allocation of fixed transmission cost to wheeling transactions by cooperative game theory this paper describes a methodology to allocate the cost of transmission network facilities to wheeling transactions in decentralized power systems the authors propose that the responsibility placed on transmission facilities involved in each transaction be according to the transmission usage pattern their proposal incorporates the mw mile method and considers economies of scale of transmission network facilities they also incorporate a nucleolus scheme in the cooperative game theory to deal with matters of conflict the applicability of their method is demonstrated in a numerical example

a new transmission tariff allocation model based on bilevel programming this paper proposes a flow based approach for the transmission tariff allocation problem based on the notions of long run marginal cost lrmc and nodal exchange factors nefs a worst case power flow expressed in terms of nefs is formulated to characterize the system state additionally the nefs optimal values are determined considering a specific criterion to compute tariffs the resulting problem is formulated as a bilevel program the upper level is a worst case power flow that maximizes line flows taking into account the transmission tariffs computed in the lower level the criterion considered in the lower level aims to minimize the variation range of transmission tariffs which is particularly desirable to provide incentives for renewable sources installed far away from load centers the resulting bilevel problem may have multiple solutions here the uniqueness in tariffs is preserved by solving an alternative problem once both the generation dispatch and the variation range of transmission tariffs are known numerical results are provided for a 6 bus system and the ieee 118 bus system

the monetary approach to exchange rate determination under rational expectations the dollar deutschmark rate abstract this paper reformulates the monetary approach after ascertaining that a money demand function with a partial adjustment mechanism had more empirical support than a money demand function which assumed instantaneous stock adjustment the resulting exchange rate equation is estimated by two rational expectations techniques the parameter estimates are reasonable and are robust to the estimation technique used to different specifications of the driving processes and to changes in the estimation period the structural model outperforms the random walk model and its own unconstrained equivalent a pure time series equation in outof sample forecasts

min max fairness criteria for transmission fixed cost allocation conventionally transmission fixed cost allocation is carried out on postage stamp basis amongst various other ways of solving the problem the cost allocation under the usage based domain has also been suggested namely based on proportionate tracing and recently by optimization based real power tracing changing the cost allocation regime from postage stamp basis to usage based methods though technically sound can pose fairness issue the fairness criteria in its simplest form would allocate cost in equitable manner on per unit basis while meeting the constraints the optimization based tracing provides room for defining an objective leading to tracing compliant postage stamp method that strikes a balance in allocation between conventional postage stamp and proportionate tracing based methods in this paper we address this complex cost sharing problem by suggesting a min max fairness algorithm using optimization based real power tracing the min max algorithm achieves fairness by equalizing allocations within constrained space and reaching an equilibrium where further balancing cannot be achieved we show that computing min max fair solution simply corresponds to solving a sequence of sparse lp problems for real power tracing the algorithm satisfies the property of aggregate invariancy results on actual data of central transmission utility of western regional grid of india as well as ieee 30 bus system validate the claims the results are compared with the tracing compliant postage stamp method

aggregate employment real business cycles and superior information abstract we test whether dynamic stochastic general equilibrium artificial economies associated with several labor market structures provide an adequate characterization of aggregate employment volatility and dynamics our test is robust to possible misspecifications about the information set used by economic agents to forecast future events accounting for agents superior information we find that the divisible labor indivisible labor labor adjustment costs and labor hoarding structures replicate employment volatility in contrast to the nominal wage contracts structure also the labor hoarding structure provides a substantially better account of employment dynamics

labor hoarding superior information and business cycle dynamics abstract in this paper we test whether a labor hoarding environment with basic and augmented laws of motion provide an adequate explanation for observed business cycle dynamics the basic law of motion assumes that the information set used by economic agents to forecast future forcing variables includes only the history of forcing variables augmented laws of motion assume that the information set is superior and include both forcing and hidden exogenous variables we show that the labor hoarding environment with the basic law of motion fails to replicate observed business cycle facts while the environment with augmented laws of motion successfully matches these facts

