economics of a bottleneck abstract drawing on vickrey amer econ rev 59 251 261 1969 and subsequent literature this paper provides a thorough economic analysis of the simplest bottleneck model of road congestion with peak load demand in the morning rush hour a fixed number of identical individuals one per car must travel from home to work between which is a bottleneck of given capacity the costs of travel include queuing time and schedule delay time early or late for work the frequency distribution of departure times adjusts so that in equilibrium all individuals have the same travel costs the paper extends the previous literature by examining a coarse toll and solving for optimal capacities the application of congestion tolls can generate efficiency gains by altering the frequency distribution of departure times previous estimates of the efficiency gains from congestion tolling are likely to be substantially downward biased because they have ignored this effect

the impact of wind power generation on the electricity price in germany abstract this paper investigates the relationship between intermittent wind power generation and electricity price behaviour in germany using a garch model i evaluate the effect of wind electricity generation on the level and the volatility of the electricity price in an integrated approach the results show that variable wind power reduces the price level but increases its volatility this paper s results also indicate that regulatory change has stabilised the wholesale price the electricity price volatility has decreased in germany after a modification of the marketing mechanism of renewable electricity this gives confidence that further adjustments to regulation and policy may foster a better integration of renewables into the power system

dynamic pricing of electricity as both a regulator and an academic fred kahn argued that end use electricity consumers should face prices that reflect the time varying marginal costs of generating electricity this has been very slow to happen in the us even in light of recent technological advances that have lowered costs and improved functionality for meters and automated demand response technologies we describe these recent developments and discuss the remaining barriers to the proliferation of time varying electricity pricing

airport congestion when carriers have market power this paper analyzes airport congestion when carriers are nonatomistic showing how the results of the road pricing literature are modified when the economic agents causing congestion have market power the analysis shows that when an airport is dominated by a monopolist congestion is fully internalized yielding no role for congestion pricing under monopoly conditions under a cournot oligopoly however carriers are shown to internalize only the congestion they impose on themselves a toll that captures the uninternalized portion of congestion may then improve the allocation of traffic the analysis is supported by some rudimentary empirical evidence

investment under uncertainty with price ceilings in oligopolies abstract we study the impact of price cap regulation on the level and timing of investment in an oligopolistic cournot industry facing stochastic demand we find that a price ceiling affects investment decisions in two mutually competing ways it makes the option to defer investment more valuable but at the same time it reduces the incentive for firms to strategically underinvest in order to raise prices we show that while sensible price cap regulation speeds up investment a low price cap can be a disincentive for investment there exists an optimal price cap independent of market concentration the competitive investment price trigger that maximizes investment incentives and in the long term increases industry installed capacity this optimal price cap becomes less effective and less robust as the market becomes more competitive and as demand volatility increases errors in estimation of the optimal price cap have asymmetric effects underestimation has more dire consequences than overestimation

distributional consequences of airport congestion pricing abstract imposition of airport congestion pricing redistributes welfare among commercial regional and general aviation this article extends daniel s econometrica63 327 370 1995 stochastic bottleneck model with dynamically adjusting traffic rates queuing delays and congestion fees to include elastic demand heterogeneous operating time preferences and heterogeneous layover and queuing time values using parameters from minneapolis st paul airport simulations of congestion pricing determine its effects on equilibrium traffic patterns queuing delays schedule delays airport revenues and social welfare gains by commercial aviation common travelers and airport authorities exceed losses by general and regional aviation the article evaluates several price and rebate programs and proposes several that are self financing and pareto improving

investment and capacity choice under uncertain demand this paper extends the real options literature by discussing an investment problem where a firm has to determine optimal investment timing and optimal capacity choice at the same time under conditions of irreversible investment expenditures and uncertainty in future demand after the project is installed with a certain maximum capacity this capacity is fixed as an upper boundary to the output and cannot be adjusted later on it turns out that in the framework of this once and for all decision uncertainty in future demand leads to an increase in optimal installed capacity but on the other hand it causes investment to be delayed to an extent that even small uncertainty makes waiting and accumulation of further information the optimal decision for large ranges of demand limiting the capacity which may be installed weakens this extreme effect of uncertainty

