equilibrium exchange rates and supply side performance this paper develops a two country optimising sticky price model of real exchange rate determination in the new open macroeconomics tradition which allows several different forms of deviation from purchasing power parity ppp both along the adjustment path and in the steady state the model has a rich structure and is designed to provide a flexible tool for policy analysis unlike most other papers in the literature both of the key components of the real exchange rate the relative price of non tradables and the terms of trade are made endogenous allowing a more complete analysis of the impact of structural shocks to illustrate one possible application the model is calibrated to match key elements of the uk and euro area economies and used to examine the extent to which possible improvements in the united kingdom s relative supply side performance might account for the sharp and persistent appreciation in sterling since 1996 the results are not supportive of this hypothesis in the model improvements in productivity goods market and labour market competitiveness are all associated with a depreciation in both the spot and the equilibrium real sterling exchange rates two potential supply side sources of an equilibrium appreciation a productivity improvement biased towards traded goods balassa samuelson effect and an anticipated future productivity rise are considered however each is insufficient to account for a long run equilibrium appreciation the latter may account for an initial appreciation of the real exchange rate we conclude by considering further mechanisms that could affect our results

evaluating the impacts of real time pricing on the usage of wind generation one of the impediments to large scale use of wind generation within power systems is its nondispatchability and variable and uncertain real time availability operating constraints on conventional generators such as minimum generation points forbidden zones and ramping limits as well as system constraints such as power flow limits and ancillary service requirements may force a system operator to curtail wind generation in order to ensure feasibility furthermore the pattern of wind availability and electricity demand may not allow wind generation to be fully utilized in all hours one solution to these issues which could reduce these inflexibilities is the use of real time pricing rtp tariffs which can both smooth out the diurnal load pattern in order to reduce the impact of binding unit operating and system constraints on wind utilization and allow demand to increase in response to the availability of costless wind generation we use and analyze a detailed unit commitment model of the texas power system with different estimates of demand elasticities to demonstrate the potential increases in wind generation from implementing rtp

measuring the influence of canadian carbon stabilization programs on natural gas exports to the united states via a bottom up intertemporal spatial price equilibrium model abstract in this paper we present the results of a study of the impact of canadian carbon stabilization programs on exports of natural gas to the united states this work was based on a study conducted for the us environmental protection agency the gas systems analysis model gsam developed by icf consulting for the us department of energy was used to gauge the overall impact of the stabilization programs on the north american natural gas market gsam is an intertemporal spatial price equilibrium spe type model of the north american natural gas system salient features of this model include characterization of over 17 000 gas production reservoirs with explicit reservoir level geologic and economic information used to build up the supply side of the market on the demand side four sectors residential commercial industrial and electric power generation are characterized in the model lastly both above and below ground storage facilities as well as a comprehensive pipeline network are used with the supply and demand side characterizations to arrive at estimates of market equilibrium prices and quantities and flows

distributional weights in cost benefit analysis should we forget about them many argue that it is socially inefficient to use distributional weights in cost benefit analysis and that doing so implies large inefficiency losses when distributional matters can be dealt with trough income taxation instead our results question this view by showing a large range of cases when distributional weights are second best optimal to use one example is when different provided goods affect tax revenues equally per dollar spent utility functions that are separable in the provided goods is sufficient for this most results hold for linear and non linear income taxes and whether they are optimal or not general policy implications are discussed

measuring the benefits of delayed price responsive demand in reducing wind uncertainty costs demand response has benefits in mitigating unit commitment and dispatch costs imposed on power systems by wind uncertainty and variability we examine the effect of delays in consumers responding to price signals on the benefits of demand response in mitigating wind uncertainty costs using a case study based on the ercot power system we compare the cost of operating the system with forecasts of future wind availability to a best case scenario with perfect foresight of wind we demonstrate that wind uncertainty can impose substantive costs on the system and that demand response can eliminate more than 75 of these costs if loads respond to system conditions immediately otherwise we find that with a 30 min lag in the response nearly 72 of the value of demand response is lost

a large scale linear complementarity model of the north american natural gas market abstract the north american natural gas market has seen significant changes recently due to deregulation and restructuring for example third party marketers can contract for transportation and purchase of gas to sell to end users while the intent was a more competitive market the potential for market power exists we analyze this market using a linear complementarity equilibrium model including producers storage and peak gas operators third party marketers and four end use sectors the marketers are depicted as nash cournot players determining supply to meet end use consumption all other players are in perfect competition results based on national petroleum council scenarios are presented

demand response with locational dynamic pricing to support the integration of renewables abstract electricity production from centralised and decentralised renewable energy resources in europe is gaining significance resulting in operational challenges in the electricity system although these challenges add to the locational and time dependency of the underlying cost of operating the system this variability in time and location is not reflected in residential tariff schemes consequently residential users are not incentivised to react to varying system conditions and to help the integration of renewable energy resources therefore this paper provides a theoretical framework for designing a locational dynamic pricing scheme this can be used to assess existing tariff structures for consumption and injection and can serve as a theoretical background for developing new tariff schemes starting from the underlying costs this paper shows that the potential for locational dynamic pricing depends on the locational and time dependency of its cost drivers when converting costs into tariffs the tariff design should be determined this includes the advance notice of sending tariffs to users and the length of price blocks and price patterns this tariff design should find a balance between tariff principles related to costs practicality and social acceptability on the one hand and the resulting demand response incentive on the other

progressive taxation and the social marginal cost of public funds abstract this paper describes the calculation of the social marginal cost of public funds smcf for a progressive tax system which distorts individuals labour supply decisions a formula for the smcf indicates that the income and substitution effects of the labour supply response are weighted by the changes in individuals average and marginal tax rates respectively other well known formulas for the smcf are shown to be special cases of this formula the difference between this formula and the mayshar 1991 formula is shown to be due to different but equally valid ways of computing the change in the average tax rate the condition under which a marginal tax rate increase may lead to a reduction in revenues is derived