economic and policy implications of restricted patch distribution in this paper we study how restricting the availability of patches to legal users impacts the vendor s profits market share software maintenance decisions and welfare outcomes prior work on this topic assumes that the hacker s effort is independent of the vendor s decision to release the patch freely or not clearly if the patch is not available to everyone the hacker finds it easier to exploit the vulnerability in the product and as a result is likely to alter his effort to understand the role of a strategic hacker we build a game theoretic model where the hacker s decision is endogenous with this model we find that the hacker s effort may on the one hand decrease the utility that the vendor can extract from the consumers but on the other hand may help differentiate the legal version of the product from the pirated version a vendor can strategically exploit the hacker s behavior in its pricing and software maintenance decisions the endogeneity of the hacker s actions drives several of

are farrowing intentions rational forecasts this paper tests whether quarterly data on hog farmers sow farrowing intentions released in hogs and pigs are rational forecasts of actual farrowings the empirical results show that neither one nor two quarter ahead intentions are rational forecasts econometric methods and the implications of the empirical results for the rational expectations hypothesis are also discussed

transmission network cost allocation based on equivalent bilateral exchanges this paper presents a novel methodology for allocating the cost of a transmission network to its users based on the principle of equivalent bilateral exchanges which states that after all physical laws governing the flow of power have been met each demand is assigned a fraction of each generation and each generator is assigned a fraction of each demand in a uniform manner transmission cost allocation based on this principle presents several advantages namely independence from the choice of the slack bus recognition of counter flows and transmission use charges that are stable and always positive

convergence rates to purchasing power parity for traded and nontraded goods this article estimates the speed of the adjustment coefficient in structural error correction models we use a system method for real exchange rates of traded and nontraded goods by combining a single equation method with hansen and sargent s instrumental variables methods for linear rational expectations models we apply these methods to a modified version of mussa s model our results show that the half lives of purchasing power parity deviations for the rates of traded goods are less than 1 year and are shorter than those for general price and for nontraded goods in most cases implying a faster adjustment speed to parity

an econometric model of canadian monetary policy over the 1970s the last decade has witnessed the emergence of the bank of canada as a key participant in the arena of policy formation indeed the high profile of the governor and the bank has given rise to a considerable amount of discussion and debate over canadian monetary policy in both the popular media and academic journals i to a large extent this analysis has been essentially descriptive being based upon casual observations rather than a tightly formulated econometric model from the viewpoint of understanding the canadian economy over the 1970s there is a growing need to establish empirically the mechanisms of monetary policy in canada and to determine its impact upon such macroeconomic variables as real output the purpose of this paper is to specify and to estimate a simple model of canadian monetary policy over the seventies the model s focus is upon several prominent institutional details that are special to the operation of canadian monetary policy accordingly the model reflects the practice of the bank of canada in setting nominal interest rates and allowing the nominal money supply to be demand determined this modeling necessarily leads to an examination of the role and effects of the money targets adopted by the bank of canada since 1975

macroeconomics and a bit more reality macroeconomics in its widest sense is a topic which is too diverse to be usefully discussed in a single article i will therefore take a very narrow view of what might be included under this general title and focus my attention on my own main area of interest the development and use of large macro econometric models this is an area which has a long tradition and literature stemming form the pioneering work of tinbergen i937 and the cowles commission klein i950 an extensive survey of the development of modelling may be found in bodkin klein and marwah i99i macroeconometric modelling grew rapidly in importance during the late i950s and the i960s going on to achieve a very influential role inmacroeconomic policy making during the i970s its failure to deliver the detailed economic control which it had seemed to promise then led to a barrage of attacks ranging from disillusion and sceptiscism on the part of policy makers to detailed and well argued acadeinic criticism of the basic methodology of the approach perhaps the most powerful and influential of these academic arguments came from sims i980 in his article macroeconomics and reality sims argued on three quite separate grounds against the basic process of model identification which lies at the heart of the cowles commission methodology firstly that economic theory gives rise to identification restrictions which are typically more complex than those traditionally applied in macroeconometric models in particular he said that theory normally implies complex cross equation restrictions which require system estimation and which cannot be imposed on a single equation basis secondly that traditional identification conditions are often met simply because of the presence of dynamics in the models sims argued that this identification is spurious and technically invalid as purely dynamic terms cannot help in structural identification in the conventional sense finally he said that the importance of expectations effects and the interaction of policy regimes and agents expectations make identification very difficult sims argued that any one of these problems would form a challenging but feasible research agenda but that doing all of these at once would be a programme which is so challenging as to be impossible in the short run he then proposed a methodology based on vector auto regressive var models

