anticipated international environmental agreements abstract consider a situation in which countries anticipate an international environmental agreement iea to be in effect sometime in the future what is the impact of the future iea on current emissions after its announcement we show that the answer to this question is ambiguous we examine four types of ieas that aim to reduce pollution stock in the environment iea type 1 sets a level of emissions iea type 2 and iea type 3 set a percentage and a uniform cut vis a vis the business as usual policy respectively iea type 4 sets the policy that maximizes future joint benefits of the signatories we show that all of these agreements reach their goal in the long run but the intended benefits of these ieas can potentially be offset by the anticipatory non cooperative response of the signatories leading to an environmental degradation in the short run which iea is preferable depends on the targeted level emissions during the phase of cooperation when this target is above a certain threshold welfare under iea type 1 is larger than under iea type 2 which is larger than under iea type 3 moreover the highest level of welfare that can be attained under iea type 1 is above the highest level of welfare achieved by any one of the other three ieas

buying cooperation in an asymmetric environmental differential game abstract we consider a two player asymmetric differential game of pollution control one player is non vulnerable to pollution or unwilling to consider damages when choosing her production policy in a non cooperative game we characterize the feedback nash equilibrium and the cooperative solution we establish conditions under which the vulnerable player can buy the cooperation of the non vulnerable player to control her emissions we further use the nash bargaining solution to allocate the total cooperative dividend between the two players and propose a time consistent decomposition overtime of the total payoff

collaborative replenishment in the presence of intermediaries in complex supply chains downstream buyers would often replenish individually from intermediaries instead of directly dealing with original manufacturers although collaborative replenishment from intermediaries might generate benefits significant cost reductions could be achieved when direct replenishments from manufacturers are considered this paper constructs a general model to study collaborative replenishment in multi product chains with alternative sources of supply i e manufacturers and intermediaries a collaborative organization determines the optimal choices of replenishment sources on behalf of its members to minimize collective costs we introduce a class of cooperative games associated with these situations and give sufficient conditions for their concavity we investigate the choice of allocation rule and its effect on supply chain efficiency when buyers strategically participate in the collaborative organization we prove that the shapley value coordinates the supply chain i e it makes complete participation the best strategy for buyers even under asymmetric information this setting is compared with an alternative structure where buyers can only collaborate in source specific replenishment organizations that purchase all requested products either from intermediaries or manufacturers although there are always participation strategies that result in minimum collective cost it is impossible to find allocation rules for source specific replenishment organizations that always motivate the buyers to choose such strategies

cooperative game theory applied to ieas a comparison of solution concepts this paper aims at providing a critical overview of the main solution concepts adopted by the cooperative game theoretical approach in analysing the constitution of an international environmental agreement iea the first part is mainly descriptive and focuses on the basic features of the global warming game characterizing the differences of the cooperative and non cooperative approaches to deal with this theme it then presents the most adopted cooperative solution concepts critically analysing their ratio furthermore two alternative solutions the rawlsian nucleolus and a revisited nash bargaining solution are proposed both based on the concept of minimum feasible core the second part is dedicated to a numerical exercise based on a standard emissions game in order to compare the mentioned concepts with particular focus on their redistributive properties and on their capability to minimize the potential losses caused by free riding the rawlsian nucleolus is among the considered solutions the one with the highest redistributive properties outperforming on this regard the chander and tulkens solution that still tends to prioritize polluted countries the ability of avoiding losses from free riding is shown to be strongly correlated with the redistributive properties of solution concepts till the point that their ranking perfectly coincides

cooperation in international environmental negotiations due to a preference for equity this paper demonstrates that cooperation in international environmental negotiations can be explained by preferences for equity within a n country prisoner s dilemma in which agents can either cooperate or defect in addition to the standard non cooperative equilibrium cooperation of a large fraction or even of all countries can establish a nash equilibrium in an emission game however where countries can choose their abatement level continuously equity preferences cannot improve upon the standard inefficient nash equilibrium finally in a two stage game on coalition formation the presence of equity interested countries increases the coalition size and leads to efficiency gains here even a stable agreement with full cooperation can be reached

a note on the efficiency ranking of two second best policy instruments for pollution control a relatively simple economic model compares two pollution control policies on the basis of regional costs for attainment the comparison seeks to rank policies which impose uniform charges for emissions and those which impose requirements of a percentage reduction of pollutants the results indicate that there are too many unique regional variations to make a valid ranking the model region consists of two pollution sources and a single monitoring point 13 references

dynamic multiproduct optimal hedging in the soybean complex do time varying correlations provide hedging improvements optimal multiproduct time varying hedge ratios are determined for a soybean complex and their risk mitigating impact is contrasted over single commodity time varying and naive hedge ratios a parsimonious regime switching dynamic correlation model is employed with the estimated dynamic correlation matrix among prices varying between two different levels and the time varying correlations being applied to the multiproduct setting findings obtained are three fold first there is significant evidence that estimated simultaneous correlations among different commodities prices e g soybean spot and soybean meal futures attain different values along the time series second there is a substantial reduction in margin variance provided by the optimal multiproduct time varying hedge ratios over single time varying and naive hedge ratios for both in and out of sample data third average optimal multiproduct time varying hedge ratios for soybean and soybean meal 0 82 and 0 74 respectively for out of

environmental policy and stable collusion the case of a dynamic polluting oligopoly we show that the imposition of a markovian tax on emissions that is a tax rate which depends on the pollution stock can induce stable cartelization in an oligopolistic polluting industry this does not hold for a uniform tax thus accounting for the feedback effect that exists within a dynamic framework where pollution is allowed to accumulate into a stock over time changes the result obtained within a static framework moreover the cartel formation can diminish the welfare gain from environmental regulation such that welfare under environmental regulation and collusion of firms lies below that under a laissez faire policy

