capital mobility fiscal policy and growth under self financing of human capital formation this paper which is to appear in a volume honoring the memory of doug purvis considers the effects of fiscal and financial policy on economic growth in open and closed economies when human capital formation by young households is constrained by the illi quidity of human wealth both endogeneous and exogenous growth versions of the basic olg model are analysed we find that intergenerational redistribution policies that discourage physical capital formation may encourage human capital formation despite common tech nologies and perfect international mobility of financial capital the noti tradedness of human capital and the illiquidity of human wealth make for persistent differences in productivity growth rates in the endogenous growth version of the model or in their levels in the exogenous growth version we also consider the productivity growth or level effects of public spending on education and of the distortionary taxation of financial asset income

the behaviour of publicly owned utilities in wholesale electricity markets the case of the pacific northwest abstract seemingly unrelated regression techniques are used to estimate wholesale demand functions for three public utilities purchasing power from a federal agency between 1981 and 1983 from hourly data three separate goods are defined intrapeak maximum demand peak period energy consumption and off peak energy consumption explanatory variables include normalized peak period price retail load served by the utilities hydroelectric energy potential and opportunity cost of own resources these utilities are shown to respond quickly and predictably to changes in the relative cost of purchased power and to act in manners consistent with cost minimization

borrowing constraints human capital accumulation and growth abstract borrowing constraints increase aggregate savings and therefore may increase growth this paper argues however that by reducing human capital accumulation borrowing constraints also have negative effects on growth these effects are discussed in an overlapping generations model with endogenous growth empirical evidence for oecd and developing countries lend support to the main predictions of the model

public utility pricing under risk the case of self rationing comment and extension this paper reviews a previously offered model of electricity load management containing uncertainties this analysis allows individual customer demand to fluctuate within a billing period also it allows diversity or imperfect correlation among customer demands the behavioral effects are examined for a fuse that allows utilities and customers to incur costs or ration the loads under excess demand charges the behavioral implication is that the demand price is effective at each instant of the billing period the fuse analogy suggests that demand and energy prices be kept separate and that behavior is best understood as a two stage procedure

deficits and intergenerational welfare in open economies this paper deals with public debt in open economies extending diamond s overlapping generations model to a small open economy as well as an international equilibrium of two large economies it focuses on the intergenerational welfare redistributions caused by an increase in public debt triggered by a temporary government budget deficit and shows how these redistributions differ in open and closed economies the interplay between the deficits in the government budget and the current account is also analyzed it is shown how a single period with a government deficit can be followed by a sequence of periods with a deficit in the current account

liberalizing the energy markets of western europe a computable equilibrium model approach using a computable equilibrium model the short run effects of a radical liberalization of the west european natural gas and electricity markets are examined in each model country oil gas coal and electricity are produced traded and consumed there are world markets for oil and coal and well integrated competitive markets for gas and electricity in western europe gas and electricity are transported and traded across markets under the assumption of ideal third party access regimes for transportation and limited capacities in the transportation networks it is found that relative to the data year 1996 radical liberalization reduces the average end user price of natural gas by around 20 and the average end user price of electricity by around 50 the supply of electricity increases by around 20 mainly due to increased coal power production after such liberalization coal power emerges with the largest market share of electricity production in western europe

the bias in price elasticity estimates under homothetic separability implications for analysis of peak load electricity pricing this article demonstrates that the assumption of a homothetically separable utility function places a priori restrictions on the parameters of the demand system if these restrictions are unwarranted an open question if they are not explicitly tested they will lead to biased price elasticity estimates in particular we show that the uncompensated own price elasticities must be smaller than the negative of the expenditure shares that is the price elasticity of peak electricity demand must be less than the negative of the share of expenditure devoted to peak electricity this finding is probably not new to economists familiar with consumer demand analysis nevertheless many recent studies of consumer demand for electricity under time of day rates explicitly impose this restriction the resulting price elasticity estimates are usually quite large in absolute value 5 to 8 but they are the product of restrictive a priori assumptions as well as information embodied in the sample data the results of

