economy unmeasured input utilization seems to explain procyclical productivity however this correction still leaves one in three us industries with procyclical productivity this failure of the model can also be seen in europe and is mostly concentrated in services industries

uncertain medical expenses and precautionary saving near the end of the life cycle this paper introduces a dynamic structural model of household consumption decisions in which elderly families consider the effects of uncertain future medical expenses when deciding current levels of consumption the model with uncertain medical expenses implies a potentially important role for precautionary saving incentives to explain slow rates of dissaving among elderly americans during retirement rather than just simulating the stochastic dynamic model preference parameters are estimated using panel data on health wealth and expenditures for retired families the health uncertainty model predicts consumption levels closer to observed expenditures than a life cycle model with uncertain longevity however elderly families typically dissave their financial assets more slowly than even the baseline health uncertainty model predicts is optimal

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

indeterminacy under constant returns to scale in multisector economies recently there has been a renewed interest in indeterminacy or alternatively put in the existence of a continuum of equilibria in dynamic economies that exhibit some market imperfections one of the primary concerns of this literature has been the empirical plausibility of indeterminacy which arises in markets with external effects or with monopolistic competition often coupled with some degree 10 of increasing returns

crude oil and the macroeconomy tests of some popular notions a note perhaps no other economic events in the post world war ii era have generated as much attention as the series of crude oil price shocks that have jolted the world economy since the opec boycott of 1973 a tremendous amount of space in the popular and professional literature has been devoted to analyzing the impacts of these shocks on the developed economies and the adjustments these shocks have induced one residual of this literature has been a general impression that since 1973 the functional relationship between crude oil prices and the developed macroeconomies has been dramatically and fundamentally altered yet to our knowledge no one has formally tested this impression recent evidence of hamilton 1983 suggests that crude oil prices had a strong impact on the u s business cycle well before 1973 further while textbook treatments of oil price shocks tend to highlight cost push inflationary effects the research of berndt and wood 1975 1979 and wilcox 1983 indicates the net complementarity between energy and capital in the u s economy is quite strong both before and after 1973 thus oil price shocks may have stronger real effects than generally believed in this paper we formally test three popular notions associated with the so called

opec s oil exporting strategy and macroeconomic in stability aguiar conraria and wen 2008 argued that dependence on foreign oil raises the like lihood of equilibrium indeterminacy economic instability for oil importing countries we argue that this relation is more subtle the endogenous choices of prices and quantities by a cartel of oil exporters such as the opec can aect the directions of the changes in the likelihood of equilibrium indeterminacy we show that uctuations driven by self ful lling expectations under oil shocks are easier to occur if the cartel sets the price of oil but the re sult is reversed if the cartel sets the quantity of production these results oer a potentially interesting explanation for the decline in economic volatility i e the great moderation in oil importing countries since the mid 1980s when the opec cartel changed its market strategies from setting prices to setting quantities despite the fact that oil prices are far more volatile today than they were 30 years ago

understanding self fulfilling rational expectations equilibria in real business cycle models abstract necessary conditions for indeterminacy in standard rbc models have been extensively studied but intuitive understanding of the economic mechanism that generates indeterminacy has yet to be fully explored following the permanent income theory this paper provides an alternative framework for understanding and deriving the technical conditions of indeterminacy in rbc models a virtue of this approach is that in deriving the conditions of indeterminacy one can see clearly not only how indeterminacy arises but also how robust the indeterminacy is to structural perturbations in preferences technologies and market structures

indeterminacy aggregate demand and the real business cycle abstract we show that under indeterminacy aggregate demand shocks are able to explain not only aspects of actual fluctuations that standard rbc models predict fairly well but also aspects of actual fluctuations that standard rbc models cannot explain such as the hump shaped trend reverting impulse responses to transitory shocks found in us output cogley and nason am econom rev 85 1995 492 the large forecastable movements and comovements of output consumption and hours rotemberg and woodford am econom rev 86 1996 71 and the fact that consumption appears to lead output and investment over the business cycle indeterminacy arises in our model due to capacity utilization and mild increasing returns to scale