the effect of asymmetries on optimal hedge ratios there is widespread evidence that the volatility of stock returns displays an asymmetric response to good and bad news this article considers the impact of asymmetry on time varying hedges for financial futures an asymmetric model that allows forecasts of cash and futures return volatility to respond differently to positive and negative return innovations gives superior in sample hedging performance however the simpler symmetric model is not inferior in a hold out sample a method for evaluating the models in a modern risk management framework is presented highlighting the importance of allowing optimal hedge ratios to be both time varying and asymmetric

national politics and international agreements abstract in this paper we set up a political economy model of a two country world economy where an international agreement on the provisions of public goods generating cross border externalities such as environment protection subject to feasibility efficiency and equity constraints has to be negotiated by two elected national delegates we prove that any international agreement involves higher public good provisions through higher contributions in both countries than in the case of no agreement if feasible an ia may generate losers in either country under an equal tax rate rule an international agreement may or may not be reached unlike under an equal gain rule turning to the election stage depending on the type of equity rule imposed on the ia the choice of delegates depends crucially on distributive characteristics both between and within countries this is due to the struggle by electorates to transfer the tax burden to the other country s taxpayers

bivariate garch estimation of the optimal commodity futures hedge six different commodities are examined using daily data over two futures contract periods cash and futures prices for all six commodities are found to be well described as martingales with near integrated garch innovations bivariate garch models of cash and futures prices are estimated for the same six commodities the optimal hedge ratio ohr is then calculated as a ratio of the conditional covariance between cash and futures to the conditional variance of futures the estimated ohrs reveal that the standard assumption of a time invariant ohr is inappropriate for each commodity the estimated ohr path appears non stationary which has important implications for hedging strategies

hedging index exchange traded funds this paper presents an empirical comparison of the out of sample hedging performance from naive and minimum variance hedge ratios for the four largest us index exchange traded funds etfs efficient hedging is important to offset long and short positions on market maker s accounts particularly imbalances in net creation or redemption demands around the time of dividend payments our evaluation of out of sample hedging performance includes aversion to negative skewness and excess kurtosis the results should be of interest to hedge funds employing tax arbitrage or leveraged long short equity strategies as well as to etf market makers

introducing new futures contracts reinforcement versus cannibalism abstract in order to assure survival futures exchanges around the world are in constant search of new futures contracts that will generate a profitable level of trading volume introducing new futures contracts may increase or decrease the volume for those contracts already listed using a multi product hedging model in which the perspective has been shifted from portfolio to exchange management we study these effects using data from two exchanges that differ regarding assets traded and market liquidity amsterdam exchanges versus chicago board of trade we show the usefulness of the proposed method the method may also be used to evaluate the benefits for exchanges that plan to internationalize their activities by merging with another exchange or by cross listing other exchanges futures contracts

the voluntary provision of a pure public good the case of reduced cfc emissions and the montreal protocol abstract this paper applies the theory of the voluntary provision of a pure public good to the behavior of nations to curb chlorofluorocarbon cfc emissions during the late 1980s by devising an empirical test we determine that these cutbacks in emissions are consistent with nash behavior when taste parameters are controlled the relationship between emission cutbacks and national income is nearly linear as implied by the theory if the sample is purged of potential outliers then the linear relationship results a significant taste parameter is the extent of political and civil freedoms while a marginally significant parameter is geophysical position in terms of latitude

international pollution control cooperative versus noncooperative strategies abstract international pollution control involving two neighboring countries is modeled as a simple two player dynamic game each country produces a good that is consumed by domestic households production of each consumption good results in emissions of pollutants households in each country derive utility from the consumption of the domestically produced good but incur costs through the total stock of pollution stock externality in this setting we characterize cooperative as well as noncooperative pollution control strategies of the governments of the two countries that maximize the discounted stream of net benefits of a representative consumer it turns out that when the governments are restricted to use linear strategies noncooperative behavior results in overall losses for both countries if on the contrary governments use nonlinear markov perfect strategies and the discount rate is small enough a pareto efficient steady state pollution stock can be supported as a differentiable subgame perfect equilibrium thus the emergence of first best solutions cooperative outcomes does not require any institutional arrangements threats retaliation etc but can be brought about through the use of nonlinear markov perfect equilibrium strategies

on the self interested use of equity in international climate negotiations abstract we discuss self interested uses of equity arguments in international climate negotiations using unique data from a world wide survey of agents involved in international climate policy we show that the perceived support of different equity rules by regions may be explained by the ranking of their economic costs despite being self interested equity arguments may be perceived as being used for different reasons for example out of fairness considerations or in order to facilitate negotiations consistent with experimental and behavioral studies on fairness perceptions we find that individuals are more likely to state reasons with positive attributes if they evaluate their own region or regions that support the individual s personally preferred equity rule negotiators perceive the use of equity by regions as less influenced by pressure from interest groups

endogenous minimum participation in international environmental agreements an experimental analysis almost all international environmental treaties require a minimum number of countries to ratify the treaty before it enters into force despite the wide spread use of this mechanism little is known about its effectiveness at facilitating cooperation we analyze an agreement formation game that includes an endogenously determined minimum participation constraint and then test the predictions using economic experiments we demonstrate theoretically that players will vote to implement an efficient coalition size as the membership requirement and this coalition will form experimental tests of the theory demonstrate that the minimum participation mechanism is highly effective at facilitating cooperation when efficiency requires the participation of all players however when efficiency requires only a subset of players to participate profitable coalitions are often deliberately blocked in light of our results it is possible that equity concerns can impede the formation of international agreements when membership requirements allow free riders