capacity adequacy and revenue sufficiency in electricity markets with wind power we present a computationally efficient mixed integer program mip that determines optimal generator expansion decisions as well as periodic unit commitment and dispatch the model is applied to analyze the impact of increasing wind power capacity on the optimal generation mix and the profitability of thermal generators in a case study we find that increasing wind penetration reduces energy prices while the prices for operating reserves increase moreover scarcity pricing for operating reserves through reserve shortfall penalties significantly impacts the prices and profitability of thermal generators without scarcity pricing no thermal units are profitable however scarcity pricing can ensure profitability for peaking units at high wind penetration levels capacity payments can also ensure profitability but the payments required for baseload units to break even increase with the amount of wind power the results indicate that baseload units are most likely to experience revenue sufficiency problems when wind penetration increases and new baseload units are only developed when natural gas prices are high and wind penetration is low

project appraisal and planning twenty years on this paper discusses the use and usefulness of social cost benefit analysis it briefly recalls the main features of the procedures put forward in the book by the authors and addresses some of the issues that have arisen in theoretical work since the early 1970s particularly the implications of uncertainty an analysis of the value of project appraisal under uncertainty is provided the rise and decline of project appraisal in the world bank and elsewhere is charted and reasons are considered particular attention is given to the difficulty of using shadow prices and to the institutional environment it is argued that evidence from analysis of the world bank s projects is consistent with placing a high value on the process of economic appraisal the costs of appraisal are noted as is the need to avoid excessive complexity the paper argues for the importance of an economic appraisal system and of attending to the incentives that operate in such a system

examining the benefits of load shedding strategies using a rolling horizon stochastic mixed complementarity equilibrium model abstract as a result of government policies increasing the amount of electricity generated from fluctuating renewable sources in many countries the requirement for flexibility in the corresponding electricity systems increases on the demand side load shedding is one demand response mechanism contributing to an increased flexibility traditionally load shedding was based on rather static or rotational strategies whereby the system operator chooses the consumers for load shedding however ongoing technological developments provide the basis for smarter and more efficient load shedding strategies we therefore examine the costs and strategies associated with such mechanisms by modelling an electricity market with different types of generators and consumers some consumers provide flexibility through load shedding only while others additionally have the ability to generate their own electricity focussing on the impacts of how and to whom consumers with own generation ability can supply electricity the presence of market power and generator uncertainty we propose a rolling horizon stochastic mixed complementarity equilibrium model where the individual optimisation problems of each player are solved simultaneously and in equilibrium we find that a non static strategy reduces consumer costs while allowing consumers to provide own generation to the whole market results in minimal benefits the presence of market power was found to increase costs to consumers

an engineering economic approach to transmission planning under market and regulatory uncertainties wecc case study we propose a stochastic programming based tool to support adaptive transmission planning under market and regulatory uncertainties we model investments in two stages differentiating between commitments that must be made now and corrective actions that can be undertaken as new information becomes available the objective is to minimize expected transmission and generation costs over the time horizon nonlinear constraints resulting from kirchhoff s voltage law are included we apply the tool to a 240 bus representation of the western electricity coordinating council and model uncertainty using three scenarios with distinct renewable electricity mandates emissions policies and fossil fuel prices we conclude that the cost of ignoring uncertainty the cost of using naive deterministic planning methods relative to explicitly modeling uncertainty is of the same order of magnitude as the cost of first stage transmission investments furthermore we conclude that heuristic rules for constructing transmission plans based on scenario planning can be as suboptimal as deterministic plans

project evaluation with democratic decision making what does cost benefit analysis really measure abstract it is often argued that projects involving public good changes should be chosen on the basis of monetary valuation and cost benefit analysis cba however cba is not value free when used to measure welfare it is based on highly controversial value judgements when used to measure efficiency it is based on assumptions of limited relevance to democratic decision making processes cba measures total net willingness to pay neither more nor less while interesting in its own right the normative significance of this indicator is not obvious

demand response application by strategic wind power producers this paper considers a wind power producer playing strategically in a day ahead market while willing to set demand response dr contracts with a dr aggregator to this end a bilevel problem including a single leader and two followers is formulated the wind power producer is the leader aiming at maximizing its profit through offering into a day ahead market and clearing its deviation in a balancing market the strategic behavior of the producer in the day ahead market is modeled through the market clearing process follower 1 in addition the dr aggregator behavior is modeled through a revenue function in which the aggregator is able to sell its dr product to the wind power producer other competitors and the day ahead market follower 2 the overall problem is a stochastic mathematical program with equilibrium constraints mpec in which wind power production and imbalance prices are associated with uncertainty the problem is then transformed into a linear programming approach a case of the nordic market is chosen to assess the validity of the given problem

the national energy modeling system a large scale energy economic equilibrium model the national energy modeling system nems is a large scale mathematical model that computes equilibrium fuel prices and quantities in the u s energy sector and is currently in use at the u s department of energy doe at present to generate these equilibrium values nems iteratively solves a sequence of linear programs and nonlinear equations this is a nonlinear gauss seidel approach to arrive at estimates of market equilibrium fuel prices and quantities in this paper we present existence and uniqueness results for nems type models based on a nonlinear complementarity variational inequality problem format also we document mathematically for the first time how the inputs and the outputs for each nems module link together