capacity utilization under increasing returns to scale abstract this paper overcomes an important objection against the empirical relevance of the benhabib farmer model as a potential account of actual business cycle fluctuations this is attributable to an elasticity effect and a returns to scale effect of capacity utilization these effects are closely related to the empirical puzzles that capital appears to play an insignificant role in explaining cyclical movements in output and that the estimated labor elasticity appears to be larger than labor s share due to these effects multiple equilibria and persistent fluctuations can easily occur in a growth model for externalities mild enough so that the aggregate labor demand curve is downward sloping analyses show that the propagation mechanism generated by capacity utilization under mild increasing returns is capable of explaining the periodic patterns of u s business cycles documented by watson journal of economic literature classification numbers e32 e22 c52

indeterminacy and increasing returns abstract we investigate properties of the one sector growth model with increasing returns under two organizational structures capable of reconciling the existence of aggregate increasing returns with competitive behavior by firms the first involves input externalities the second involves monopolistic competition we show for parameters in close accord with recent literature on real business cycles that the model displays an indeterminate steady state that can be exploited to generate a model of business fluctuations driven by self fulfilling beliefs in our first class of models growth is generated by exogenous increases in factor productivity in the second class the marginal product of capital is large enough for endogenous growth journal of economic literature classification numbers e00 e3 o40

preferences endogenous discount rate and indeterminacy in a small open economy model abstract this paper characterizes indeterminacy conditions for a small open economy business cycle model the preferences are the utility function commonly used in closed economy models in the literature coupled with an endogenously determined discount rate it shows that indeterminacy can occur under arbitrarily small external effects independently of the intertemporal elasticities in consumption and labor supply

the emissions trading paradox abstract this article considers the price history of co2 allowances in the eu emission trading scheme since european emissions trading started in 2005 the prices of allowances have varied between less than one and thirty euro per ton of co2 this previously unpredicted volatility and more notably a significant price crash in may 2005 led to the hypothesis that electricity producers might use their market power to influence the prices of allowances besides market power the combination of information asymmetry and price interdependencies between prices of primary goods especially electricity and allowances plays an important role in explaining the emissions trading paradox the model presented will show that banking can lead to such a price crash if market participators act rationally furthermore in such a scenario banking can be profitable for sellers at the cost of buyers

asset allocation and individual risk aversion 1992 asset allocation and individual risk aversion financial analysts journal vol 48 no 6 pp 32 37

clean and secure power supply a system dynamics based appraisal abstract across the world the electricity industry is changing with the advent of renewable energy sources such as solar and wind power as these are exposed to intermittency seasonality and global climate variation policy makers concerns are now shifting towards security of supply in fact the industry confronts three conflicting goals security of supply competitive prices to customers and environmental protection in this context and given the multiple uncertainties of technology transformation this paper uses modelling based scenario analysis to investigate different extreme and plausible futures simulation is used to analyse policies aimed at increasing the penetration of renewables and to explore how these energy sources may affect system reliability this paper explores the effect of incorporating renewables in colombia where a large hydroelectric component has led to insufficient electricity being available during droughts and to high electricity price volatility though not intuitive at first glance this paper shows that renewables may contribute to i increased security of supply through complementarity e g it does not rain when the sun shines ii reduced price volatility in the medium term and iii increased industry sustainability

price vs quantity competition in oligopoly supergames abstract in a repeated oligopoly with differentiated products and firms following trigger strategies quantity competition leads to a less efficient outcome than price competition this result contrasts with the repeated duopoly result where price competition is less efficient under certain conditions