crack spread hedging accounting for time varying volatility spillovers in the energy futures markets crude oil heating oil and unleaded gasoline futures contracts are simultaneously analysed for their effectiveness in reducing price volatility for an energy trader a conceptual model is developed for a trader hedging the crack spread various hedge ratio estimation techniques are compared to a multivariate garch model that directly incorporates the time to maturity effect often found in futures markets modelling of the time variation in hedge ratios via the multivariate garch methodology and thus taking into account volatility spillovers between markets is shown to result in significant reductions in uncertainty even while accounting for trading costs copyright 2002 john wiley sons ltd

market volatility and the dynamic hedging of multi commodity price risk commodity cash and futures prices experienced a severe boom and bust cycle between 2006 and 2009 increases in commodity price volatility have raised concerns about the usefulness of commodity futures and options as risk management tools dynamic hedging strategies have the potential to improve risk management when conditional co variances depart significantly from their unconditional long run counterparts and may be useful to decision makers despite their greater complexity and higher transaction costs we propose a nonparametric copula based generalized autoregressive conditional heteroscedastic npc garch approach to estimate time varying hedge ratios and evaluate the benefits of dynamic hedging during four sub periods between 2000 and 2011 using a stylized texas cattle feedlot management problem the npc garch approach allows for a flexible nonlinear and asymmetric dependence structure between cash and futures prices for different commodities we find that npc garch dynamic hedging performs bette

landlords and farmers implications of disparities in bargaining power for tenancy in agriculture abstract the equilibrium allocation of owner operated and rental land in the agricultural sector is examined given risk averse agents risky returns and asset price risk the model is extended to account for disparities in bargaining power among landlords and farmers in the absence of disparities the competitive equilibrium allocation satisfies the general conditions for optimal risk sharing with an adjustment factor similar to the optimal hedge ratio differences in bargaining power result in deviations from the optimal risk sharing conditions numerical simulations of tenancy structure are conducted for a developed agricultural economy exposed to various forms of risk estimates of parameter values representing the riskiness of returns and asset prices in this study are based on vector auto regressive techniques the simulations show that a substantial reduction of the rental ratio is obtained in a situation where farmers are equally or more risk averse than landlords consequently the results indicate that the importance of the tenancy institution as a risk sharing mechanism is severely mitigated in the presence of asset price risk risky returns relatively risk averse farmers and disparities in bargaining power

a tax cum subsidy regulatory alternative for controlling pollution insights from thinking about acid rain abstract a tax cum subsidy pollution control mechanism is proposed to mitigate against the potential efficiency losses caused by moral hazard in a self reporting method that prescribes a best available technology and trusts in the absence of expected cost penalties that it will be employed fully

how much of commodity price behavior can a rational expectations storage model explain a rational expectations competitive storage model was applied to the u s corn market to assess the aptness of this framework in explaining monthly price behavior in an actual commodity market relative to previous models extensive realism was added to the model in terms of how production activities and storage costs are specified by modeling convenience yield backwardation in prices between crop years did not depend on the unrealistic assumption of zero ending stocks our model generated cash prices that were distributed with positive skewness and kurtosis and mean and variance that increased over the storage season comparable to the persistence and the occasional spikes observed in commodity prices futures prices were generated as conditional expectations of cash prices at contract maturity and the variances of futures prices exhibited realistic time to maturity and seasonal patterns model realizations of cash and futures prices over many years were used to demonstrate the wide variety of price behaviors that could be observed in an efficient market with a similar market structure implying that economic and policy implications drawn from short historical samples of prices could be misleading

international environmental agreements on climate protection a binary choice model with heterogeneous agents abstract climate change poses a major challenge to present and future generations our analysis focuses on international environmental agreements ieas entered into by countries that decide rationally and autonomously on whether to adopt a climate friendly policy this raises the question how many and which countries will sign such an iea in addition to material incentives to combat climate change issues pertaining to justice and fairness motivate reciprocal behavior even during international negotiations integrating reciprocity preferences may stimulate cooperation and thus increase participation in an iea however there is some evidence that fairness also stabilizes small sized iea coalitions hence this gives rise to the following open question under which conditions does reciprocity have an enhanced and harmful impact on an iea furthermore we introduce heterogeneity with respect to a country s emphasis on reciprocity the costs it incurs when implementing a climate friendly policy its benefits from preventing negative consequences of climate change and country size in addition the present paper examines which countries might or might not sign an iea and identifies the characteristics that determine a country s participation or non participation in a coalition

do voluntary international environmental agreements work abstract we consider the effects of international environmental agreements using the 1988 sofia protocol on the reduction of nitrogen oxides panel data on 23 european countries for the period 1985 96 is used to evaluate the impact on emissions by dividing countries into participants and non participants that is those that did and those that did not ratify the sofia protocol using a difference in difference estimator and controlling for country specific variables we find that signing the treaty had a significant positive impact on emission reduction the estimated yearly reduction in emissions is approximately 2 1 greater than it would have been without the sofia protocol

sustaining cooperation in a differential game of advertising goodwill accumulation abstract the paper suggests a differential game of advertising competition among three symmetric firms played over an infinite horizon the objective of the research is to see if a cooperative agreement among the firms can be sustained over time for this purpose the paper determines the characteristic functions value functions of individual players and all possible coalitions we identify an imputation that belongs to the core using this imputation guarantees that in any subgame starting out on the cooperative state trajectory no coalition has an incentive to deviate from what was prescribed by the solution of the grand coalition s optimization problem