optimal generation mix with short term demand response and wind penetration demand response defined as the ability of load to respond to short term variations in electricity prices plays an increasingly important role in balancing short term supply and demand especially during peak periods and in dealing with fluctuations in renewable energy supplies however demand response has not been included in standard models for defining the optimal generation technology mix three different methodologies are proposed to integrate short term responsiveness into a generation technology mix optimization model considering operational constraints elasticities are included to adjust the demand profile in response to price changes including cross price elasticities that account for load shifts among hours as energy efficiency programs also influence the load profile interactions of efficiency investments and demand response are also modeled comparison of model results for a single year optimization with and without demand response shows peak reduction and valley filling effects impacting the optimal amounts and mix of generation capacity increasing demand elasticity also increases the installed amount of wind capacity suggesting that demand response yields environmental benefits by facilitating integration of renewable energy

public goods self selection and optimal income taxation using the self selection approach to tax analysis this paper derives a modified samuelson rule for the provision of public goods when the government deploys an optimal nonlinear income tax this approach gives a straightforward interpretation of the central result in this area generalises it and provides a simple characterisation of optimal policy in a wide range of circumstances the analysis also emphasises and clarifies the significance of the choice of numeraire for the optimality of decentralising public spending decisions it is well known that the famous samuelson rule for the provision of public goods may not be applicable when the tax revenues used to finance the public goods come from distorting taxes the principle was recognized as long ago as pigou 1947 long before the samuelson rule was devised pigou saw that in addition to the resource cost involved in transferring funds from the private to the public sector there was a deadweight loss involved from this insight he suggested that the criterion for providing public goods should be more stringent than the samuelson rule would later suggest in particular one might expect that the inclusion of the deadweight loss of taxes as part of the cost of providing a public good would lead to a reduction in its optimal provision relative to a situation in which lump sum taxes were available the problem was investigated more systematically by atkinson and stern 1974 who considered the case in which a public good is financed by a set of optimal commodity taxes all individuals were assumed to be identical so efficiency alone dictated the objective they found that no prima facie case could be made for the pigou position that the use of distortionary taxes called for a reduction in the supply of the public good their analysis clearly showed that there were two influences at work when the financing of a public good was by distorting taxes on the one hand

new problem formulation of emission constrained generation mix this paper proposes an enhanced optimization formulation to help determine the type of power generation mix that can meet a given carbon emission target at the minimum cost compared to the previous studies the model proposed in this paper takes account of the emission cost at operational level and explores its impacts on the long term emission target oriented generation planning innovatively meanwhile the model is able to take account of the integer variables and nonlinearity of the operational cost together with network constraints and renewable generation expansion in one long term generation planning model the problem is solved by an innovative discrete gradient search method and a new concept emission reduction cost erc is developed which helps determine which generation technology is the most cost efficient in emission reduction during different stages of generation expansion a case study on a modified ieee 30 bus system is presented to demonstrate the application of this model and the value of considering short term emission costs and the network constraints on the long term generation expansion the results and sensitivity analysis are provided to show that a higher short term financial pressure can help realize the emission target at a lower total cost investment and operational costs optimization without considering it may overestimate the total cost required for the generation mix restructuring additionally a comparative study shows that optimization without considering network constraints may underestimate the total cost required for realizing the specified emission reduction target

a mixed complementarity based equilibrium model of natural gas markets we present a new multiseasonal multiyear natural gas market equilibrium model based on the concept of a competitive equilibrium involving the market participants producers storage reservoir operators peak gas operators pipeline operators marketers and consumers the first three classes are depicted as price takers consistent with perfect competition the pipeline operations are described with regulated tariffs but also involve congestion pricing as a mechanism to allocate scarce pipeline capacity the marketers are price takers in all markets except in sales to consumers in which they compete as nash cournot players finally consumers are described by demand curves for each of the four sectors residential commercial industrial and electric power we show that the equilibrium model is an instance of a mixed nonlinear complementarity problem ncp and provide sufficient detail not generally seen in previous complementarity models of natural gas the ncp formulation is derived from considering the karush kuhn tucker optimality conditions of the optimization problems faced by these participants under mild conditions we show that this ncp has a solution and under additional reasonable conditions we show that the market prices are unique we also validate the model on a representative sample network with nine market participants and three seasons using four scenarios

benefits and challenges of electrical demand response a critical review advances in it control and forecasting capabilities have made demand response a viable and potentially attractive option to increase power system flexibility this paper presents a critical review of the literature in the field of demand response providing an overview of the benefits and challenges of demand response these benefits include the ability to balance fluctuations in renewable generation and consequently facilitate higher penetrations of renewable resources on the power system an increase in economic efficiency through the implementation of real time pricing and a reduction in generation capacity requirements nevertheless demand response is not without its challenges the key challenges for demand response centre around establishing reliable control strategies and market frameworks so that the demand response resource can be used optimally one of the greatest challenges for demand response is the lack of experience and the consequent need to employ extensive assumptions when modelling and evaluating this resource this paper concludes with an examination of these assumptions which range from assuming a fixed linear price demand relationship for price responsive demand to modelling the highly diverse distributed and uncertain demand response resource as a single centralised negative generator adopting fixed characteristics and constraints

the effects of wind generation capacity on electricity prices and generation costs a monte carlo analysis abstractwe use monte carlo analysis to examine the potential of increased renewable generation to provide a hedge against variability in energy prices and costs fuel costs electricity demand and wind generation are allowed to vary and a unit commitment and economic dispatch algorithm is employed to produce cost minimizing generation schedules under different levels of installed wind capacity increased wind capacity reduces the mean and the variance of production costs but only the variance of electricity prices wind generators see their market revenues increase while consumer payments and fossil generator profits do not considerably vary as wind capacity increases risk aversion is captured by considering the conditional value at risk for both consumers and producers the optimal level of wind generation increases as risk aversion increases due to the potential of wind to act as a hedge against very high electricity prices in high fuel price scenarios