simulating the new british electricity market reform abstract the british government is implementing fully its novel electricity market reform gb emr its objective in line with european directives aims at replacing existing nuclear and coal plant with low carbon systems to deliver reliable and affordable power though the gb emr has proposed several policy instruments for meeting its objectives and the academic literature has discussed the main issues no known report includes a comprehensive and dynamic simulation exercise that assesses the extent of this profound and important initiative this paper presents a system dynamics model that supports analysis of long term effects of the various policy instruments that have been proposed in the gb emr focusing on environmental quality security of supply and economic sustainability using lessons learned from simulation the paper concludes that effectively achieving the gb emr objectives requires this comprehensive intervention or a similar one that includes the promotion of low carbon electricity generation through the simultaneous implementation of various direct and indirect incentives such as a carbon price floor a feed in tariff fit and a capacity mechanism

the effects of health insurance and self insurance on retirement behavior this paper provides an empirical analysis of the effects of employer provided health insurance medicare and social security on retirement behavior using data from the health and retirement study we estimate a dynamic programming model of retirement that accounts for both saving and uncertain medical expenses our results suggest that medicare is important for understanding retirement behavior and that uncertainty and saving are both important for understanding the labor supply responses to medicare half the value placed by a typical worker on his employer provided health insurance is the value of reduced medical expense risk raising the medicare eligibility age from 65 to 67 leads individuals to work an additional 0 074 years over ages 60 69 in comparison eliminating 2 years worth of social security benefits increases years of work by 0 076 years

what happened to the oil price macroeconomy relationship abstract strong evidence is found that oil prices no longer granger cause many u s macroeconomic indicator variables in data after 1973 a number of potential explanations are explored that sample stability issues are responsible that oil prices are now endogenous and that linear and symmetric specifications misrepresent the form of the oil price interaction none of these hypotheses are supported by the data the opec price increases do appear to have had significant impacts while the effects of the price declines of the 1980s are smaller and harder to characterize these results have potentially important implications for the large body of research which utilizes oil prices as an instrumental or explanatory variable

the role of intergenerational transfers in aggregate capital accumulation this paper uses historical u s data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation the evidence presented indicates that intergenerational transfers account for the vast majority of aggregate u s capital formation only a negligible fraction of actual capital accumulation can be traced to life cycle or hump savings a major difference between this study and previous investigations of this issue is the use of more accurate longitudinal age earnings and age consumption profiles these profiles are simply too flat to generate substantial life cycle savings this paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers life cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers

renewable energy investments under different support schemes a real options approach abstract this paper adopts a real options approach to analyze investment timing and capacity choice for renewable energy projects under different support schemes the main purpose is to examine investment behavior under the most extensively employed support schemes namely feed in tariffs and renewable energy certificate trading we consider both multiple sources of uncertainty under each support scheme and uncertainty with respect to any change of support scheme and we obtain both analytical when possible and numerical solutions in a nordic case study based on wind power we find that the feed in tariff encourages earlier investment nevertheless as investment has been undertaken renewable energy certificate trading creates incentives for larger projects in our baseline scenario and taking the fixed feed in tariff as a base the revenue required to trigger investments is 61 higher with renewable certificates at the same time investment capacity is 61 higher

this is what happened to the oil price macroeconomy relationship abstract many of the quarterly oil price increases observed since 1985 are corrections to even bigger oil price decreases the previous quarter when one looks at the net increase in oil prices over the year recent data are consistent with the historical correlation between oil shocks and recessions

aggregate returns to scale and embodied technical change theory and measurement using stock market data abstract we develop a new general equilibrium growth accounting framework that features increasing returns to scale imperfect competition and incorporates technological revolutions into the description of technical progress we propose a way to tell apart revolutionary changes in technology and incremental innovations using stock market data we use our framework to jointly estimate the overall embodied tfp change during 1953 1995 and the aggregate output elasticity we find that the it revolution raised the aggregate tfp level by about 20 we suggest a 1 09 1 11 range for the aggregate returns to scale