manufacturing stocks and forward looking expectations in the uk this paper derives a model of the stocks plan based on optimal behavior by the firm when facing adjustment costs with forward looking expectations formation estimates of the model are reported for manufacturing using three alternative expectations mechanisms for determining expected sales time series published forecasts derived from national institute published forecasts and rational expectations the latter uses a submodel dependent on weakly exogenous variables single equation and whole model comparisons are made of the stocks equation estimated with forward expectations versus a traditional backward looking model these favor the forward looking model copyright 1986 by the review of economic studies limited

a lagrange multiplier test of the restrictions for a simple rational expectations model the lagrange multiplier test of the restrictions for a simple but common class of rational expectations model is developed for these kinds of models the value of this test will never exceed the likelihood ratio the difference is usually small because monte carlo evidence suggests that it performs similarly to the likelihood ratio and wald tests in small samples however an economic example suggests that larger differences are possible

min max fair power flow tracing for transmission system usage cost allocation a large system perspective power flow tracing has been suggested as an approach for evaluating 1 transmission system usage tsu cost and 2 loss mw cost for generator and load entities in the system recently optimal power flow tracing methods have been proposed to explicitly model fairness constraints in the tracing framework this paper further strengthens the tracing compliant min max fair cost allocation approach the min max model proposed in this paper is robust it addresses concerns like scalability numerical stability and termination in a finite number of steps while searching the optimal solution we also propose a methodology to model discoms and gencos as coalition within min max framework case studies on an all india network of 1699 nodes and comparison with average participation and marginal participation methods bring out the better conflict resolution feature of the proposed approach a method to model hvdc lines within the marginal participation scheme is also proposed quantitative and qualitative comparison of various tsu cost allocation methods on such a large system is another noteworthy contribution of the paper

an aumann shapley approach to allocate transmission service cost among network users in electricity markets this work presents a new methodology for the allocation of transmission service cost among network users in energy markets the proposed method is based on an optimization game theoretic framework aumann shapley that retains the desirable properties of other existing methodologies such as the average participations factors apf and long run marginal costs lrmc the approach is shown to be computationally feasible and presents desirable characteristics in terms of economic coherence and isonomy computational results are presented for the brazilian power system and compared with those obtained by three other methodologies lrmc apf and the current method adopted in brazil

buying sharing and renting information goods information goods such as books journals computer software music and videos can be copied shared resold or rented when such opportunities for sharing are present the content producer will generally sell a smaller amount at a higher price which may increase or decrease profits i identify three circumstances where profits increase 1 when the transactions cost of sharing is less than the marginal cost of production 2 when content is viewed only a few times and transactions costs of sharing are low and 3 when a sharing market provides a way to segment high value and low value users

a new approach for estimating and testing the linear quadratic adjustment cost model under rational expectations and i 1 variables abstract in this paper we propose a simple method for estimating and testing the linear quadratic adjustment cost lqac model in the presence of i 1 processes we specify the lqac model as an exact rational expectations model and we assume that the dgp for the observable variables belongs to the class of cointegrated error correction ecm models by deriving the restrictions implied by the lqac model on the parameters of the ecm we propose an alternative econometric technique for the lqac model in contrast to existing procedures we explicitly account for situations where the cointegration rank of the ecm is greater than the number of control variables i e one the method is applied to the demand for labor in denmark