trade and trade policy with imperfect competition the case of identical products and free entry abstract this paper analyses intra industry trade between economies containing an imperfectly competitive industry in which firms produce a homogeneous output production is subject to increasing returns to scale and there is free entry and exit of firms trade is shown to unambiguously increase welfare by reducing the degree of monopoly in each market and increasing firm size the effects of differences in technology and endowments on the pattern of trade and welfare are examined import tariffs are shown to raise welfare in the country employing the tariff and the welfare implications of various types of industry subsidy are examined

international effects of government expenditure in interdependent economies a dynamic analysis of the international transmission of government expenditure shocks under alternative methods of finance is presented the benchmark case of lump sum tax financing yields an expansion in both the short run and the long run levels of domestic activity while crowding out domestic consumption activity abroad declines in the short run and while it is stimulated during the transition long run activity abroad also declines with capital income tax financing the accompanying distortion outweighs the direct expenditure effects so that all these responses are reversed financing with a tax on labour produces ambiguous responses the welfare implications of these policies are also examined

output effects of government purchases the theoretical analysis focuses on the distinction between temporary and permanent movements in government purchases under plausible conditions the temporary case involves an output response that is positive less than one to one with the change in government purchases and larger than that generated by an equal sized but permanent shift in purchase the equilibrium real rate of return rise in the temporary case but changes little in the permanent one defense purchases are divided empirically into permanent and temporary components by considering the role of temporary wars no temporary shifts in nondefense purchases were isolated empirical results verify an expansionary output effect for temporary purchases that exceeds that of permanent purchases the results for some other expectational hypotheses are found to be generally supportive of the theory

commercial industrial customer response to time of use electricity prices some experimental results this article analyzes a time of use pricing experiment involving over 700 small and medium size commercial industrial firms two basic rate structures were implemented one with time varying demand kw charges and a flat energy kwh charge and the other with time varying energy charges and a flat kw charge a small but statistically significant elasticity of substitution between peak and offpeak kwh consumption is estimated for the summer season in the overall sample for firms facing the time of use demand rate a substantially larger response is estimated in the summer season for the subgroup of large firms in the experiment that faced a time of use demand rate and this response translates into a welfare gain that in just the first year more than offsets the additional metering costs involved under mandatory implementation

earnings within education groups and overall productivity growth to offer a possible interpretation for recent empirical findings on earnings growth this paper constructs a simple model with endogenous human capital investment a distribution of natural abilities and unbiased technological progress the model predicts that in the long run average earnings within any education group will grow more slowly than average wages overall it also predicts that average earnings in high education groups ultimately will rise relative to average earnings in low education groups in the model these processes do not imply secular increases in the degree of inequality in the overall cross sectional distribution of earnings

electricity time of use tariff with consumer behavior consideration abstract this paper investigates an electricity time of use tou tariff problem with the consideration of consumer behavior under the tou tariff we consider two periods the peak and base periods a two level model is established to solve the tou tariff problem in the upper level the producer determines the tou tariff with the consideration of consumer behavior in the lower level the consumers respond to the tou tariff through shifting some electricity consumption in the peak period to the base period using the traditional flat rate fr tariff as a baseline we verify the conditions under which the producer has incentives to adopt the tou tariff with the adoption of a general consumer transfer cost we solve for the optimal tou tariff under different situations our results demonstrate that proper adoption of the tou tariff can create a win win situation for both the producer and the consumers the producer can increase its profit and the consumers can save their electricity cost we further evaluate the effectiveness of the tou tariff in terms of the peak demand reduction using a quadratic transfer cost we obtain some managerial insights into the tou tariff problem and illustrate that the tou tariff is always beneficial to the producer and the consumers under the quadratic transfer cost

setting the standard a framework for evaluating the cost effectiveness of building energy standards abstract the adoption rate and stringency of building energy standards in the u s have been increasing since the mid 1990s as a result of the energy policy act mandate of 1992 epact current evidence on the energy savings that accrue from commercial building energy standards is based on engineering simulations which do not account for realized behaviour once a standard is actually adopted this paper uses quasi experimental variation in commercial building energy standard adoptions to estimate their effect on realized electricity consumption and cost effectiveness in states induced by epact to adopt an energy standard where all new nonresidential construction was erected under a commercial standard electricity consumption per service worker is lower by about 12 and total commercial electricity consumption is lower by 10 including early adopters and never adopters to the analysis leads to a downward bias in the treatment effect the realized electricity savings in the epact states represent three quarters of predicted simulated savings and electricity saved in 2010 came at a cost of approximately 7 7 cents per kwh