assessing emissions mitigation energy policy under integrated supply and demand analysis the colombian case the effects of greenhouse gases on climate variation set policy challenges for the energy industry the largest greenhouse gas contributor globally in this context the energy industry is being subjected to reforms focussing on the environment internalisation of emission costs and the promotion of cleaner technologies to overcome the challenges posed by the emission of greenhouse gases governments have implemented mitigation policies in the power supply industries most policy instruments include either financial incentives or goals and standards and these generate impacts on electricity prices and consumer behaviour this paper models policies effects on prices and demand through an integrated demand and supply analysis for the colombian case while simulation of carbon taxes shows important reductions of fossil fuelled power capacity a feed in tariff policy promotes clean technologies though not significantly reducing use of fossil technologies when applied simultaneously policy has a greater impact on both emission reductions and the diffusion of clean technologies while only increasing electricity prices slightly even when price elasticity of demand is low such policies may have a significant effect on the penetration of renewables and emissions furthermore this structured modelling of policy helps explain how the ultimate intended goal sustainable emissions reduction might be achieved

on the sustainability of collusion in differentiated duopolies abstract we consider a rule designed to maintain collusion in a duopoly made up of firms producing differentiated products we analyse both price setting and quantity setting models and show that product differentiation plays a crucial role in determining the effectiveness of this rule our results contrast with those obtained by earlier writers

price dynamics in the european union emissions trading system and evaluation of its ability to boost emission related investment decisions abstract the price of permits in the european union emissions trading system eu ets has historically been highly sensitive and prone to jumps we consider different stochastic processes to model the price of permits and show that the variance gamma vg model provides the best fit for the price distribution among a selection of infinite activity processes using this result as a starting point we assess the effects of the eu ets in delivering low carbon investments at the firm level by modeling a price taker electricity producer subject to the eu ets jurisdiction we compute via least squares monte carlo the value of the real option the greenhouse gas emitter has consisting in the opportunity to switch from its current high carbon technology to a cleaner one we use a vg specification for carbon prices and a mean reverting brennan schwartz process for the price of fuel moreover we further analyze the investment decision problem in case of a co 2 price stabilization mechanism in the form of a price floor by explicitly computing the expected value of the investment project by means of fourier methods our results show that the introduction of the price stabilization mechanism significantly affects the timing of the investment decision and supports emission related investments

the importance of bequests and life cycle saving in capital accumulation a new answer as the workhorse of consumption and saving research for the past four decades the life cycle model has proved flexible and useful for examining a variety of questions in a classic paper albert ando and franco modigliani 1963 p 56 stated a key assumption of the basic model t he individual neither expects to receive nor desires to leave any inheritance although the authors contended that the absence of a bequest motive was not critical to the heart of their results the assumption set off a long standing battle over the relative importance of different motives for saving in an influential study laurence kotlikoff and laurence summers 1981 estimated that a large fraction of the u s capital stock was attributable to intergenerational transfers modigliani and his collaborators vigorously disagreed and based on their own empirical work claimed that life cycle saving was the primary source of capital accumulation modigliani 1988 subsequent work has failed to reach a consensus since this debate began an important advance in the consumption literature has been the incorporation of uncertainty in life cycle models see e g r glenn hubbard et al 1995 we argue that allowing for uncertainty resolves the controversy over the importance of life cycle and bequest saving by showing that these motives for saving are overlapping and cannot generally be distinguished a dollar saved today simultaneously serves both a precautionary life cycle function guarding against future contingencies such as health shocks or other emergencies and a bequest function because in the likely event that the dollar is not absorbed by these contingencies it will be available to bequeath to children or other worthy causes under this view households have a bequest motive but bequests are given i e the motive is operative in only some states of the world wealth is something like traveler s checks you take them along on vacation just in case but odds are they will remain uncashed and available for sundry goods after the journey is complete we first demonstrate the result using a simple model and then argue that this approach reconciles the apparent importance of bequests with households declared focus on life cycle saving finally we consider implications of our analysis