the impact of the north atlantic oscillation on electricity markets a case study on ireland abstract the north atlantic oscillation nao is a large scale atmospheric circulation pattern driving climate variability in north western europe as the deployment of wind powered generation expands on electricity networks across europe the impacts of the nao on the electricity system will be amplified this study assesses the impact of the nao via wind power generation on the electricity market considering thermal generation costs wholesale electricity prices and wind generation subsidies a monte carlo approach is used to model nao phases and generate hourly wind speed time series data electricity demand and fuel input data a least cost unit commitment and economic dispatch model is used to simulate an island electricity system modelled on the all island irish electricity system the impact of the nao obviously depends on the level of wind capacity within an electricity system our results indicate that on average a switch from negative to positive nao phase can reduce thermal generation costs by up to 8 reduce wholesale electricity prices by as much as 1 5 mwh and increase wind power generators revenue by 12

redistribution and the marginal cost of public funds abstract discussions of the marginal cost of public funds with distortionary taxation are often cast in the framework of a one consumer economy while the main justification of distortionary taxes is that they are needed for redistribution this paper analyzes the issue in a model with heterogeneous consumers and a linear income tax focusing on the tradeoff between labour market distortions and the redistribution from high wage to low wage workers in an optimal tax system the mcf will be the same for all sources of funds and under certain assumptions less than one without optimality the mcf will in general differ between different sources of finance

tailored benders decomposition for a long term power expansion model with short term demand response we present a long term power generation expansion planning model that features a long planning horizon an hourly time resolution multiperiod investment and retirement decisions transmission constraints start up restrictions and short term demand response demand response is the capability of power load to react to short term changes in electricity prices it plays an increasingly important role in today s electricity markets but has not been taken into consideration in long term power generation expansion planning problems which mostly treat demand as perfectly inelastic given mild assumptions for the underlying demand function the resulting model is a large scale concave linearly constrained maximization problem we exploit the model structure by developing a new approach to generalized benders decomposition gbd in particular we present two algorithmic ideas 1 solving the nonlinear benders subproblem as a linear programming lp problem with the aid of dynamic linear overestimation refe

an admm based method for computing risk averse equilibrium in capacity markets uncertainty in electricity markets introduces risk for investors high fixed cost and increased dependency on infrequent and uncertain price spikes characterize investments the risk averse behavior of investors might lead to poor decision making and undermines generation adequacy electricity market models rarely treat the interaction of market design and risk aversion the representation of capacity mechanisms in modeling approaches focusing on risk aversion is limited our contribution addresses two problems first we propose a stochastic market equilibrium model investors are represented as risk averse agents the conditional value at risk is used as risk measure second we propose an algorithm based on the alternating direction method of multipliers to compute a risk averse equilibrium we benchmark our approach with a state of the art solver relying on a mixed complementarity problem reformulation we show that for larger case studies our proposed approach is preferable the algorithm converges in all cases while conventional solvers fail to compute a risk averse equilibrium the methodology is transferable to other risk averse equilibrium models with reference to capacity markets we conclude that they are more beneficial in a risk averse market capacity markets result in lower total cost while avoiding expected energy not served this statement still holds with increased price caps in energy only markets

population consumption and resources ethical issues abstract this article is about the concept of optimum population and consumption even though it is primarily concerned with foundational issues the various ideas that have been discussed in the literature are tested in the context of economic models with limited resources it is argued that broadly speaking existing theories of optimum population and consumption are variants of average and what is often termed classical utilitarianism respectively both classes of theories are shown to have deficiencies in great measure because of their reliance on a defective concept of personhood it is also argued that contractual theories are of little use because potential people as opposed to future people cannot be parties to any contract a generation relative ethics is developed and is put to work in an overlapping generations model it is shown that generation relative ethics even when it is a variant of classical utilitarianism can prescribe a considerably lower population than classical utilitarianism

the assumption of equal marginal utility of income how much does it matter abstract in most applied cost benefit analyses individual willingness to pay wtp is aggregated without using explicit welfare weights this can be justified by postulating a utilitarian social welfare function along with the assumption of equal marginal utility of income for all individuals however since marginal utility is a cardinal concept there is no generally accepted way to verify the plausibility of this latter assumption nor its empirical importance in this paper we use data from seven contingent valuation studies to illustrate that if one instead assumes equal marginal utility of the public good for all individuals aggregate monetary benefit estimates change dramatically

the ideology of efficiency searching for a theory of policy analysis the potential pareto improvement criterion and other measures of economic efficiency do not pass the test of consistency and coherence within economic theory nor do such measures accord with what public decision makers seek in policy advice from economists such efficiency measures are nonetheless durable components of the ideology of economics in general and benefit cost analysis in particular the objectivity of the policy scientist has been confused with the objectivity of the science while economic efficiency has no claim to objectivity the policy scientist can be an objective analyst of policy choices

wind power offering strategy in day ahead markets employing demand response in a two stage plan this paper deals with wind power offering strategies in day ahead markets a new plan is proposed in which a wind power producer participates in the day ahead market while employing demand response dr to smooth its power variations in this context a new dr scheme is presented through which the wind power producer is able to achieve dr by establishing various dr agreements with dr aggregators the proposed offering plan involves two stages the first stage clears on the day ahead market the wind power producer decides on day ahead offers as well as dr agreements with the aggregator the second stage takes place on the balancing market in a successive approach the wind power producer determines its energy trading for each period until the whole day is covered additionally proper dr agreements for each period are confirmed here the proposed plan is formulated in a stochastic programming approach where its validity is assessed on a case of the nordic market