endogenous trip scheduling the henderson approach reformulated and compared with the vickrey approach abstract the henderson approach to modeling peak period congestion lacks equilibria when lateness is prohibited this paper reformulates the henderson approach and compares it to the vickrey approach both analytically and numerically the behavior of the reformulated henderson approach varies with its elasticity of travel delay with respect to traffic flow while the vickrey approach lacks such flexibility the behavior of the vickrey approach is the limit of that of the reformulated henderson approach as the elasticity of travel delay goes to infinity

airport charges and capacity expansion effects of concessions and privatization abstract this paper examines the decisions on airport charges and capacity expansion made by airports with different objectives we find that allowing an airport to have profitable concession operations may be more welfare improving than the alternative of depriving the airport of all profits from concession operations furthermore the airport charge of a social welfare maximizing airport would be lower than that of a budget constrained public airport which in turn would be lower than that of a privatized airport pursuing profit maximization we also show that a constrained public airport would add capacity later than a social welfare maximizing airport whilst a privatized airport would add capacity later still given that constrained public airports represent the second best situation the capacity decisions of privatized airports would be socially suboptimal

cointegration analysis of spot electricity prices insights on transmission efficiency in the western us abstract the us energy policy act of 1992 promoted the development of spot markets for electric power by requiring utilities to open their transmission systems to wholesale power sales in this paper we specify and estimate a vector error correction model using peak and off peak electricity spot prices during 1994 1996 covering 11 regional markets in the western united states and test these prices for evidence of market integration the results show evidence of an efficient and stable wholesale power market

efficiency analysis of cournot competition in service industries with congestion we consider cournot competition in the presence of congestion effects our model consists of several service providers with differentiated services each competing for users who are sensitive to both price and congestion we distinguish two types of congestion effects depending on whether spillover costs exist that is where one service provider s congestion cost increases with the other providers output level we quantify the efficiency of an unregulated oligopoly with respect to the optimal social welfare with tight upper and lower bounds we show that when there is no spillover the welfare loss in an unregulated oligopoly is limited to 25 of the social optimum even in the presence of highly convex costs on the other hand when spillover cost is present there does not exist a constant lower bound on the efficiency of an unregulated oligopoly even with affine cost we show that the efficiency depends on the relative magnitude between the marginal spillover cost and the marginal benefit to consumers this paper was accepted by christian terwiesch operations management

congestion pricing and capacity of large hub airports a bottleneck model with stochastic queues this paper models and estimates congestion prices and capacity for large hub airports the model includes stochastic queues time varying traffic rates and endogenous intertemporal adjustment of traffic in response to queuing delay and fees relative costs of queuing and schedule delays are estimated using data from minneapolis st paul simulations calculate equilibrium traffic patterns queuing delays schedule delays congestion fees airport revenues airport capacity and efficiency gains the paper also investigates whether a dominant airline internalizes delays its aircraft impose it tests game theoretic specifications with atomistic nash dominant stackelberg dominant and collusive airline traffic

revisiting long run relations in power markets with high res penetration abstract electricity generation from renewable energy resources res has become increasingly significant to reach eu and emissions reduction targets at the same time one of the main eu policy goals has been the creation of a common internal energy market for europe in this paper we focus on these two issues previously studied separately considering their possible interactions we first analyze the long run relationship between day ahead electricity prices and fuel prices natural gas and coal looking at two samples of years characterized by low and high res penetration then we explore the integration of eu markets we show that the electricity fuel nexus found over 2006 2008 changed dramatically over 2010 2014 for the majority of countries considered in particular the long run dependence of electricity from gas and coal prices is much lower in recent years furthermore our results confirm that the considered eu countries are becoming less integrated as res e increases our findings suggest that nationally implemented policies to support renewables are successful in increasing res penetration but they have lessened the linkage among eu markets then making integration more difficult to obtain

mortgage terminations heterogeneity and the exercise of mortgage options as applied to the behavior of homeowners with mortgages option theoiy predicts that mortgage prepayment or default will be exercised if the call or put option is in the money by some specific amount our analysis tests the extent to which the option approach can explain default and prepayment behavior evaluates the practical importance of modeling both options simultaneouisly and models the unobserved heterogeneity of borrowers in the home mortgage market the paper presents a uinified model of the competing risks of mortgage termination by prepayment and default considering the two hazards as dependent competing risks that are estimated jointly it also accounts for the unobserved heterogeneity among borrowers and estimates the unobserved heterogeneity simultaneously with the parameters and baseline hazards associated with prepayment and default functions our results show that the option model in its most straightfolward version does a good job of explaininig default and prepayment but it is not enouigh by itself the simultaneity of the options is very important empirically in explaining behavior the results also show that there exists significant heterogeneity among mortgage borrowers ignoring this heterogeneity results in serious errors in estimating the prepayment behavior of homeowners