uncertainty and the choice of trade policy in oligopolistic industries this paper investigates the design of trade policies in an uncertain world governments in each of two countries select between direct quantity controls and subsidies in an attempt to shift profits in favour of domestic imperfectly competitive firms the equilibrium of this bilateral policy game depends critically on the variability of the environment in a world of certainty both governments would choose to regulate the behaviour of their firms through direct quantity controls with a sufficient amount of uncertainty both governments regulate their firms through subsidies this result reflects an important tradeoff between the strategic advantages of direct quantity controls and flexibility gained by the use of subsidies

the economic effects of energy price shocks large fluctuations in energy prices have been a distinguishing characteristic of the u s economy since the 1970s turmoil in the middle east rising energy prices in the u s and evidence of global warming recently have reignited interest in the link between energy prices and economic performance this paper addresses a number of the key issues in this debate what are energy price shocks and where do they come from how responsive is energy demand to changes in energy prices how do consumers expenditure patterns evolve in response to energy price shocks how do energy price shocks affect u s real output inflation and stock prices why do energy price increases seem to cause recessions but energy price decreases do not seem to cause expansions why has there been a surge in the price of oil in recent years why has this new energy price shock not caused a recession so far have the effects of energy price shocks waned since the 1980s and if so why as the paper demonstrates it is critical to account for the endogeneity of energy prices and to differentiate between the effects of demand and supply shocks in energy markets when answering these questions

oil and the macroeconomy when prices go up and down an extension of hamilton s results in an important paper hamilton 1983 demonstrated a strong correlation between oil price changes and gross national product growth in u s data however his study pertained to a period in which all the large oil price movements were upward and thus it left unanswered the question whether the correlation persists in periods of price decline moreover the price variable he used was somewhat distorted by price controls in the 1970s this note investigates whether hamilton s results continue to hold when the sample is extended to include the recent oil market collapse and the oil price variable is corrected for the effects of price controls particular attention is given to the possibility of asymmetric responses to oil price increases and decreases as suggested in the structural employment literature loungani 1986 davis 1987 hamilton 1988 like hamilton i based my investigation on the gnp equation in sims s 1 980b six variable quarterly vector autoregressive model

do support systems for res e reduce eu ets driven electricity prices abstract support systems for electricity from renewable energy sources res e can reduce electricity prices which have also been influenced by a co2 emission trading scheme ets additional res e substitutes electricity from fossil fuels and thus co2 emissions are reduced the demand for emission reductions is lowered as a result the co2 price is also reduced consequently the wholesale price for electricity decreases however most res e support systems are financed via the electricity market which increases the retail electricity price an assessment for germany shows that retail electricity prices in the first trading period of the eu ets 2005 2007 are lowered by 2 6 euro mwh due to additional res e considering the complete eu the effect is substantially higher this paper describes the effect and the influence of different policy designs it develops an approach for assessing the effect and applies it for the case of germany and roughly estimates the effect for the eu

imperfect competition and indeterminacy of aggregate output abstract this paper shows imperfect competition can lead to indeterminacy in aggregate output in a standard dsge model with imperfect competition indeterminacy arises in the model from the composition of aggregate output in sharp contrast to the indeterminacy literature pioneered by benhabib and farmer j benhabib r farmer indeterminacy and increasing returns j econ theory 63 1 1994 19 41 and gali j gali monopolistic competition business cycles and the composition of aggregate demand j econ theory 63 1 1994 73 96 indeterminacy in our model is global hence it is more robust to structural parameters in addition sunspots in our model can be autocorrelated the paper provides a justification for exogenous variations in desired markups which play an important role as a source of cost push shocks in the monetary policy literature our model outperforms a standard rbc model driven by technology shocks in several dimensions including the volatility of labor market and the hump shaped output dynamics