expectations of exchange rates and differential inflation rates further evidence on purchasing power parity in efficient markets the paper tests the null hypothesis of ex ante purchasing power parity the empirical evidence obtained is inconsistent with the null for major industrialized countries over the current floating exchange rate regime expected nominal exchange rate changes appear to deviate systematically from expected inflation rate differentials over the same holding period even though real exchange rate changes appear to be serially uncorrelated this supports the presence of time varying risk premia in foreign exchange markets and real determinants of exchange rate movements as suggested by equilibrium theories of international asset markets this paper tests the hypothesis that the expected change in the exchange rate of two countries equals the expected differential in their inflation rates over the same holding period this relationship is an ex ante version of the classical relative purchasing power parity ppp that holds under some versions of efficient foreign exchange and international commodity markets it has important implications for the efficacy of government policies in open economies and has been the focus of numerous empirical studies the ex ante ppp eppp differs from the traditional ppp proposed by cassel 4 in the explicit treatment of uncertainty as formulated by roll 32 the eppp is based on the constraint that in efficient markets the net return to speculators engaging in intertemporal speculation on goods in the foreign country is anticipated to be zero 1 an immediate implication of eppp is that innovations in real exchange rates or deviations from ppp follow a martingale process in sharp contrast to the well documented empirical rejections of the conventional ppp strong support for the martingale property of eppp exists in the literature 2 the proposition that the differences in the expected price relatives of two countries are exactly accounted for by the expected change in exchange rates over the same period is inconsistent with a number of theoretical observations in the extant literature in particular the eppp model assumes that the expected real interest rate differential between each pair of countries is intertemporally constant in order to rule out commodity and financial arbitrage in a world of

an econometric analysis of fluctuations in aggregate labor supply and demand the paper contains a simple equilibrium model of the labor market the supply function allows for intertemporal substitution in response to real wage fluctuations and the demand function allows for adjustment costs on employment the supply and demand functions both solve quadratic partial adjustment problems driven by rational expectations about future real wages the market equilibrium also solves a partial adjustment problem driven by rational expectations about future preference and technology shocks two related issues are emphasized the identification of dynamic labor supply and demand functions and the theoretical interpretation of serial correlation in employment and real wages when the supply and demand shocks are assumed to be ar 1 processes which are not causally related the model delivers a simple structure for the equilibrium process for employment and real wages which is a restricted var 2 this simple structure facilitates the interpretation of summary statistics on the time series properties of observed employment and real wage series the supply and demand functions can both be locally identified using only employment and real wage data an illustrative application is presented using u s manufacturing data for the period 1948 1971

market for software vulnerabilities think again software vulnerability disclosure has become a critical area of concern for policymakers traditionally a computer emergency response team cert acts as an infomediary between benign identifiers who voluntarily report vulnerability information and software users after verifying a reported vulnerability cert sends out a public advisory so that users can safeguard their systems against potential exploits lately firms such as idefense have been implementing a new market based approach for vulnerability information the market based infomediary provides monetary rewards to identifiers for each vulnerability reported the infomediary then shares this information with its client base using this information clients protect themselves against potential attacks that exploit those specific vulnerabilities the key question addressed in our paper is whether movement toward such a market based mechanism for vulnerability disclosure leads to a better social outcome our analysis demonstrates that an active unregulated market based mechanism for vulnerabilities almost always underperforms a passive cert type mechanism this counterintuitive result is attributed to the market based infomediary s incentive to leak the vulnerability information inappropriately if a profit maximizing firm is not allowed to or chooses not to leak vulnerability information we find that social welfare improves even a regulated market based mechanism performs better than a cert type one but only under certain conditions finally we extend our analysis and show that a proposed mechanism federally funded social planner always performs better than a market based mechanism

marginal pricing of transmission services a comparative analysis of network cost allocation methods a strict marginal network pricing policy is not able to generate enough revenues to recover the cost of the primary transmission service other related network services are ignored here this cost recovery problem requires the stipulation of a complementary charge which completes the network marginal revenues this paper evaluates numerically and qualitatively three different allocation methods of the complementary charge marginal participation factors mean participation factors and benefit factors the evaluation has been applied to the spanish electrical system model

instrumental variables procedures for estimating linear rational expectations models abstract this paper illustrates how to use instrumental variables procedures to estimate the parameters of a linear rational expectations model these procedures are appropriate when disturbances are serially correlated and the instrumental variables are not exogenous we compare our procedures to some alternative estimators that estimate free parameters from restrictions implied by the euler equations the procedures are applicable to a variety of linear rational expectations models several examples of which we cite

