biofuel investment in tanzania omissions in implementation abstract increasing demand for biofuels as a component of climate change mitigation energy security and a fossil fuel alternative attracts investors to developing countries like tanzania ample unused land is critical for first generation biofuels production and an important feature to attract foreign direct investments that can contribute towards agricultural modernization and poverty reduction initiatives despite the economic justifications the existing institutional and infrastructural capacities dictate the impacts of biofuels market penetrations furthermore exogenous factors like global recessionary pressure depressed oil prices below the level at which biofuel production were profitable in 2007 making tanzania s competitiveness and potential benefits questionable this paper investigates the extent that first generation jatropha based biofuels industry development in tanzania observed during fieldwork in kisarawe and bahi may fulfill policy objectives this paper argues that without strong regulatory frameworks for land investment management and rural development biofuel industrialization could further exacerbate poverty and food insecurity in tanzania the paper concludes with policy recommendations for first generation biofuel development while keeping in mind implications of second generation production since the topic is broad and multifaceted a multidisciplinary approach is used that includes political institutional and agricultural economics to analyze and conceptualize biofuel industry development and food security

transforming the energy sector the evolution of technological systems in renewable energy technology this paper analyses the development and diffusion of technologies that utilize renewable energy sources in germany sweden and the netherlands the analysis enlarges the life cycle model of industry evolution to one where the focus is on the formation and evolution of new technological systems particular focus is on explaining success and failures in shifting from a formative phase into one characterized by positive feedbacks a set of challenges is identified for policy makers attempting to influence the process of transforming the energy sector

heterogeneous expectations adaptive learning and evolutionary dynamics this paper presents a linear self referential macroeconomic model with the possibility of multiple equilibria where agents have the choice of using one of two forecasting models one of minimum state variable form and the other of sunspot form to form expectations of current and future prices endogenous predictor selection is modeled as an evolutionary game where individuals choose among the forecasting models based on relative performance some nash solutions are not relevant as they are not stable under evolutionary or adaptive learning finally it is shown that the sunspot equilibrium is fragile against temporary shocks to information costs

escape dynamics in learning models this article illustrates and characterizes how adaptive learning can lead to recurrent large fluctuations learning models have typically focused on the convergence of beliefs towards an equilibrium however in stochastic environments there may be rare but recurrent episodes where shocks cause beliefs to escape from the equilibrium generating large movements in observed outcomes i characterize the escape dynamics by drawing on the theory of large deviations developing new results which make this theory directly applicable in a class of learning models the likelihood frequency and most likely direction of escapes are all characterized by a deterministic control problem i illustrate my results with two simple examples

stability properties for learning with heterogeneous expectations and multiple equilibria the bounded rationality literature has studied heterogeneous learning rules under models with a single equilibrium this paper examines learning with heterogeneous expectations in a simple macroeconomic model with multiple equilibria stability properties of this model are determined by the distribution of heterogeneity these results differ greatly from those which impose homogenous expectations a priori when the level of heterogeneity is allowed to vary stability conditions become more restrictive due to the stationarity requirements of the simpler more parsimonious updating rule finally i find that the two equilibria exchange stability when the mse of using this simpler updating rule is minimized