hedging with futures does anything beat the naive hedging strategy this paper investigates out of sample performance of the naive hedging strategy relative to that of the minimum variance hedging strategy in which the covariance parameters are estimated from 18 e

dynamic hedge ratio estimations in the european union emissions offset credit market following the introduction of the european union emissions trading scheme in 2005 the size of the carbon market has been growing at a tremendous rate to meet the emissions reduction targets the regulated parties can choose to participate in the allowance based market by purchasing the spot allowances commencing in 2008 the regulated parties are also allowed to purchase the offset credits to meet their allowance limit given the risky nature of the offset credits this paper evaluates the hedging performance of dynamic hedge ratios for the carbon offset credit certified emissions reduction market in the eu ets to the best of our knowledge this paper is the first attempt to evaluate the hedging performance of dynamic and constant hedge ratios in the carbon offset credit market based on the variance reduction and utility improvement measurements the findings generally support the use of static hedge ratios over the more sophisticated dynamic hedge ratios

hedging effectiveness of fertilizer swaps the fertilizer swaps market is a potential tool to protect against fertilizer price risk the swaps evaluated here are cash settled using the fertilizer index hedge ratios and hedging effectivenes

justifying the lindahl solution as an outcome of fair cooperation the motivation for the lindahl equilibrium is mostly a rather artificial price mechanism even though the analogy to a competitive market was emphasised by lindahl himself his approach does not directly explain the normative ideas behind his concept in the present paper we therefore show how the lindahl equilibrium can be deduced from some simple equity axioms these normative assumptions are the benefit principle on the one hand and the equal sacrifice principle or equivalently a non envy condition as a postulate for distributional equity on the other fairness among agents with different preferences and incomes is taken into account by considering their marginal willingness to pay as shadow prices in this way the reason why the lindahl solution can be perceived as an outcome of fair cooperation might become more understandable

parameter based decision making under estimation risk an application to futures trading this study shows how the standard portfolio model of futures trading should be modified when there is less than perfect information about the relevant parameters estimation risk the standard and the optimal decision rules for futures trading in the presence of estimation risk are compared and discussed an operational model of futures trading for use under estimation risk is advanced in the presence of relevant prior and sample information the model can be used to optimally blend both types of information many of the contributions of economic theory to the study of financial markets involve the use of parameters that are assumed known or estimable by the economic agents examples include the risk premium coefficient 18 and the security market lines that underlie the capital asset pricing model the volatility measures required for option pricing and the minimum variance hedge ratio and expected basis used to construct portfolios of futures contracts and cash positions generally it is left to practitioners to provide estimates of these parameters which are then directly substituted for the actual parameter values of the theoretical model whenever textbooks demonstrate how these parameters can be estimated there is usually a cookbook formula provided that requires some relatively straightforward analysis of the relevant data e g marshall 1989 chapters 6 and 7 cox and rubinstein 1985 chapter 6 the problems with the procedure described above are twofold first the theory has been slow to acknowledge that the practical application of the model almost always involves parameter estimates generally the additional risk of not knowing the true parameters is completely neglected second practitioners or the market participants will often have some type of nonsample information such as insider information or subjective priors that seems relevant for decision making however this potentially important information is ignored altogether when only sample data are used to obtain the parameter estimates

simultaneously determined time varying hedge ratios in the soybean complex time varying hedge ratios are derived which account for the dynamic characteristics of prices in the soybean complex a multivariate generalized autogressive heteroskedastic mgarch model along with other conditional models is used to specify the relevant covariance matrix while the time varying representations of the variance matrix are statistically appropriateex anteand ex posthedging effectiveness indicate that they provide minimal gain to hedging in terms of mean return and reduction in variance over a constant conditional procedure whether similar findings arise from other applications of garch models to optimal hedging is a question for further research

generalized optimal hedge ratio estimation a generalized approach to estimating optimal hedge ratios on futures markets is developed the generalized approach is not difficult to apply and provides a framework for evaluating the appropriateness of conventional simple regression approaches to optimal hedge ratio estimation in an application to storage hedging of corn soybeans and wheat it is found that simple regression using price levels or returns leads to errors in optimal hedge ratio estimation but that simple regression using price changes provides reasonably accurate estimates

impacts of trade and the environment on clustered multilateral environmental agreements many countries align their environmental policy and environmental regulation by way of multilateral environmental agreements meas previous work in economics provided insights in the economic and political determinants of meas at large this paper distinguishes meas by the main issues covered and classifies them in five clusters biodiversity atmosphere land chemicals and hazardous wastes and seas then the role of environmental economic and political factors and of dynamic and cross cluster effects is studied at the level of mea clusters two findings stand out from this empirical analysis first economic size and multilateral trade liberalisation of countries are found to be the most important drivers of mea participation across all clusters second adjustment costs turn out to deter and in particular cross cluster spillovers turn out to stimulate mea participation across countries and clusters

a multi stage financial hedging approach for the procurement of manufacturing materials abstract this paper addresses the problem of mitigating procurement risk that arises from volatile commodity prices by proposing a hedging strategy within a multi stage time frame the proposed multi stage hedging strategy requires a commodity futures position to be correctly initialised and rebalanced with adequate volumes of short long positions so as to reduce the volatility in the total procurement cost that would otherwise be generated by varying commodity spot prices the novelty in the approach is the introduction of the rebalancing of commodity futures position at defined intermediate stages to obtain an efficient or near optimal multi stage hedging strategy a discrete time stochastic control model dscm is developed numerical experiments and monte carlo simulation are used to show that the proposed multi stage hedging strategy compares favourably with the minimal variance hedge and the one stage hedge a close form optimal solution is also presented for the case when procurement volume and price are independent

more on the properties of a tax cum subsidy pollution control strategy abstract a modification in a tax cum subsidy pollution control strategy proposed by yohe and macavoy to mitigate against the effects of moral hazard on the effectiveness of self reporting strategies is shown capable of eliminating the dead weight welfare loss of regulating the emissions of an imperfectly competitive polluter