value of price responsive load for wind integration in unit commitment the ability of load to respond to short term variations in electricity prices plays an increasingly important role in balancing short term supply and demand especially during peak periods and in dealing with fluctuations in renewable energy supplies however price responsive load has not been included in standard models for defining the optimal scheduling of generation units in short term here elasticities are included to adjust the demand profile in response to price changes including cross price elasticities that account for load shifts among hours the resulting peak reductions and valley fill alter the optimal unit commitment enhancing demand response also increases the amount of wind power that can be economically injected further wind power uncertainty can be managed at a lower cost by adjusting electricity consumption in case of wind forecast errors which is another way in which demand response facilitates the integration of intermittent renewables

animal welfare and social decisions is it time to take bentham seriously abstract this paper analyzes and questions the standard welfare economics assumption of anthropocentric welfarism i e that only human well being counts intrinsically alternatives where also animal welfare matters intrinsically are analyzed both theoretically and empirically the general public s ethical preferences are measured through a survey of a representative sample in sweden and the responses from a clear majority suggest that animal welfare should indeed carry intrinsic weight in public decision making current legislation in many countries is consistent with this a brief review of moral philosophy on animal welfare indicates that a large majority of philosophers believe that animal welfare should count intrinsically it is moreover demonstrated that it is theoretically and practically possible to generalize welfare economics in order to give intrinsic value also to animal welfare the paper concludes that there are strong reasons to sometimes generalize welfare economics in order to take animal welfare into account directly i e in addition to effects through individual utilities the practical implications of doing so are likely to be more important over time as the scientific methods of measuring animal welfare are gradually improving

sensitivity analysis for the general spatial economic equilibrium problem we consider the general spatial economic equilibrium problem where the supplies and demands at each market for each commodity may depend on the price on this as well as other prices of other commodities at other markets and the transportation cost on each link for each commodity may depend on the flow on this as well as other flows of other commodities on other links in the network for this model we perform stability and sensitivity analysis assuming that the supply demand and transportation cost functions are monotone we first show that the multicommodity equilibrium price pattern depends continuously upon the market supply and demand functions and the multicommodity equilibrium shipment pattern depends continuously upon the transportation cost functions we then focus on the delicate question of predicting the direction of the change in the price and shipment pattern and the incurred supplies demands and transportation costs resulting from changes in the supply demand and transportation cost fu

preferences for distributional impacts of climate policy what role do people think distributional aspects should play in the design of climate policy the literature assessing climate policies has shown that assumptions regarding peoples distributional preferences for climate change policy impacts are central for policy assessment but empirical evidence for such preferences is lacking we design a discrete choice experiment that varies how climate policies affect the income of future generations living in three geographical regions with distinctly different current and predicted future income levels the experiment is implemented on a sample of the danish population and preferences are modelled in a latent class model our results show that a small majority of the sample 60 hold preferences consistent with inequity aversion with respect to future income effects of climate policies across regions for the same group we find that preferences for co benefits for current generations reflect a form of altruism but not inequity aversion in both cases the altruistic aspects are moderated by an element of preferences for positive outcomes in own region too the remaining classes display preferences with a varying focus on impacts in their own region or simply no support for further climate policy our results provide some support for the inclusion of social preferences regarding distributional effects of climate change policies in policy assessments and hence for the significant impact on policy this inclusion will have

a new decomposition method for multiregional economic equilibrium models this paper discusses decomposition of a multiregional economic equilibrium model that is characterized by a cost minimizing linear programming lp model of the supply side and a vector valued function that gives demand prices as functions of the quantities demanded our motivation is to ease model development and maintenance by a solution method that links separately developed regional models only when a consistent multiregion solution is desired a heuristic strategy is described to extend any existing lp decomposition principle to a procedure for decomposing an equilibrium model by region this strategy is applied to extend dantzig wolfe decomposition to the multiregional economic equilibrium model and several theoretical results are derived for the resulting algorithm the central result is a proof of asymptotic convergence under usefully general conditions the extended dantzig wolfe procedure is illustrated with an existing two region model of canadian energy supplies and demands

a stochastic version of a stackelberg nash cournot equilibrium model we consider a stochastic version of the stackelberg nash cournot model proposed by murphy et al 1983 ln the first stage the leader chooses and announces his production level taking into account the reaction of the followers the decision of the leader is taken when market demand is uncertain in the second stage the followers knowing the leader s output react to this level according to the cournot assumption at this stage demand is known we study the extension of the murphy et al model and give a numerical illustration of this model using the european gas market

a note on efficiency vs distributional equity in legal rulemaking should distributional equity matter given optimal income taxation the question addressed in this paper is whether the choice of legal rules ought to be influenced by consideration of their redistributive effects the answer to this question would of course be simple were it assumed that there was no difficulty in redistributing income for then any socially undesirable distributional effect following from adoption of a particular rule could be undone by use of an appropriate redistributive tax scheme thus it would be best to choose legal rules only on the basis of criteria other than distributional equity and therefore in the model to be studied here to choose rules only on the basis of efficiency i however there is acknowledged difficulty in redistributing income and such difficulty will be assumed below to be due solely to the adverse effect of an income tax on the incentive to work in view of this problem an otherwise socially optimal distribution of income generally would not be achievable so that it might be expected that distributional equity as well as efficiency ought to enter into the choice of a legal rule suppose for example that the social preference is for income equality but that because an income equalizing tax would severely depress work effort and lower the aggregate product to be shared it would turn out to be best to employ only a mildly redistributive income tax consequently one might suspect that it would be desirable to accomplish some further redistribution by giving an advantage under the law to those with relatively low income but this line of thought does not recognize that an attempt at redistribution through the choice over legal rules would involve the same sort of problem as exists under the income tax if low income individuals are treated relatively favorably in a legal setting then there would be created a disincentive to work analogous to that associated with say a generous guaranteed minimum income under the tax schedule this suggests the result to be shown here that despite imperfect ability to redistribute income through taxation everyone would strictly prefer that legal rules be chosen only on the basis of their efficiency after proving this result i will comment on its interpretation and on its relationship to results in the literature on optimal income taxation