capacity constraints and the dynamics of underwriting profits paul d thistle the presence of an underwriting profit cycle in property liability insurance has become a stylized fact models of this underwriting cycle imply that the insurance market is governed by two regimes as capacity is constrained or not we apply the smooth transition regression model to insurance industry data for 1934 1993 to test for a regime shift we find a rapid shift between two distinct regimes with different dynamics when capacity is not restricted we find no evidence of a cycle the cycle is present in periods when capacity is restricted immediately following world war ii and after 1968 the underwriting cycle appears to be a recent phenomenon jel g22 c32 i introduction it is well known that the property liability insurance industry is subject to cycles in premiums and underwriting profits the main features of the underwriting cycle are also well known in a soft market coverage is readily available while premium revenue and underwriting profits are low in a hard market coverage becomes difficult to obtain while premium revenue and profits increase the onset of a hard market is typically quite rapid and is followed by the erosion of premium revenue and profits as market conditions return to a soft market 1 it is also generally accepted that the cycle has a period of approximately six years although there is some variation across lines and among countries this approximate period for the underwriting cycle is based on time series estimates of second order autoregressive models e g venezian 1985 and cummins and outreville 1987 understanding the causes of the property liability underwriting cycle is important for public policy and insurance regulation sof t markets may contribute to insurer insolvencies if firms price and underwrite too aggressively while high prices and restrictive underwriting in hard markets may disrupt the flow of goods and services a number of alternative theories have been proposed to account for the cycles in premiums and profits in the property liability insurance market initially attention focused on aspects of the process for determining insurance rates e g harrington and danzon 1991 1994 simmons and cross 1988 stewart 1981 venezian 1985 and wilson 1981 more recent research has developed equilibrium models of the underwriting cycle financial pricing models based on discounted cash flows imply that insurance prices are equal to policy expenses plus the expected present value of future claims under the policies issued 2 financial pricing models implicitly or explicitly assume perfect capital markets in the absence of capital market imperfections there should be no cycles and prices and profits should vary inversely with interest rates cummins and outreville 1987 and doherty and kang 1988 argue that if insurers have rational expectations then as a result of insurance accounting practices and inst itutional features of insurance markets underwriting profits follow an autoregressive data generating process which gives the appearance of a cycle the capacity constraint hypothesis developed by cummins and danzon 1991 gron 1994a b and winter 1988 1991a b 1994 is based on the fact that an insurer must have sufficient policyholders surplus capacity to support the policies it writes 3 capital market imperfections lead firms to rely on internal capital as the source of underwriting capacity this in turn implies that hard markets must be temporary and that soft markets will persist the capacity constraint hypothesis implies that premiums and profits will depend on interest rates and are negatively correlated with surplus or capacity in the short run in the long run capital enters the industry until the constraint is not binding so profits and surplus are not correlated in the long run cagle and harrington 1995 and cummins and danzon 1997 add the assumption that policyholders are willing to pay more for policies with higher financial quality lower insurer default risk and that insurer default risk is endogenous

sell or not sell biodiesel local competition and government measures the introduction of biofuels is one of the objectives of the european union for this reason measures to promote the production and consumption of this product have been implemented such as tax exemptions fixing a minimum amount of mixture or the introduction of public transport that consume biofuels in this paper we test different factors that can affect the introduction of biodiesel in the spanish gasoline market these factors are mainly the level of local competition technical difficulties and local government action empirical evidence shows that a higher level of competition more buses that consume biodiesel and a lower adjustment costs increase significantly the probability of sell biodiesel at service stations these results show how the promotion of competition and public procurement of vehicles can improve the commercialization of biofuels

behavioural heterogeneity under evolutionary pressure macroeconomic implications of costly optimisation a model is developed in which a continuum of agents makes interdependent output decisions in a stochastic environment characterised by strategic complementarity two groups are distinguished naive agents follow a costless adaptive expectations rule while sophisticated agents incur an optimisation cost to achieve self fulfilling expectations the paper studies the dynamics generated as the population composition evolves under pressure of differential payoffs sophisticated agents are favoured if optimisation is cheap or the stochastic environment highly variable but naive agents generally persist a higher long run share of sophisticated agents is associated with greater output variability and low output persistence several attempts have been made in the recent macroeconomic literature to explore the implications of allowing for behavioural heterogeneity among economic agents typically the standard postulates of unbounded rationality are held to apply only to a subset of the population while the remainder is assumed to behave in accordance with some alternative specification the nature of which depends on the situation being analysed akerlof and yellen

the valuation of multiple claim insurance contracts this paper provides a closed form solution for the value of a multiple claim insurance contract that is subject to a deductible amount and or an upper limit on claims the solution is a time integral of european option prices the model provides three important insights first systematic risk in insurance policies is altered in the presence of deductibles and maximum indemnity levels second idiosyncratic risk affects policy valuation and the required rates of return on underwriting portfolios finally contrary to traditional actuarial intuition changes in the risk free interest rate may either increase or reduce policy values