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

optimal hedge ratios at the winnipeg commodity exchange multivariate garch models are employed to estimate time varying hedge ratios for three commodities traded on the winnipeg commodity exchange garch hedge ratios are shown to be superior to those based on the traditional regression approach to calculating the optimal hedge les ratios optimaux de comptant par rapport aux contrats a terme a la bourse de denrees de winnipeg l auteur emploie des modeles multivaries de type garch pour calibrer les ratios optimaux de comptant par rapport aux contrats a terme pour trois denrees transigees a la bourse des denrees de winnipeg ces ratios s averent superieurs a ceux qu on obtient par les methodes de regression traditionnelles

hedging performance and basis risk in stock index futures in early 1982 trading began at three different exchanges in futures contracts based on stock indexes stock index futures were an immediate success and quickly led to a proliferation of new futures and options markets tied to various indexes one reason for this success was that index futures greatly extended the range of investment and risk management strategies available to investors by offering them for the first time the possibility of unbundling the market and nonmarket components of risk and return in their portfolios many portfolio management and other hedging applications in investment banking and security trading have been described elsewhere1 ranging from use by a passive fund manager to reduce risk over a long time horizon to use by an underwriter to hedge the market risk exposure in a stock offering for one or two days in considering the potential applications of index futures it is clear that in nearly every case a cross hedge is involved that is the stock position that is being hedged is different from the underlying portfolio for the index contract 2 this means that return and risk for an index futures hedge will depend upon the behavior of the basis i e the difference between the futures price and the cash price hedging a position in stock will necessarily expose it to some measure of basis risk risk that the change in the futures price over time will not track exactly the value of the cash position basis risk can arise from a number of different sources and is a more significant problem for stock index contracts than for other financial futures like treasury bills and bonds 3 the most apparent cause of basis risk is the nonmarket component of return on the cash stock position since the index contract is tied to the behavior of an underlying stock market index nonmarket risk cannot be hedged this is the essential problem of a cross hedge however basis risk can be present even when the hedge involves a position in the index portfolio itself and there is no nonmarket risk for one thing returns to the index portfolio include dividends while the index and the index future only track the capital value of the portfolio any risk associated with dividends on the portfolio will become basis risk in a hedged position still dividends are fairly low and also quite stable so this may not be a terribly important shortcoming

externalities in economies with imperfect information and incomplete markets this paper presents a simple general framework for analyzing externalities in economies with incomplete markets and imperfect infonnation by identifying the pecuniary effects of these externalities that net out the paper simplifies the problem of determining when tax interventions are pareto improving the approach indicates that such tax interventions almost always exist and that equilibria in situations of imperfect information are rarely constrained pareto optima it can also lead to simple tests based on readily observable indicators of the efficacy of particular tax policies in situations involving adverse selection signaling moral hazard incomplete contingent claims markets and queue rationing equilibria traditional discussions of externalities have emphasized the distinction between technological externalities in which the action of one individual or firm directly affects the utility or profit ofanother and pecuniary externalities in which one individual s or firm s actions affect another only through effects on prices while the presence of technological externalities imply in general that a competitive equilibrium may not be pareto efficient pecuniary externalities hy themselves are not a source of inefficiency the fact that prices change has of course important consequences there are both distributional and allocational effects but the distribution effects net out gains for example hy firms whose prices increase are precisely offset by losses e g to individuals who must pay higher prices and there are no welfare losses from the allocation effects as long as the price changes involved are small if firms are maximizing profits and individuals are maximizing utility both facing prices that correctly refiect opportunity costs then standard envelope theorem arguments imply that changes in profits or utility induced by changes in allocations resulting from any small change in prices are negligible

some recent developments in futures hedging the use of futures contracts as a hedging instrument has been the focus of much research at the theoretical level an optimal hedge strategy is traditionally based on the expected utility maximization paradigm a simplification of this paradigm leads to the minimum variance criterion although this paradigm is quite well accepted alternative approaches have been sought at the empirical level research on futures hedging has benefited from the recent developments in the econometrics literature much research has been done on improving the estimation of the optimal hedge ratio as more is known about the statistical properties of financial time series more sophisticated estimation methods are proposed in this survey we review some recent developments in futures hedging we delineate the theoretical underpinning of various methods and discuss the econometric implementation of the methods

refunded emission payments theory distribution of costs and swedish experience of nox abatement in this paper we discuss the effect of refunding environmental charges taxes are often resisted by polluters because they imply both abatement and tax costs when charges are refunded the incentives for abatement are essentially the same as for a tax as long as there are many producers the incidence and distribution of costs is however different lower net tax payments reduce resistance from the polluters and make refunded emissions payments politically easier to implement at a sufficiently high charge level to have significant abatement effects we describe and examine the refunded emissions payment scheme as a policy instrument and compare it with taxes and permits with regard to allocative properties distribution of costs property rights and consequently the politics of implementation as an empirical example the swedish charge on nitrogen oxides is analyzed

time consistent shapley value allocation of pollution cost reduction we study the problem of allocation over time of total cost incurred by countries in a cooperative game of pollution reduction we compute the characteristic function for all possible coalitions and apply the shapley value to determine a fair distribution of the total cooperative cost among players we design a mechanism for allocation over time of total individual cost so that the initial agreement remains valid for the whole duration of the game