the effect of taxation on human capital this study finds a significant negative effect of proportional income taxation on human capital of the few earlier studies to address this issue most suggested a negligible effect of taxation on investment in human capital this earlier conclusion is shown to be incorrect by using a model that is more general in several respects than the models used previously

the costs of worker displacement this study identifies part of the social loss attendant upon displacement as the remaining value of the assets specific to the severed employment relationship a bargaining model is used to link wage tenure profiles to the amount of information firms and workers possess about the duration of that relationship if information is good the profile will flatten as displacement approaches using psid data for workers separated between 1977 and 1981 wage tenure profiles are found not to change this suggests that either workers or both firms and workers are surprised by the displacement the present value of that part of the social loss attributable to the worker s share of firm specific capital is around 7 000 1980 dollars

taxation and long run growth abstract a number of recent papers have investigated the growth effects of tax reforms in the context of neoclassical growth models with human capital growth effects were found to be large but highly sensitive to parameter choices this paper shows that growth effects are smaller and much less sensitive in models that generate realistic life cycle behavior which requires that households are finitely lived but generations may be altruistically linked and face diminishing point in time returns in human capital accumulation reasonable upper bounds for growth effects in such models are less than one third of some values reported in the literature

impact of some parameters on investments in oligopolistic electricity markets abstract it is seldom the case that one has the opportunity to compare investments as projected by a long term multi period model to what is eventually realized in practice further although sensitivity analysis is of common use in any optimization setting the impact of some parameters on strategic investments is not yet fully assessed in the context of the deregulated electricity industry starting with a benchmark model of the finnish industry we precisely explore the impact on equilibrium investments of varying such parameters as direct and cross price elasticities length of the planning horizon and the depreciation rate of capacity we run the model with different parameter values and compare the predicted equilibrium with what companies have actually done the model is a stochastic dynamic game involving three players and played over a ten year period our results show the depreciation rate and the planning horizon have a notable effect on investment levels whereas price elasticities seem to play a lesser role although the model s results are rather well aligned to total industry investments it diverges from individual levels this may be due to the cost parameter used and or to the open loop information structure adopted in the computations in any event these results should be of methodological and practical interest to scholars and practitioners involved in strategic investment in the electricity industry

trade and price variation in an integrated european power market this paper examines the potential gains in terms of increased social surplus from integrating the power markets in europe and assesses the scope for free seasonal and diurnal trade in a setting of third party access tpa we construct an equilibrium model at the level of the wholesale markets taking account of the existing power generating infrastructure of varying flexibility as well as the existing transmission network interconnecting the countries involved the model indicates an overall gain from integrating the power markets electricity prices are substantially reduced for all regions involved thus implying a significant redistribution of income from producers to consumers trade flourishes with regions establishing themselves as either pure exporters pure importers or as intermediaries acting as transit countries

real time pricing of electricity for residential customers econometric analysis of an experiment under real time pricing a network operator sets the price level for a period according to a predefined scheme which depends on the state of demand and costs and announces this price shortly before the period begins the french state owned electric utility experimented with a six rate real time tariff which divides the year into three types of days and each day into two periods the number of days of each type is known in advance to the consumer but the type of any particular day is announced only at the end of the preceding day in order to evaluate the responsiveness of customers to this pricing option we estimate the frisch demand functions for daily electricity consumption derived from a simple dynamic model based on an additively separable intertemporal utility function as the marginal utility of expenditure which enters the frisch demands follows a known stochastic process the econometric model has a state space representation we can then apply the kalman filter to compute the log likelihood function associated with each consumer s time series of electricity consumption the main result of the analysis is that the real time tariff improves the welfare of a majority of consumers participating in the experiment

water on fire gains from electricity trade in light of the ongoing liberalization of electricity trade in the nordic countries and perhaps in northern europe we argue that gains from electricity trade may be different from those traditionally associated with comparative advantages and economies of scale in particular we consider gains arising from the exploitation of technological complementarities between hydro and thermal systems our theoretical framework highlights essential features of the two systems and allows for an analysis of effects of trade we study three trading regimes which may arise either endogenously or because of trade regulations day night power exchange seasonal energy banking and unbalanced trade the analysis suggests that gradual trade liberalization may be costly