replicator dynamics in a cobweb model with rationally heterogeneous expectations abstract this paper extends the adaptively rational equilibrium dynamics of brock and hommes brock w a hommes c h 1997 a rational route to randomness econometrica 65 1059 1160 by introducing a generalized version of the replicator dynamic the replicator equilibrium dynamics red couples the price dynamics of a cobweb model with predictor selection governed by an evolutionary replicator dynamic we show that the red supports the conclusion of sethi and franke sethi r franke r 1995 behavioural heterogeneity under evolutionary pressure macroeconomic implications of costly optimisation the economic journal 105 583 600 that costly rational beliefs persist though unlike them these results obtain in the deterministic case numerical evidence shows that complex dynamics exist as in brock and hommes even though no weight is placed on strictly dominated predictors in an red steady state

insurance cycles interest rates and the capacity constraint model insurance profits exhibit cyclical behavior that has been attributed to capital market constraints the authors show that changes in interest rates simultaneously affect the insurer s capital structure and the equilibrium underwriting profit depending upon asset and liability maturity structure capital market access and reinsurance availability insurers will be differently affected by changing interest rates the authors find that the average market response to changing interest rates roughly tracks market clearing prices these cyclical effects are enhanced for firms with mismatched assets and liabilities and more costly access to new capital and reinsurance this evidence supports the capacity constraint hypothesis copyright 1995 by university of chicago press

intrinsic heterogeneity in expectation formation we introduce the concept of misspecification equilibrium to dynamic macroeconomics agents choose between a list of misspecified econometric models and base their selection on relative forecast performance a misspecification equilibrium is a stochastic process in which agents forecast optimally given their choices with forecast model parameters and predictor proportions endogenously determined under appropriate conditions the misspecification equilibrium will exhibit intrinsic heterogeneity in which all predictors are used at all times even in the neoclassical limit in which only the most successful predictors are used this equilibrium is attainable under least squares learning and dynamic predictor selection based on average profits

price regulation in property liability insurance a contingent claims approach a discrete time option pricing model is used to derive the fair rate of return for the property liability insurance firm the rationale for the use of this model is that the financial claims of shareholders policyholders and tax authorities can be modeled as european options written on the income generated by the insurer s asset portfolio this portfolio consists mostly of traded financial assets and is therefore relatively easy to value by setting the value of the shareholders option equal to the initial surplus an implicit solution for the fair insurance price may be derived unlike previous insurance regulatory models this approach addresses the ruin probability of the insurer as well as nonlinear tax effects

learning asymmetries in real business cycles when a boom ends the downturn is generally sharp and short when growth resumes the boom is more gradual our explanation rests on learning about productivity when agents believe productivity is high they work invest and produce more more production generates higher precision information when the boom ends precise estimates of the slowdown prompt decisive reactions investment and labor fall sharply when growth resumes low production yields noisy estimates of recovery noise impedes learning slows recovery and makes booms more gradual than downturns a calibrated model generates growth rate asymmetry similar to macroeconomic aggregates fluctuations in agents forecast precision match observed countercyclical errors of forecasters

escaping nash inflation an ordinary differential equation ode gives the mean dynamics that govern the convergence to self confirming equilibria of self referential systems under discounted least squares learning another ode governs escape dynamics that recurrently propel away from a self confirming equilibrium in a model with a unique self confirming equilibrium the escape dynamics make the government discover too strong a version of the natural rate hypothesis the escape route dynamics cause recurrent outcomes close to the ramsey commitment inflation rate in a model with an adaptive government

asymmetric preferences in real time learning and the taylor rule branch 2014 shows that the asymmetric preference of professional forecasters enhances the fit of the original taylor rule with respect to recent us monetary policy this paper investigates the stability of the taylor rule with asymmetric preference under adaptive learning we find that when policy omits asymmetry and learning volatility a more vigorous response to inflation than the pure taylor principle is required

adverse selection private information and lowballing in insurance markets recent contributions to the adverse selection literature have focused on a multiperiod competitive environment in this setting a clean distinction arises between the predictions of competing models cooper and hayes extend the model of rothschild and stiglitz to multiple periods the result is a self selecting equilibrium characterized by price highballing or systematically overcharging new business kunreuther and pauly suggest that information asymmetries between competing insurance firms render such price quantity policies infeasible their model results in a pooling equilibrium that is characterized by price lowballing or systematically undercharging new business our evidence is consistent with the kunreuther and pauly model and reveals the persistence of adverse selection in the automobile insurance market copyright 1990 by the university of chicago