the impact of equity preferences on the stability of international environmental agreements this paper uses a coalition formation model to explore how equity considerations affect countries cooperation on global environmental issues e g on climate change when developing countries are exempted from obligations to reduce their emissions i find that opening them for abatement projects financed by industrialized countries changes the incentives to cooperate in a way which can increase emissions and decrease welfare equity concerns in industrialized countries regarding the difference between their per capita emission levels and those of developing countries lead to increased abatement but do not qualitatively change the incentives to cooperate inequality aversion with respect to differences to abatement targets across industrialized countries generally induces larger coalition sizes and stricter abatement here the inclusion of developing countries improves upon the prospects of cooperation

climate policy learning and technology adoption in small countries a significant reduction in global greenhouse gas emissions requires international cooperation in emission abatement as well as individual countries investment in the adoption of abatement technology the existing literature on climate policy pays insufficient attention to small countries which account for a substantial proportion of global emission in this study we investigate how climate policy and learning about climate damage affect investment in abatement technology in small countries we consider three alternative climate policy instruments emission standards harmonized taxes and auctioned permits we say that learning is feasible if an international environmental agreement iea is formed after the resolution of uncertainty about climate damage we find that either with learning and quadratic abatement costs or without learning harmonized taxes outperform emission standards and auctioned permits in terms of investment efficiency without learning a large cost of nonparticipation that a country incurs in the iea can be beneficial to the country whether learning improves investment efficiency depends on the size of this nonparticipation cost

hedging effectiveness of stock index futures abstract the paper is concerned with the efficiency of hedging stock portfolios using futures stock indices covering the period january 1995 december 2001 the hedged portfolios consisted of the assets of seventeen investment companies quoted on the london stock exchange and two portfolios which were assumed to match exactly the corresponding cash index two futures indices were used to hedge the funds namely ftse100 and ftse250 futures indices which are quoted on liffe weekly observations were used providing 365 observations for each variable the total sample was split into two sections the first 261 observations were used to estimate the optimal hedge ratio i e the in sample period providing 260 returns for each variable and the remaining 104 i e the post sample period observations utilised to check the efficiency of the estimated hedge ratio in addition a second estimation window was tried using the last 30 observations of the in sample period a variety of methods were tried to estimate the optimal hedge ratio including ordinary least squares ols methods allowing for the existence of autoregressive conditional heteroskedasticity and an exponential weighted moving average ewma the general conclusions reached were that for the portfolios within the data set i that the ewma method of estimation provided the best estimate of the optimal hedge ii the shorter estimation window was no more efficient than the longer window and ii the ftese250 futures index was the best hedging vehicle for these portfolios

perceptions on equity and responsibility in coastal zone policies this paper studies public perceptions of fairness in managed retreat policies we try to empirically test the acceptance of the following four principles of fairness efficiency need responsibility and priority to property rights using responses from a questionnaire the objective of the paper is to generate information on the issue of solidarity between people exposed to the risk of climate change induced flooding and those who are not as regards to funding managed retreat policies and damage compensation to that end two population zones coastal and hinterland were surveyed in order to characterise personal preferences of stakeholders and distributive preferences of third parties results show i a support for national solidarity in the funding of managed retreat policies ii a difference in people ssupport for the responsibility principle depending on whether it is embedded in a general principle of justice or in a particular compensation scheme and iii a difference between distributional judgments of the coastal inhabitants stakeholders and those of the hinterland third parties according to the choices of the funding principles of damages on private assets and the choices of the general principles of fairness in managed retreat policies

a dynamic game of a transboundary pollutant with asymmetric players abstract modeling transboundary pollutants in a dynamic game framework provides a foundation for analyzing the impact of various policy options the focus of this analysis is on the results of a tax subsidy scheme used to address the transboundary problem of global climate change a nonzero sum dynamic game with asymmetric players is used to evaluate the policy impact of the tax subsidy scheme on the respective player s value functions and strategies as determined by a nash equilibrium feedback solution the asymmetry of the players is reflected in their respective attitudes toward global climate change with one player benefiting from the change and the other losing

optimal hedging with a subjective view an empirical bayesian approach the standard optimal hedging model has been the preferred theoretical model of normative hedging behavior in empirical applications the model is often implemented with the parameter certainty equivalent pce procedure however the pce procedure completely ignores parameter estimation risk and subjective views we develop an empirical bayesian optimal hedging model that not only effectively accommodates parameter estimation risk but also provides hedgers with a theoretically intuitive yet quantitatively rigorous framework to blend their subjective views and a marketwide or firmwide consensus in determining optimal hedging positions ratios

estimating strategic models of international treaty formation this article develops an empirical framework for analysing the timing of international treaties a treaty is modelled as a dynamic game among governments that decide on participation in every period the net benefit of treaty membership increases over time spillovers among members and non members accelerate or delay treaty formation by transforming participation into a strategic complement or substitute respectively the predictions of the model inform the estimation of the structural parameters based on a cross section of treaty ratification dates with this approach i estimate the sign and magnitude of strategic interaction in the ratification of the montreal protocol in the formation of europe s preferential trade agreements and in the growth of germany s network of bilateral investment treaties through a series of counterfactual experiments i explore different mechanisms that give rise to strategic interaction in the formation of these treaties

futures hedging under price basis and production risk we consider the hedging problem of a firm that has three sources of risk price basis and yield uncertainty an exact solution for the optimal futures hedge is derived under the assumption that the three random variables are jointly normally distributed and that utility is of the cara type unlike the mean variance approximation applied in previous research we show that the optimal hedge does depend on risk attitudes even when the agent perceives the futures price as being unbiased the theoretical results are applied empirically to the problem of hedging soybean production in iowa the exact solution relying on cara and normality is compared with numerical solutions under lognormal distributions and crra utility