incentives for renewable energy in reformed latin american electricity markets the colombian case abstract given the importance of renewable energy sources for reducing the threat of global climatic change without compromising economic development this paper explores regulatory alternatives that may facilitate the introduction of renewable energy in the colombian electricity market the analysis is based on a simulation model of the electricity market that represents the behaviour of the agents involved and their decision to invest according to proposed incentives the possible expansion of renewable energy depending on different incentives is examined this research is carried out in the latin american context and accordingly we present the exploitation potential of renewable sources for electricity generation in the region this paper shows how restructuring electricity markets such as the colombian and others in latin america may be an efficient means to promote the use of renewable energy

the interaction of public and private insurance medicaid and the long term care insurance market a long tradition in public finance examines how public programs can crowd out private activ ity in areas as diverse as education savings and insurance among others these studies typi cally focus on aggregate economic implications particularly for government expenditures and national savings in this paper we demonstrate that crowd out can also have an important effect on individual welfare specifically we show that the provision of even very incomplete public insurance can crowd out more comprehensive private policies by imposing a large implicit tax on private insurance benefits thus potentially increasing overall risk exposure for individuals we examine the interaction of public and private insurance for one of the largest uninsured financial risks facing the elderly in the united states long term care expenditures at 135 bil lion in 2004 long term care expenditures represented over 8 5 percent of total health expendi tures or all ages or roughly 1 2 percent of gdp moreover real long term care expenditures are projected to triple over the next 35 years due to rising medical costs and the aging of the baby boomers only 10 percent of the elderly however have any private long term care insurance and one third of expenditures are paid for out of pocket congressional budget office cbo 1999 cbo 2004 brown and finkelstein 2007 one potential explanation for the small size of the private market is that the public insurance provided by medicaid may crowd out demand for private insurance medicaid was designed to provide long term care insurance for the poor elderly mark v pauly 1989 1990 has established the qualitative result that as an incomplete but publicly funded source of long term care insur ance medicaid has the potential to reduce substantially demand for private long term care insur ance even among the nonpoor our work builds on this insight by quantifying the magnitude of medicaid s crowd out effect and the incomplete nature of medicaid coverage we also illustrate the mechanism behind medicaid s crowd out effect and are therefore able to assess the likely impact of alternative policies on private insurance demand we develop a utility based model of a 65 year old risk averse individual who chooses an opti mal intertemporal consumption path in the presence of uncertainty about long term care expen ditures we calibrate the model using data on the distribution of long term care expenditure risk common state medicaid rules and the prices and coverage of typical private long term care insurance policies

the retirement savings puzzle reviewed the role of housing and bequests the so called retirement savings puzzle is a phenomenon by which contrary to what the standard life cycle model predicts households do not run down their wealth significantly during retirement in this review paper we survey the literature on the retirement savings puzzle and we connect it with the literature on housing equity during retirement to establish a link between these two streams of literature we use as a framework the work of nakajima and telyukova 2013a home equity in retirement ucsd working paper and nakajima and telyukova 2017 reverse mortgage loans a quantitative analysis journal of finance 72 911 950 who find that home ownership interacts with factors that explain the retirement savings puzzle notably with the bequest motive we complement the results by nakajima and telyukova by relating them to the literature on altruistic bequests strategic bequests and housing as a commitment device all of which give further insights on the connection between home ownership and bequests we complement our review of the literature with descriptive evidence using the netherlands as a case study

evaluating the effect of technology transformation on the electricity utility industry abstract the technology shift from fossil fuelled systems to renewable energies has been promoted by governments with the purpose of decarbonising the power industry however rapid technology progress has prompted disruptive changes that transformed market structures incumbent electricity utilities particularly those based on fossil fuel plant are shifting from their stable and predictable situation to confront challenges from those that offer alternative energy services in this new environment the industry will benefit from mid to long term sector foresight the paper studies the potential impact of renewable energy sources res on electricity systems specifically on the generation and distribution businesses for this purpose a fairly detailed and integrated supply and demand based system dynamics model has been built to quantify the extent of their potential impact the model disaggregates the household sector which may generate a significant part of its electricity using rooftop solar energy this is illustrated by examining a utility engaged in the generation and distribution businesses in the colombian electricity market through simulation runs this paper concludes that subject to policy and all other things remaining equal solar rooftop generation is a major threat for utilities while the generation business is most affected in the short term the distribution business is the one most impacted in the long term and jointly they may induce the utility death spiral