tax management and investment strategies of property liability insurers abstract the tax reform act tra of 1986 reduced the incentives for institutional investors to participate in the tax exempt bond market this paper develops a model of profit maximization incorporating the tra provisions applicable to property liability pl insurers the theory predicts that pl insurers will use underwriting losses to shelter taxable investment income and invest the balance of their portfolios in tax favored securities our empirical evidence reveals that insurers continued to invest in tax exempts following the tra suggesting that implicit tax rates are low enough to attract insurers into the long term tax exempt market however insurers reduced the proportions of income derived from tax exempt interest and dividends following the tra

the emerging liquid biofuel market in argentina implications for domestic demand and international trade while the world s transport energy matrix is still strongly linked to limited and heavily polluting fossil fuels new markets are appearing for the production and use of alternative transport fuels such as liquid biofuels due to an interconnected global economy such markets today are developing on a global scale with actors looking to meet local as well as potential international demand the aim of this paper is to describe and evaluate the emergence of markets for liquid biofuels in argentina it reveals that biodiesel production for international supply is likely to emerge in the short run up to 2010 giving the opportunity to be switched back to local supply in the medium run post 2010 it also suggests that a bioethanol market demand and supply does not seem to be likely in the short run and it is highly uncertain in the medium run as the most influential actors oppose its development on the other hand the current constellations of the biodiesel market appear to leave many uncertainties regarding its sustainability especially in regard to a limited role of small and medium sized enterprises and a suitable and diversified biodiesel feedstock currently the focus lies solely on very large scale production of biodiesel derived from soybean oil for the export market

the political economy of biodiesel in an era of low oil prices abstract global biodiesel production grew by 23 per annum between 2005 and 2015 leading to a seven fold expansion of the sector in a single decade rapid development in the biodiesel sector corresponded to high crude oil prices but since mid 2014 oil prices have fallen dramatically this paper assesses the economic and policy factors that underpinned the expansion of biodiesel and examines the near term prospects for biodiesel growth under conditions of low fossil fuel prices we show that the dramatic increase in biodiesel output would not have occurred without strong policy directives subsidies and trade policies designed to support agricultural interests rural economic development energy security and climate targets given the important role of policy and the political context within each country that shapes policy objectives instruments and priorities case studies of major biodiesel producing countries are presented as a key element of our analysis although the narrative of biodiesel policies in most countries conveys win win outcomes across multiple objectives the case studies show that support of particular constituents such as farm lobbies or energy interests often dominates policy action and generates large social costs looking out to 2020 the paper highlights risks to the biodiesel industry associated with ongoing regulatory and market uncertainties

are economic time series asymmetric over the business cycle it has long been argued that major cyclical variables such as the unemployment rate display an asymmetric behavior over various phases of the business cycle the paper provides a statistical test for this hypothesis using the framework of finite state markov processes i implement a test to see if the behavior of the unemployment rate is characterized by sudden jumps and slower drops it is argued that the framework provided in the paper can also be used to test other sample path properties of economic time series

rate of return regulation with price flexibility rate of return regulation is the standard technique used to try to correct for the allocative inefficiencies arising from granting monopolies to firms in industries exhibiting economies of scale the idea behind current practice is that regulators should set an output price such that the firm s profits will provide investors with a fair expected rate of return on invested capital while there has been considerable debate on the appropriate rate of return the modern view as originally expressed by myers 1972 is that the fair rate should be equal to that expected by investors in other firms with equivalent risk this paper considers a change in rate of return regulation that will dominate standard price setting rather than fixing the price that the regulated firm must charge the regulator should grant the firm the option to charge any price less than or equal to a ceiling price hereafter called the price flexibility option if the regulated firm has this flexibility both the consumers and the firm are at least as well off this option to raise and lower prices within a range specified by the regulator will increase the ex ante value of the this paper considers a change in rate of return regulation that will dominate standard price setting rather than fixing the price that the regulated firm must charge the regulator should allow the firm to charge any price less than or equal to a ceiling price we demonstrate the advantages of our proposal and develop a methodology for determining fair regulatory ceilings the methodology explicitly takes account of the effect of regulation on financial risk and we develop a technique for measuring the importance of this effect finally an example is introduced to demonstrate our techniques and to show the potential quantitative importance of the analysis the authors thank alan marcus michael salinger anjan thakor and two anonymous referees for helpful comments it is with great sadness that we report that beth hayes was killed while riding her bicycle shortly after the completion of this paper 1 for a discussion of this debate see brennan and schwartz 1982 p 508