a cooperative differential game of transboundary industrial pollution between two regions abstract in recent years the transboundary pollution problems in the world are becoming more and more serious the diffusion of pollutants is common and each region which suffers from the pollution wishes that the polluter in neighboring regions would either reduce polluting or compensate for the damages this paper studies a cooperative differential game of transboundary industrial pollution between two asymmetric regions there are two novel features in this paper first there is a stackelberg game between the industrial firms and their local government while the governments can cooperate in pollution reduction second transboundary pollution damages the regions in two ways through a global accumulative pollutant and a regional non accumulative pollutant the paper characterizes the parameter spaces that governments in two neighboring regions can collaborate and gives the feedback nash equilibrium strategies of governments and industrial firms it is found that only when the governments get cooperation the regional impact caused by the neighboring region pollution diffusion could be taken into consideration when the governments develop strategies additionally a payment distribution mechanism is proposed and a subgame consistent cooperative solution is provided with such a payment distribution both governments will receive a higher payoff in a cooperative solution than in a non cooperative solution at any instant of time during the game

global refunding and climate change abstract we design a global refunding scheme as a new international approach to address climate change participating in the global refunding system requires an initial payment it allows each country to set its carbon emission tax while aggregate tax revenues are partially refunded to member countries in proportion to the relative emission reductions they achieve within a given period the refunding scheme reduces the intertemporal climate change problem into a static public goods problem in a simple model we show that a suitably designed global refunding scheme achieves the social global optimum provided that all countries participate we discuss several procedures to achieve initial participation

the empirical minimum variance hedge decision making under unknown true parameters estimation risk is discussed along with bayes and parameter certainty equivalent pce criteria bayes criterion incorporates estimation risk in a manner consistent with expected utility maximization the pce method which is the most commonly used is not consistent with expected utility maximization bayes criterion is employed to solve for the minimum variance hedge ratio empirical application of bayes minimum variance hedge ratio is addressed and illustrated simulations shoe that discrepancies between prior and sample parameters may lead to substantial differences between bayesian and pce minimum variance hedges

controlling the monopolistic polluter nihilism or eclecticism abstract this paper is concerned with the consequences of pollution control when the polluter is a monopolist who can choose between abating pollution by reducing output and by adopting a less polluting technology it is suggested that the risk of welfare losses resulting from control policy is lower when technology is flexible than when it is rigid nevertheless some risk does remain so the paper concludes with a discussion of the possible use of selective control instruments to keep the risk to a minimum

reciprocal climate negotiators abstract do reciprocal preferences matter for participation in international environmental agreements combining the two canonical models of barrett 2003 and rabin 1993 i find that 1 the empty coalition is always stable 2 the grand coalition is stable if reciprocity preferences are sufficiently strong 3 if a minority of countries are not reciprocal a majority coalition can still be stable if reciprocity is sufficiently strong and widespread and 4 there is also a stable minority coalition if costs are moderate and the number of countries is not too small the latter coalition is weakly larger than the maximum stable coalition with standard preferences but barely improves on welfare and is characterized by negative sentiments the analysis illustrates that although models of reciprocity tend to be complex the context of a specific applied game may reduce this complexity

corruption and air pollution in europe this paper examines how the effectiveness of regulatory framework influences levels of sulphur emissions in a scenario where to reduce its emission tax payments a polluting firm may under report emissions level at the risk of being audited and fined first a model to explain how changes in regulatory framework e g audit effectiveness and transboundary spillovers affect both actual and reported emissions is developed then the theoretical predictions using data for 39 european countries from 1999 to 2003 are tested and inferences about true emission levels are made the empirical analysis supports the theoretical predictions with significant implications for the interpretation of pollution data reported to international monitoring agencies countries with effective regulation are likely to have relatively high reported emissions of sulphur but this should not automatically be interpreted as weak environmental performance because their actual pollution levels are likely to be lower than in nations with less effective regulation

optimal hedging under biased energy futures markets abstract optimal futures hedging positions for those agents trying to maximize their expected utility will depend on their view about the evolution of the market and on how risk adverse they are the most risk adverse agents will probably decide to full cover their positions but when a futures bias exists hedgers with moderate or low degree of risk aversion can alter their strategy depending on the expected gains in futures markets in our application to the uk natural gas market we find a statistically significant time varying negative futures bias that can be forecasted with confidence as a result of this bias most effective and best performing hedging strategies for moderate risk averse agents are those involving short long hedging in winter summer with a hedging ratio above below the minimum variance hedge ratio these findings are of great interest to practitioners in the uk natural gas markets and the methodology can be extrapolated to other energy markets

research on bonus penalty mechanism of pollution abatement a case study of the northeastern region of china abstract as china s environmental governance turn to a high quality management establishing reasonable and effective bonus penalty mechanism is an effective means to promote coordinated emission reduction and improve regional air quality therefore this paper constructs a bi level programming model with bonus penalty standards and emission quotas based on the maximization of social benefits and the minimization of the gap between reward and punishment funds given the np hard problem of bi level programming model this work also designs a nested hierarchical particle swarm optimization hpso algorithm for the above model subsequently from the emission data of so2 and macroeconomic data in the northeastern region of china from 2006 to 2015 the so2 emission quota and bonus penalty standards of each province are calculated the results demonstrate that 1 the optimal emission quotas of heilongjiang jilin and liaoning province are 37 7 30 3 and 69 3 10 000 tons respectively 2 when the compensation fee of pollutant abatement is set at 521 48 yuan ton and the standard of excess discharge levy is 2977 43 yuan ton the effect of pollution control in each province can be effectively improved the empirical analysis also reveals that the proposed model has a remarkable effect on regional environmental governance finally this paper puts forward some suggestions on the implementation of the bonus penalty mechanism