the estimated effects on industry of time of day demand and energy electricity prices industrial electricity tariffs usually contain two types of consumption related charges the energy charge assessed on total kilowatthours and the demand or capacity charge assessed on maximum kilowatts both charges can be differentiated by time of day applying a premium to kilowatts and kilowatthours consumed during specified peak hours the costs of both these dimensions energy and maximum demand vary by time of day and by season plant capacity must be constructed to meet the maximum or peak demand also capacity is comprised of plants of varying fuel efficiencies 1 figure i depicts a typical firm s pattern of demand or load curve over 24 hours under traditional electricity prices the firm pays usually on a monthly basis an energy price p for total energy f o e dt and demand price p for maximum demand e if these charges are used in a time of day tariff they will be at a higher level during potential utility system peak hours defining the interval to t1 as peak intrapeak maximum demand equals ep and peak energy use equals it e dt if both prices are differentiated by time of day then pp po and pp p where the subscripts denote the peak and off peak periods 2 time of day demand and energy charges can have differing effects the peak energy charge encourages within the peak hours a reduction in the area beneath the load curve that is a reduction in peak energy kilowatthour use it does not explicitly encourage a rearrangement of the load pattern within this interval and so may not reduce the maximum intrapeak demand the peak demand charge encourages a reduction in the maximum demand this can be accomplished directly by flattening peak period use or less directly by reducing use at each instant within the peak hence the peak demand charge has its primary effect on the pattern of use while the energy charge primarily nffprte th 1 p1 nf llq

minimal adjustment costs and the optimal choice of inputs under time of use electricity rates in time of use tou pricing schemes utilities charge rates that depend on the time of day and the season of the year at which electricity is used estimates of the effects of tou rates on business customers in the u s and israel demonstrate that most firms do not appear to respond at all to newly introduced tou rates but those that do respond make substantial adjustments in this paper we show that adjustment costs associated with changing the level of employment can explain the observed pattern of behavior in the u s and israel we apply our model to large industrial firms in israel and show that it predicts their actual responses to tou rates quite well

the theory of maximum kw demand charges for electricity abstract the kilowatt kw demand charge characterizes most electricity price schedules for industrial customers yet it has not been analysed thoroughly compared with time of use rates this article shows how such charges complicate interpretations of past estimates of the industrial demand for electricity using a utility maximization cost minimization model we derive consistent demand curves which are shown potentially to be subject to discontinuities

power trade and competition in northern europe abstract the eu electricity directive has encouraged a movement towards closer integration of power markets in northern europe at the same time the industry is undergoing significant restructuring with vertical separation and horizontal concentration being two key features the effectiveness of competition in the region will crucially depend on the extent and conditions of cross border trade between the countries concerned most importantly the conditions and cost of access to transmission networks will determine the nature of market integration and its impact on competitive conditions there is a risk that high transaction costs tariff distortions and weak unbundling will act as barriers to trade thereby limiting the extent of competition while the eu is currently pursuing voluntary solutions among system operators it is likely that regulations governing international transmission infrastructure will be required

education borrowing constraints and growth abstract this paper studies the effects of educational borrowing constraints on economic growth and welfare we consider a three period lived overlapping generations model in which individuals finance their educational expenditures by borrowing we show that if the elasticity of human capital to educational expenditure is great enough the relationship between the tightness of the constraints and the growth rate is inverted u shaped when the constraints are binding moreover when the constraints cease to be binding the growth rate is constant we also show that a relaxation of the constraints cannot be pareto improving even if the growth rate rises

financial development and the instability of open economies this paper introduces a framework for analyzing the role of financial factors as a source of instability in small open economies our basic model is a dynamic open economy model with a tradeable good produced with capital and a country specific factor we also assume that firms face credit constraints with the constraint being tighter at a lower level of financial development a basic implication of this model is that economies at an intermediate level of financial development are more unstable than either very developed or very underdeveloped economies this is true both in the sense that temporary shocks have large and persistent effects and also in the sense that these economies can exhibit cycles thus countries that are going through a phase of financial development may become more unstable in the short run similarly full capital account liberalization may destabilize the economy in economies at an intermediate level of financial development phases of growth with capital inflows are followed by collapse with capital outflows on the other hand foreign direct investment does not destabilize