fundamentalists vs chartists learning and predictor choice dynamics abstract in a simple forward looking univariate model of price determination we investigate the evolution of expectations dynamics in the presence of two types of agents fundamentalists and chartists in particular we combine evolutionary selection among heterogeneous classes of models through predictor choice dynamics based on a logit model with adaptive learning in the form of parameters updating within each class of rules we find that for different parameterizations it can happen that fundamentalists drive chartists completely out of the market or vice versa and also that heterogeneous equilibria in which fundamentalists and chartists coexist are possible interestingly though only equilibria in which fundamentalists outperform chartists turn out to be adaptively learnable by agents

adaptive learning endogenous uncertainty and asymmetric dynamics abstract i present a simple model where forecasting confidence affects aggregate demand it is shown that this model has similar stability properties under statistical and evolutionary learning as a model without a confidence affect from this setup i introduce expectational business cycles where output fluctuates due to learning heterogeneous forecasting models and random changes in the efficient forecasting model agents use one of two forecasting models to forecast future variables while heterogeneity is dictated via an evolutionary process increased uncertainty due to a shock to the structure of the economy may result in a sudden decrease in output as agents learn the equilibrium output slowly increases to its equilibrium value expectational business cycles tend to arrive faster last longer and are more severe as agents possess less information

impacts of biodiesel on the brazilian fuel market this paper investigates market effects of the brazilian biodiesel law which made the use of biodiesel blended with petroleum diesel mandatory in brazil the study estimates the demand curve for diesel fuel biodiesel and petroleum diesel and the industry supply curve of biodiesel these two pieces of information have been used in a static analysis to draw scenarios with different biodiesel mandates the results show that the current proportion of biodiesel in the diesel mixture 5 increases consumers price by 1 7 and decreases the consumption by 1 5 compared to the scenario without biodiesel also an increase in the biodiesel percentage to 10 would raise the price by 3 5 and reduce the consumption by 3 2012 elsevier b v

simulation for assessing the liberalization of biofuels abstract global biofuel consumption has been growing in recent years as different countries worldwide have been exploring alternatives and complements to gasoline and diesel fuel for transport this is due to a hike in oil prices and their increasing volatility as well as both a high dependence of the transport sector on oil and also because arguably the supply chain of biofuels emits less co2 than that of fossil fuels biofuels have been available around the world for a while with the aid of some government support brazil pioneered this renewable solution for transport from the early 1930s as the country had little access to local fuels while oil and other alternatives became more expensive biofuels are currently widely considered as part of the solution to affordable fuels for transport this paper makes use of a system dynamics model to analyse the current leading policies aiming at increasing the penetration of biofuels in this context and given multiple uncertainties that include technology evolution and fuel prices scenario analysis has been considered for the examination of different extreme though plausible futures simulations under extreme scenarios helped in assessing the possibility of removing incentives that is leaving decisions to an open market and a partial reduction of subsidies this paper concludes that for the case of colombia the potential of biofuels seems promising

numerical valuation of high dimensional multivariate european securities we consider the problem of pricing a contingent claim whose payoff depends on several sources of uncertainty using classical assumptions from the arbitrage pricing theory the theoretical price can be computed as the discounted expected value of future cash flows under the modified risk neutral information process although analytical solutions have been developed elsewhere for a few particular option pricing problems computing the arbitrage prices of securities under several sources of uncertainty is still an open problem in many instances in this paper we present efficient numerical techniques based upon monte carlo simulation for pricing european contingent claims depending on an arbitrary number of risk sources we introduce in particular the method of quadratic resampling qr a new powerful error reduction technique for monte carlo simulation quadratic resampling can be efficiently combined with classical variance reduction methods such as importance sampling our numerical experiments show th