electricity markets for energy flexibility and availability impact of capacity mechanisms on the remuneration of generation technologies abstract increased shares of renewable energy sources res to fulfill ambitious european policy targets mothballing or decommissioning of existing units and absent investments lead to concerns about the system and market adequacy to restore market adequacy capacity mechanisms cms are widely discussed and implemented in various types they are intended to provide sufficient and clearly perceivable long term price signals for available capacity as integral part of the market cms interact with the other markets markets like day ahead markets are used to trade energy imbalance markets or reserve requirements are examples for markets for flexibility among others green certificates are in place to value emission neutral injection from res resulting altered prices and shifting remuneration have effects on all generation technologies cms may affect participating technologies by imposing a capacity demand a resulting change in the generation mix may also have an impact on non participating technologies two gaps can be identified in the discussion and modeling of cms in the literature first proposed game theoretic equilibrium models fall short in representing the distinctive features of different types of cms second most models incorporating cms found in the literature only focus on the interaction with the energy based market valid assessments of cm need to consider the interaction of remuneration for available capacity and flexibility and the indirect interaction with the remuneration for emission neutral res two formulations of a game theoretic market equilibrium model are proposed which represent specific cms with its distinctive features in particular a market wide centralized capacity market ccm and targeted strategic reserves srs moreover the equilibrium models explicitly combine the cms with markets for flexibility and indirect with remuneration for res we contribute to the discussion of cms by quantifying the interactions and shifting shares of remuneration based on the interaction between cms and remuneration for emission neutral injection the effect of cms on non participating res is described we conclude based on the case study results that targeted mechanisms like srs implemented with the single purpose of ensuring availability introduce large inefficiencies in the system by missing on the interaction between availability and flexibility in contrast a market wide ccm provides a beneficial outcome for all technologies at the same time it yields a sufficient high reserve margin at lowest cost it provides clear signals for the different values of energy output flexibility availability and emission neutral injection

intergenerational discounting with intragenerational inequality in consumption and the environment it is now established that the consumption discount rate is determined by the growth of consumption multiplied by the elasticity of marginal utility but distributive concerns are rarely reflected in the literature assuming a social welfare function with inequality aversion we consider a consumption discount rate that can be decomposed into the growth effect and the intragenerational distribution effect the framework is then extended to include population change and inequality in the environment as an amenity in a utility with constant elasticity of substitution numerical examples illustrate that distributional effects turn non negligibly negative that may reduce consumption discount rate by 1 3 for plausible parameters once distribution is adjusted for both population and the environment

the real time price elasticity of electricity the real time price elasticity of electricity contains important information on the demand response of consumers to the volatility of peak prices despite the importance empirical estimates of the real time elasticity are hardly available this paper provides a quantification of the real time relationship between total peak demand and spot market prices we find a low value for the real time price elasticity which may partly be explained from the fact that not all users observe the spot market price if we correct for this phenomenon we find the elasticity to be fairly low for consumers currently active in the spot market if this conclusion applies to all users this would imply a limited scope for government intervention in supply security issues

measuring the economic value of demand side and supply resources in integrated resource planning models when comparing the economics of alternative portfolios of supply and demand side resources utility planners should consider not only costs but also effects upon the benefits or value that electricity consumers receive a method for including such effects in comprehensive resource planning models is presented this method considers the value impacts of electric rate changes takeback of energy savings in conservation programs and increases in energy services provided by load building or valley filling programs in general the method rewards resource portfolios that cause rates to move closer to marginal cost or increase the energy services provided applications of a net value objective in several resource planning models are summarized they confirm that optimizing net value can yield different resource portfolios than minimizing cost

examining market power in the european natural gas market in this paper we develop a mixed complementarity equilibrium model for the european natural gas market this model has producers as cournot players with conjectured supply functions relative to their rivals as such these producers can withhold production to increase downstream prices for greater profits the other players are taken to be perfectly competitive and are combined with extensive pipeline seasonal and other data reflecting the current state of the market four market scenarios are run to analyze the extent of market power by these producers as well as the importance of pipeline and storage capacity

market based coordination of transmission and generation capacity planning we propose an iso model for coordinating transmission expansion planning with competitive generation capacity planning in electricity markets the purpose of the model is a holistic simulation of generation and transmission capacity expansion in the market environment the solution represents an iterative process for simulating the interactions among gencos transcos and the iso which might be terminated by the iso based on a pre specified stopping criterion the proposed model adopts a joint energy and transmission auction market and a capacity mechanism the joint auction market enables competition to occur among generation and transmission resources the capacity mechanism offers incentives for market participant investments that reflect the locational values of additional capacity transmission capacity expansion decisions are made by merchant transmission lines that recover their capacity investments through transmission marginal pricing and capacity payments transmission network security is reflected in the proposed competitive resource planning model the examples illustrate a coordinated planning of generation and transmission in restructured power systems

is the chinese currency substantially misaligned to warrant further appreciation this study provides quarterly time series estimates of the misalignment in the reer of the renminbi rmb the estimation is based on a commonly used economic approach but with a wider and more up to date coverage of data and a more extensive use of econometric modelling techniques our estimates corroborate and explain most of the previous estimates more importantly our estimates demonstrate that there is no significant undervaluation in the reer of the rmb though downward misalignment exists in the trilateral rates between the rmb us and euro the finding refutes the claim that rmb appreciation is the primary and necessary solution to the current global trade imbalance