the impact of the european union emission trading scheme on electricity generation sectors in order to comply with their commitments under the kyoto protocol france and germany participate to the european union emission trading scheme eu ets which concerns predominantly electricity generation sectors in this paper we seek to know if the eu ets gives appropriate economic incentives for an e cient and strong system in line with kyoto commitments because if so electricity producers in these countries should include the price of carbon in their costs functions after identifying the di erent sub periods of the eu ets during its pilot phase 2005 2007 we model the prices of various electricity contracts and look at their volatilities around their fundamentals while evaluating the correlation between the electricity prices in the two countries we finnd that electricity producers in both countries were constrained to include the carbon price in their cost functions during the rst two years of operation of the eu ets during this period german electricity producers were more constrained than their french counterparts and the inclusion of the carbon price in the cost function of electricity generation has been so much more stable in germany than in france furthermore the european market for emission allowances has increased the market power of the historical french electricity producer and has greatly contributed to the partial alignment of the wholesale price of electricity in france with those of germany

transition pathways for a uk low carbon electricity future abstract achieving long term targets for greenhouse gas emissions reductions such as the uk s legally binding target of reducing its emissions by 80 by 2050 will require a transition in systems for meeting and shaping energy service demands involving radical substitution to low carbon supply technologies and improvements in end use energy efficiency this paper describes the development and high level analysis of a set of transition pathways to a uk low carbon electricity system explaining key features of the core pathways developed and the distinctiveness and value of the approach the pathways use an action space concept to explore the dynamic interactions between choices made by actors which are influenced by the competing governance framings or logics that different actors pursue the paper sets out three core transition pathways market rules central co ordination and thousand flowers in which market government and civil society logics respectively dominate it summarises the key technological and institutional changes in these pathways and the roles of actors in bringing these about this leads to an identification of the key risks to the realisation of each of the pathways and of the challenges for individuals businesses social movements and policy makers in taking action to bring them about and sustain them

indeterminacy in a small open economy ramsey growth model abstract this paper presents a small open economy version of the j benhabib and r e a farmer 1996 j monet econ 37 421 443 two sector optimal growth model with production externalities it is shown that indeterminacy is considerably easier to obtain under a regime of perfect world capital markets than in the closed economy variant furthermore the result is not dependent on a high labor supply elasticity since that input is fixed the paper also examines a variant which takes into account external borrowing constraints and it is shown that the qualitative results on indeterminacy remain basically unaffected by this extension journal of economic literature classification numbers e32 f12

price or quantity in tacit collusion abstract we investigate the choice of market variable price or quantity of an optimal implicit cartel if the discount factor is high the cartel can realize the monopoly profit in both cases otherwise it is optimal for the cartel to rely on quantities in the collusive phase if goods are substitutes and prices if goods are complements the reason is that this minimizes the gains from deviations from collusive play

is there a retirement savings puzzle in this paper we ask whether households are saving enough for their retirement we use data on income expenditure and expenditure components to analyse patterns of behaviour at and around the time of retirement for successive date of birth cohorts we compare periods of unemployment to periods of retirement and separate expenditures into categories reflecting work related expenditures basic necessities and other goods we find that income typically falls by more at unemployment than retirement but the reverse is true for expenditure we observe falls in expenditure at retirement for all expenditure categories using a stochastic life cycle model including mortality rates we assess the anticipated impact of retirement on consumption against that of unemployment the inter relationship between goods and leisure explains a large part of the persistent fall in expenditure at retirement we argue that the only way in which the life cycle hypothesis could be reconciled with the remaining unanticipated dip in consumption would be with the systematic arrival of unexpected adverse information at the time of retirement