expected life time utility and hedging demands in a partially observable economy this paper analyzes the expected life time utility and the hedging demands in an exchange only representative agent general equilibrium under incomplete information we derive an expression for the investor s expected life time utility and analyze his hedging demands for intertemporal changes in the stochastic unobservable growth of the endowment process and the changing quality of information regarding these changes the hedging demands consist of two components which could work in opposite directions so that a conservative consumer may end up having positive hedging demands our results are qualitatively different from those prevailing under constant growth cf brennan m j 1998 the role of learning in dynamic portfolio decisions european finance review 1 295 306 ziegler a 2003 incomplete information and heterogeneous beliefs in continuous time finance springer berlin chapter 2

generalized method of moments and macroeconomics we consider the contribution to the analysis of economic time series of the generalized method of moments estimator introduced by hansen we outline the theoretical contribution conduct a small scale literature survey and discuss some ongoing theoretical research

the dynamics of agriculture supply a reconsideration this paper presents a dynamic rational expectations equilibrium model for a given crop the dynamic supply equation is derived from the farmer optimization problem and the equilibrium movements of commodity price production and land allocations are solved analytically it is shown that the observed dynamics of agriculture supply which are usually explained and measured with the nerlovian supply response model can be explained and measured at least as well by the rational expectations equilibrium model however interpretation of the results is different and the paper defines explicitly the dynamic supply elasticities and presents an econometric method for consistent estimators for the parameters

strategic bidding under uncertainty a binary expansion approach this work presents a binary expansion be solution approach to the problem of strategic bidding under uncertainty in short term electricity markets the be scheme is used to transform the products of variables in the nonlinear bidding problem into a mixed integer linear programming formulation which can be solved by commercially available computational systems the be scheme is applicable to pure price pure quantity or joint price quantity bidding models it is also possible to represent transmission networks uncertainties scenarios for price quantity plant availability and load financial instruments capacity reinforcement decisions and unit commitment the application of the methodology is illustrated in case studies with configurations derived from the 80 gw brazilian system

a dynamic game of r and d patent protection and competitive behavior a theory of dynamic optimal resource allocation to r and d in an n firm industry is developed using differential games this technique represents a synthesis of the analytic methods previously applied to the problem static game theory and optimal control the use of particular functional forms allows the computation and detailed discussion of the nash equilibrium in investment rules this paper addresses the problem of resource allocation to research and development among the important issues that a firm engaging in r and d must evaluate are uncertainty regarding the feasibility and profitability of a particular innovation the possibility of a protracted development period the possibility that a rival firm may innovate first capturing either a patent or a significant share of the new market the possibility that a rival firm may imitate the innovation and appropriate some of the profits in the new market in what follows we will develop a theory of optimal resource allocation to research and development which incorporates the aspects of r and d enumerated above we will use a dynamic game theoretic analysis determining the nash equilibrium strategies for n identical firms the availability of perfect patent protection is shown to accelerate development of the innovation and the effect of increasing rivalry is addressed the impact of increasing rivalry on nash equilibrium investment in r and d depends upon the degree of appropriability of rewards if patent protection is perfect then increasing the number of nash rivals results in increased r and d effort however when imitation is rewarded the opposite may be true finally some notions of competitive and perfectly competitive equilibrium are examined in the context of the model developed below

real time prediction with u k monetary aggregates in the presence of model uncertainty a popular account for the demise of the u k s monetary targeting regime in the 1980s blames the fluctuating predictive relationships between broad money and inflation and real output growth yet ex post policy analysis based on heavily revised data suggests no fluctuations in the predictive content of money in this paper we investigate the predictive relationships for inflation and output growth using both real time and heavily revised data we consider a large set of recursively estimated vector autoregressive var and vector error correction models vecm these models differ in terms of lag length and the number of cointegrating relationships we use bayesian model averaging bma to demonstrate that real time monetary policymakers faced considerable model uncertainty the in sample predictive content of money fluctuated during the 1980s as a result of data revisions in the presence of model uncertainty this feature is only apparent with real time data as heavily revised data obscure these fluctua