structural determinants of real exchange rates and national price levels some empirical evidence contrary to the long held notion of purchasing power parity ppp economists have found systematic evidence that the general level of prices across countries at a point in time varies dramatically irving b kravis alan w heston and robert summers 1982 for example report that some countries national price levels are no more than one third the u s price level extensions of this work show that such departures from ppp have persisted for decades recently efforts have been made to explain systematically these persistent or structural departures from ppp pioneering work by kravis and robert e lipsey 1983 1987 1988 has demonstrated that a positive correlation between the price level and real per capita gross domestic product is robust across numerous cross sectional specifications for instance using data from kravis et al 1982 table 6 12 87 percent of the variation in national price levels pl of 21 countries in 1975 is explained by per capita gdp y and a constant

economic analysis of transmission expansion planning with price responsive demand and quadratic losses by successive lp the growth of demand response programs and renewable generation is changing the economics of transmission planners and regulators require tools to address the implications of possible technology policy and economic developments for the optimal configuration of transmission grids we propose a model for economic evaluation and optimization of inter regional transmission expansion as well as the optimal response of generators investments to locational incentives that accounts for kirchhoff s laws and three important nonlinearities the first is consumer response to energy prices modeled using elastic demand functions the second is resistance losses the third is the product of line susceptance and flows in the linearized dc load flow model we develop a practical method combining successive linear programming with gauss seidel iteration to co optimize ac and dc transmission and generation capacities in a linearized dc network while considering hundreds of hourly realizations of renewable supply and load we test our approach for a european electricity market model including 33 countries the examples indicate that demand response can be a valuable resource that can significantly affect the economics location and amounts of transmission and generation investments further representing losses and kirchhoff s laws is also important in transmission policy analyses

on international equity weights and national decision making on climate change abstract estimates of the marginal damage costs of carbon dioxide emissions require the aggregation of monetised impacts of climate change over people with different incomes and in different jurisdictions implicitly or explicitly such estimates assume a social welfare function and hence a particular attitude towards equity and justice we show that previous approaches to equity weighting are inappropriate from a national decision maker s point of view because domestic impacts are not valued at domestic values we propose four alternatives sovereignty altruism good neighbour and compensation with different views on concern for and liability towards foreigners the four alternatives imply radically different estimates of the social cost of carbon and hence the optimal intensity of climate policy

the behavioural economics of climate change this paper attempts to bring some central insights from behavioural economics into the economics of climate change in particular it discusses i implications of prospect theory the equity premium puzzle and time inconsistent preferences in the choice of discount rate used in climate change cost assessments and ii the implications of various kinds of social preferences for the outcome of climate negotiations several reasons are presented for why it appears advisable to choose a substantially lower social discount rate than the average return on investments it also seems likely that taking social preferences into account increases the possibilities of obtaining international agreements compared to the standard model however there are also effects going in the opposite direction and the importance of sanctions is emphasized

subproblem approximation in dantzig wolfe decomposition of variational inequality models with an application to a multicommodity economic equilibrium model we present a modification to dantzig wolfe decomposition of variational inequality vi problems that allows for approximation of the vi mapping in the subproblem the approximation is parameterized by the most recent master problem solution and it must satisfy two simple requirements in an electronic companion online appendix we show that the proofs of convergence and other important properties go through with subproblem approximation the approximation procedure is illustrated by an application to a class of multicommodity economic equilibrium models mceems the standard dantzig wolfe decomposition by commodity does not allow the subproblem to be decomposed into separate subproblems for each commodity but we show two ways to approximate the subproblem s inverse demand function and both ways allow the subproblem to be broken into separate single commodity problems a further approximation is combined with each of the inverse demand approximations in effect an approximate supply or demand curve is introduced into each commodity s subproblem for transfers of commodities between different subproblems thus allowing the subproblems to produce better proposals an illustration is included for an mceem that represents energy markets in canada

retail electricity tariff and mechanism design to incentivize distributed renewable generation abstract this paper examines the question of how to incentivize the adoption and use of renewable energy resources with particular attention on distributed renewable energy dre prior experience suggests that price and quantity based programs such as feed in tariffs provide more efficient renewable adoption and use and lower program costs than programs that set quantity targets only we also examine some cost allocation issues raised by the use of dre systems and fixed time invariant retail pricing this combination can result in customers with dre systems paying a disproportionately small portion of system capacity costs we suggest two retail pricing schemes real time pricing and a two part tariff with demand charges to address these issues

economic dispatch of demand response balancing through asymmetric block offers this paper proposes a method of describing the load shifting ability of flexible electrical loads in a manner suitable for existing power system dispatch frameworks the concept of an asymmetric block offer for flexible loads is introduced this offer structure describes the ability of a flexible load to provide a response to the power system and the subsequent need to recover the conventional system dispatch algorithm is altered to facilitate the dispatch of demand response units alongside generating units using the proposed offer structure the value of demand response is assessed through case studies that dispatch flexible supermarket refrigeration loads for the provision of regulating power the demand resource is described by a set of asymmetric blocks and a set of four blocks offers is shown to offer cost savings for the procurement of regulating power in excess of 20 for comparative purposes the cost savings achievable with a fully observable and controllable demand response resource are evaluated using a time series model of the refrigeration loads the fully modeled resource offers greater savings however the difference is small and potentially insufficient to justify the investment required to fully model and control individual flexible loads