a nonhomothetic generalized leontief cost function based on pooled data factor demand studies of komiya ozaki lau and tamura based upon detailed cross section data on individual production units have found that the nonhomothetic factor limitational nht fl demand system a nonhomothetic version of the leontief fixed coefficient model well explains the data these results however have mostly been ignored in the current literature on flexible functional forms and in fact none of the well known nonhomothetic flexible cost function forms includes the nht fl model i introduce a new nonhomothetic form of the generalized leontief gl cost function which includes the nht fl model as a special case empirical application to a pooled data set of the japanese iron steel industry indicates that his form is superior to the translog diewert wales gl and berndt khaled gl forms copyright 1990 by mit press

schooling and economic growth a king rebelo experiment with human capital abstract education is added to the standard neoclassical growth model by calibrating a human capital technology to the empirical evidence on schooling simulation experiments patterned after king and rebelo 1993 american economic review 83 908 931 are conducted when agents act as if they are infinitely lived interest rates are too high and the rise in school spending is too weak over the transitional growth path when schooling is inefficiently low due to binding intergenerational credit constraints interest rates deviate only moderately from the steady state level and the historical rise in school spending is fully explained

the response of small and medium size business customers to time of use tou electricity rates in israel this paper reports on the methodology data and results of the israeli time of use tou electricity pricing experiment in the industrial commercial sector we concentrate on the estimation of the demand functions for electricity under tou and the net welfare gains which result from applying tou rates to small and medium size business customers in israel this experiment which was preceded by a 15 month load research study to allow an optimal sample design was concluded in june 1992 the analysis yielded four major conclusions 1 the estimated gains of small and medium size customers in israel from tou rates are sufficient to justify investment in tou metering technology 2 there have been small but noticeable shifts of electricity from the peak to the mid peak if relevant and to the off peak periods during all seasons of the year and particularly during the winter 3 the structure and number of labour shifts during the day and weather are important factors in determining the response of business customers to the tou rates 4 price elasticities vary substantially over the seasons and across sic groups they do not vary with customer size

trade in risky assets a theory of the international trade pattern in risky assets is developed by applying the law of comparative advantage to asset trade according to this l aw there is a tendency for a country to import assets that have rela tively high autarky prices it is examined how autarky prices are aff ected by international differences in stochastic properties of output endowments the rate of time preference the degree of risk aversion and subjective beliefs and how such differences predict overall ca pital account deficits or surpluses as well as the composition of the capital account into trade in specific risky assets copyright 1988 by american economic association

fiscal policies and the integrated world stock market abstract the paper develops a two country stochastic model of an integrated world stock market in order to address issues concerning the effects of tax and spending policies on savings asset portfolios and stock market valuations general conditions for government finance neutrality under uncertainty are derived and the characteristics of the international transmission of uncertain future spending policies are spelled out they are shown to depend precisely on a transfer problem criterion involving the government and the private sector propensities to spend in different states of nature and on the cross country correlations between shocks to productivity and public spending

educational systems growth and income distribution a quantitative study this study sets out to develop a dynamic model within an economy characterized by the coexistence of public and private schools under imperfect credit market conditions in an attempt to provide a clearer understanding of the evolution of economic growth and income inequality we find that any government wishing to reduce income inequality should adopt policies aimed at increasing the enrollment rate in public schools however whilst high enrollment rates can be sustained in private schools and thus create enhanced economic growth this can only occur if accompanied by the liberalization of the credit markets

deregulation of the nordic power market and environmental policy abstract a common nordic power market will reduce total co 2 emissions in the nordic countries as compared to a situation of autarky and thus reduce the aggregate cost of complying to strict national co 2 emission targets a common market for co 2 emission permits may reduce the aggregate cost further but this cost reduction will be smaller the harsher the co 2 emission constraints are the economic gain of introducing a common nordic power market will be particularly large in the case of a swedish nuclear power phase out in this case the cost reduction of introducing a common market for co 2 emission permits will not be very large