the determination of fair profits for the property liability insurance firm although the property liability insurance industry has been subject to price regulation for many years surprisingly little research has been directed at producing valuation models of a property liability insurance firm although property liability price regulation has historically involved setting minimum prices to reduce the risk of insolvency some commissions have begun to move toward setting prices more in the spirit of public utility regulation 1 if in an effort to promote efficiency the working objective of such regulation requires the determination of prices that would prevail under competition then regulation must be founded on some model of the costs of regulated firms under competition with free entry prices just cover all economic costs including the opportunity costs of investment by suppliers of capital and a valuation model is required to explain how the market value of the firm and therefore the cost of capital reacts to changes in the prices it charges our objective in this chapter is to provide such a framework

wealth effects of regulatory reform abstract this paper investigates the effect of california s proposition 103 on the market value of publicly traded property and liability insurance companies the passage of this referendum on november 8 1988 moved california from a market oriented to a heavily regulated insurance pricing system during the period surrounding the election the average stock price of insurance companies doing business in california declined by 6 91 the decline is positively related to the proportion of a firm s premiums affected by the referendum and the proportion generated in other states where insurance regulation is likely to change and negatively related to the firm s profitability

interest rates and insurance price cycles abstract property liability insurance prices and profits appear to move in a six year cycle the common explanation for the cycle amongst many industry analysts is that the insurance market is inherently unstable and that prices fail to converge on clearing levels our explanation is different we identify spot equilibrium prices using the capital asset pricing model but informational regulatory and contractual lags preclude instantaneous adjustment we therefore model the temporal movement of prices using a partial adjustment model in which actors form rational expectations the actual movement of insurance prices does seem to track closely those estimated by the partial adjustment model the cycle may be better viewed as a series of converging responses to changing spot prices

international bioenergy trade a review of past developments in the liquid biofuel market policies aimed to promote biofuels locally had tremendous effects on global market developments across the past decade this article develops insights into the interaction of these policies and market forces via a comprehensive collection and analysis of international production and trade data it shows that world biofuel production and trade has grown exponentially from below 30 pj in 2000 to 572 pj in 2009 for biodiesel from 340 pj in 2000 to over 1540 pj in 2009 for fuel ethanol the eu has dominated world biodiesel whereas the us and brazil have led fuel ethanol production world net biofuel trade reached 120 130 pj in 2009 and was directed towards the most lucrative markets for biodiesel this has been the eu whose imports rose to 92 pj in 2008 and remained at 70 pj in 2009 regarding fuel ethanol both the us and the eu have been prime destinations for competitively priced exports the vast majority of which originated in brazil international biofuel trade is both supply and demand driven the demand side was shaped by support policies which generally increased the domestic market value of biofuels trade developed wherever these policies prices were not accompanied by respective measures it is found that import duties largely influenced trade volumes whereas trade routes were mainly driven by tariff preferences trade regimes appear to have been designed and adapted unilaterally along national interests causing market disruptions trade inefficiencies and disputes to avoid these it is important to explicitly consider international trade implications of national trade policies a prerequisite is to improve the understanding of the underlying complex and interwoven links within the market the current lack of adequate homogeneous international reporting of biofuel production and trade statistics could be bridged via internationally standardized custom clarifications trade factor interrelations also need to be investigated further

learnability of an equilibrium with private information abstract this paper investigates the learnability of an equilibrium with private information agents of each type have their own private information about an exogenous variable and conduct adaptive learning with a heterogeneously misspecified perceived laws of motion plm that includes only this variable the paper shows that the existence of private information has a nonnegative impact on the learnability of the equilibrium that is the condition for learnability is unaffected or relaxed by heterogeneity and or misspecification in plms caused by private information in a new keynesian model with private information about fundamental shocks the learnability of the equilibrium is ensured by the taylor principle of monetary policy the paper also confirms that these results hold true not only in the presence of private information but also in a variety of informational structures

business cycle asymmetry a deeper look this paper distinguishes two types of asymmetry in business cycles deepness and steepness deepness is defined as the characteristic that troughs are further below trend than peaks are above most previous research has focused exclusively on steepness which refers to cycles in which contractions are steeper than expansions a test for deepness is proposed and applied to u s post war quarterly unemployment real gnp and industrial production evidence of deepness is found for unemployment and industrial production while the evidence for real gnp is weaker previous evidence of steepness in unemployment is confirmed