basic needs versus distributional weights in social cost benefit analysis the purpose of this paper is to compare and contrast two alternative ways of bringing what we might loosely call distributional considerations into the machinery of social cost benefit analysis the first of these ways is an outgrowth of the utilitarian tradition that has been a part of economics at least since the times of bentham and mill it holds that the marginal utility of an extra dollar to a rich man is lower than that of the same dollar to a poor man alternatively this same notion can be thought of as applying distributional weights to the changes in welfare of different people that occur as a consequence of a particular project policy or program the second approach does not rely on differential weighting of the welfare of different individuals rather it imputes to some individuals external benefits connected with the improvement in the circumstances of others most people genuinely feel it is good for the sick to be healed the hungry fed the illiterate taught the homeless sheltered and so on they have demonstrated these feelings over the centuries through charitable acts in which their own money has been spent to bring about one or more of these objectives similar motivations may also lie behind legislation in which societies have accepted a collective responsibility for meeting the medical educational nutritional and housing needs of their less fortunate citizens i use the term distributional weights to characterize the first of these approaches and basic needs to describe the second in what follows i shall try to show that these two ways of introducing distributional considerations into social cost benefit analysis or into applied welfare economics more generally are really conceptually quite distinct and have very different implications for public policy and social choice while they are not in principle inconsistent with one another

distributional weights in environmental valuation and cost benefit analysis theory and practice abstract cost benefit analysis cba is built on the kaldor hicks efficiency criterion whereby projects that have aggregate positive net benefits are recommended even if those who lose are not compensated for their losses two kinds of problems can be identified with the use of the criterion first as income tends to affect monetary welfare changes positively the preferences of those with higher wealth have a larger weight in societal decision making second monetary welfare changes can be thought of as changes in real income which matter more for those with a lower initial wealth level both problems can be mitigated with distributional weighting despite their strong theoretical pedigree distributional weights have been largely neglected in practical cbas one exception being analyses in climate change economics we present the theory of distributional weighting and illustrate how weights can be applied empirically in an international environmental cba that deals with marine water quality improvements we show that different weighting schemes can result in different policy recommendations we also show that taking the income distribution within countries into account can change a country s willingness to participate in the water quality improvement program and that the income elasticity of willingness to pay wtp is an important indication of the direction of change

the external wealth of nations measures of foreign assets and liabilities for industrial and developing countries abstract although capital flows are closely monitored surprisingly little is known about the accumulated stocks of foreign assets and liabilities held by various countries especially in the developing world this paper constructs estimates of foreign assets and liabilities and their equity and debt subcomponents for a sample of 67 industrial and developing countries it characterizes the stylized facts of international balance sheets and asks whether there are trends in net foreign asset positions and shifts in debt equity ratios over time finally it explores the sensitivity of estimated stock positions to the treatment of valuation effects not captured in balance of payments data

a model for efficient consumer pricing schemes in electricity markets suppliers in competitive electricity markets regularly respond to prices that change hour by hour or even more frequently but most consumers respond to price changes on a very different time scale i e they observe and respond to changes in price as reflected on their monthly bills in this paper we examine mixed complementarity programming models of equilibrium that can bridge the speed of response gap between suppliers and consumers yet adhere to the principle of marginal cost pricing of electricity we develop a computable equilibrium model to estimate ex ante time of use tou prices for a retail electricity market it is intended that the proposed models would be useful 1 for jurisdictions e g ontario where consumers prices are regulated but suppliers offer into a competitive market 2 for forecasting forward prices in unregulated markets and 3 in evaluation and welfare analysis of the policies regarding regulated tou pricing compared to regulated single pricing

bi level approach to distribution network and renewable energy expansion planning considering demand response this paper presents a bi level model for distribution network and renewable energy expansion planning under a demand response dr framework the role of dr has recently attracted an increasing interest in power systems however previous models have not been completely adapted in order to treat dr on an equal footing the target of the distribution network and generation planner modeled through the upper level problem is to minimize generation and network investment cost while meeting the demand this upper level problem is constrained by the lower level problem stressing the importance of integrating dr to time varying prices into those investment models the objective function considered for the lower level is the minimization of overall payment faced by the consumers using the karush kuhn tucker complementarity constraints the proposed bi level model is recast as a mixed integer linear programming problem which is solvable using efficient off the shelf branch and cut solvers detailed results from an insular case study la graciosa canary islands spain are presented

computing market equilibria with price regulations using mathematical programming one approach to modeling and solving for economic equilibria relies on mathematical programming these models solve for competitive equilibria however policy analysis often requires measuring the impacts of government price regulations that differ from the competitive equilibrium in this paper we provide a unified framework for computing market equilibrium in mathematical programming models in the presence of government price regulations the iterative procedure that we use is essentially a gauss seidel algorithmic strategy the paper concludes by showing how to represent tax rebate programs average cost pricing and price ceilings

on convergence of the pies algorithm for computing equilibria equilibria in market models with continuous market supply functions can be obtained by computing fixed points with an activity analysis representation of production fixed point algorithms would converge slowly further since the market model here is of a partial equilibrium nature the market demand function may not exhibit the integratability condition precluding the formulation of the market equilibrium problem as an economic surplus maximization problem we examine an iterative algorithm the pies method for locating equilibria in markets whose production is described by optimization over a finite set of activities and whose econometric demand function does not possess the integrability property convergence properties of the algorithm along with existence and uniqueness of market equilibrium are summarized

estimating intergenerational distribution preferences resource management decisions influence not only the output of the economy but also the distribution of utility between groups within the community the theory of cost benefit analysis provides a means of incorporating distributional changes into the decision making calculus through the application of distributional or welfare weights however this practice has not been widely adopted in part due to difficulties in the estimation of distributional weights this paper addresses this problem by using the stated preference method of choice modelling to estimate distributional weights suitable for inclusion in a cost benefit analysis framework the findings of a choice modelling experiment designed to estimate community preferences with respect to intergenerational utility distribution illustrate the potential of this method in addressing distributional issues