ecological sufficiency individual liberties and distributive justice implications for policy making we investigate the prospects of voluntary ecological sufficiency for environmental and climate policy under the constraints implied by political liberalism we find that freedom of choice restricts sufficiency to rather wealthy societies and that a sufficiency threshold cannot be derived by referring to the poor sufficiency can be in conflict with the demands of social justice i e if the sufficiency threshold is below the social minimum implied by social justice benefits from sufficiency are highly related to individual perceptions such benefits cannot be expressed in a standard preference framework consequently alternative measures of welfare and inequality are required if sufficiency is a significant phenomenon in society standard environmental policies can have a pronounced interaction with voluntary sufficiency i e if quantity regulation is present overall the voluntary notion of sufficiency causes a dilemma as sufficiency is largely a matter of civil society however voluntary sufficiency is expected to make important contributions to the preservation of ecological resources if properly balanced with social and environmental policies and framed by public discursive control

the economic value of minimum variance hedges the present article examines the potential economic gains from better minimum variance hedge mvh estimates focusing on the assumptions that yield mvhs consistent with expected utility maximization it is found that the economic value of better mvh estimates is negligible and that optimal hedges are substantially different from mvhs when the usual mvh restrictions are relaxed among other things findings suggest that the hedging research s recent emphasis on better mvhs has been a waste of resources investigating the consequences of relaxing the standard mvh assumptions seems to be much more important than recent literature contributions

hedging against bunker price fluctuations using petroleum futures contracts constant versus time varying hedge ratios the effectiveness of hedging marine bunker price fluctuations in rotterdam singapore and houston is examined using different crude oil and petroleum future contracts traded at the new york mercant

a simple multiperiod minimum risk hedge model a multiperiod hedging model is developed that is simpler than other multiperiod models in the literature the model permits periodic adjustment of the hedge while minimizing the producer s profit variance minimum risk hedge ratios are calculated for steers cows hogs corn and soybeans using the full model with hedge adjustments every two months these ratios are compared to those using the model without periodic hedge adjustments and to a simple single period model the results suggest that simple models may work well for simple hedges while the full model is best for more complex hedging situations such as cross hedges our purpose in this paper is to develop a multiperiod hedging model in which the hedge can be updated each period other multiperiod hedging models e g anderson and danthine karp have substantial data requirements which limit their use as viable hedging tools our aim is to develop a simpler model that will have practical application the model is used to calculate minimum risk hedge ratios for steers cows hogs corn and soybeans and these ratios are compared with hedge ratios based on a multiperiod model in which the hedge cannot be adjusted each period simple minimum risk hedge ratios also are computed for each commodity and compared with the other ratios

participation and commitment in voluntary coalitions to provide public goods this paper reports experimental evidence on the voluntary formation of coalitions to provide a public good participation and commitment in a coalition are either exogenously imposed or endogenously determined by the players themselves we find larger voluntary participation rates when commitments in the coalition are endogenously determined using a minimum contribution rule rather than exogenously determined however due to a trade off between participation and commitment coalitions with voluntary participation are less effective in facilitating cooperation compared to when all players are forced to participate this paper therefore confirms the rather pessimistic conclusions from coalition formation theories

the effectiveness of index futures hedging in emerging markets during the crisis period of 2008 2010 evidence from south africa abstractthis article provides an assessment of the comparative effectiveness of four econometric methods in estimating the optimal hedge ratio in an emerging equity market particularly the south african equity and futures markets the article bases the effectiveness of hedging on volatility reduction and minimization of the coefficient of variation of hedged returns as well as risk aversion based utility maximization the empirical analysis shows that the vector error correction method and multivariate generalized autoregressive conditional heteroscedasticity methods are most effective over relatively long horizon weekly and monthly hedging periods

the acid rain game as a resource allocation process with an application to the international cooperation among finland russia and estonia we consider optimal cooperation in transboundary air pollution abatement among several countries under incomplete information i e local information only on marginal emission abatement costs and damage costs directions of emission abatement in each country are determined that generate a succession of emissions programs shown to converge to an economic optimum a cost sharing scheme that results from appropriately designed international transfers guarantees that the individual costs of all parties are nonincreasing along the path towards the optimum a version of maler s 1989 acid rain game is used for a numerical application

minimum participation rules in international environmental agreements empirical evidence from a survey among delegates in international climate negotiations recent contributions to the theoretical and experimental literature suggest that minimum participation rules mprs are able to reduce free riding incentives and may facilitate cooperation or at least coordination at the extensive margin of international environmental agreements based on a dataset from a world wide survey among delegates in international climate negotiations this paper assesses preferences for different mprs for a future climate treaty among key players the empirical findings provide evidence that small countries with low bargaining power rather opt for large minimum membership requirements while industrialized countries push forward the idea of a small carbon club of the largest emitters only in contrast delegates from countries in transition try to keep emission thresholds rather low which would allow a future agreement to come into force without their signature

international aspects of pollution control pollution is a by product of production is only gradually dissolved by the environment and crosses national borders the market outcome ignores the adverse effects of pollution and thus yields higher levels of output and pollution than would prevail under a supranational social planner which does care about pollution in practice governments often do not cooperate and this leads to outcomes of pollution and production in between the market outcomes and the outcomes under supra national social planning absence of precommitment leads to lower emission charges less cleaning up activities and more pollution appropriate levels of emission charges under the various outcomes are a result of this analysis attention is also paid to investment in clean technology the debate between optimists who believe that higher production is compatible with sound environmental policy and pessimists can be analysed in this way