airport pricing congestion tolls lumpy investment and cost recovery abstract in this paper we investigate the relationship between congestion tolls and capacity expansion costs for congestion prone transportation infrastructures with lumpy investment with constant variable costs and social marginal cost pricing this relationship determines the cost recovery status of an infrastructure authority the theoretical model for optimal user charges and the timing of capacity expansion shows that the relative magnitudes of total congestion tolls and total capacity costs in an investment cycle depend on the time pattern of traffic growth a point overlooked in the literature a queuing model is used to conduct a numerical experiment to determine the cost recovery ratios under various time paths of traffic growth

long run relations in european electricity prices this paper analyses the interdependencies existing in wholesale electricity prices in six major european countries the results of a robust multivariate long run dynamic analysis reveal the presence of four highly integrated central european markets france germany the netherlands and austria the trend shared by these four electricity markets appears to be common also to gas prices but not to oil prices the existence of a common long term dynamics among electricity prices and between electricity prices and gas prices can be explained by the similarity of the market design across europe and by the same marginal generation technology since standard unit root and cointegration tests are not robust to the peculiar characteristics of electricity prices time series we also develop a battery of robust inference procedures that should assure the reliability of our results copyright 2009 john wiley sons ltd

the equity and efficiency of runway pricing abstract this paper poses and answers the following question if an airport authority is assumed to choose landing fees that maximize a weighted sum of airline consumers surpluses subject to a revenue requirement what set of weights is implied by currently observed fees the model is loosely applied to san francisco international airport the main result is that commuter airlines are much more favored than others

atomistic congestion tolls at concentrated airports seeking a unified view in the internalization debate abstract the goal of this paper is to bring some unity to the theoretical side of the debate on internalization of airport congestion by showing that all the literature s theoretical results can be derived within one simple and unified framework the analysis starts by replicating the results of brueckner brueckner j k 2002 airport congestion when carriers have market power american economic review 92 1357 1375 who showed that because airlines behaving in cournot fashion internalize congestion they should be charged low congestion tolls the analysis then validates the findings of daniel daniel j i 1995 congestion pricing and capacity of large hub airports a bottleneck model with stochastic queues econometrica 63 327 370 who argued that larger atomistic tolls are required in a model where a stackelberg leader interacts with competitive fringe airlines however it is shown that this result only holds approximately when the carriers outputs are imperfect substitutes

pricing reliability options under different electricity price regimes abstract reliability options are capacity remuneration mechanisms aimed at enhancing security of supply in electricity systems they can be framed as call options on electricity sold by power producers to system operators this paper provides a comprehensive mathematical treatment of reliability options their value is first derived by means of closed form pricing formulae which are obtained under several assumptions about the dynamics of electricity prices and strike prices then the value of the reliability option is simulated under a real market calibration using data of the italian power market we perform sensitivity analyses to highlight the role of the level and volatility of both power and strike price of the mean reversion speeds and of the correlation coefficient on the reliability options value finally we calculate the parameter model risk to quantify the impact that a model misspecification has on the equilibrium value of the ro

a market approach to long term security of supply the problem of ensuring that there is enough generation capacity to meet future demand has been an issue in market design since the beginning of the deregulation process although ideally the market itself should be enough to provide adequate investment incentives there are several factors that prevent this result from being achieved and some actual markets have already experienced problems related with a lack of generation capacity a regulatory framework to address this question is presented the procedure is based on an organized market where reliability contracts based on financial call options are auctioned so both their price and their allocation among the different plants are determined through competitive mechanisms this results in a stabilization of the income of the generators and provides a clear incentive for new generation investment with a minimum of regulatory intervention additionally the method represents a market compatible mechanism to hedge demand from the occurrence of high market prices

the intensity and timing of investment the case of land the authors model the decision to replace durable capital when intensity is variable decisions of this type include land redevelopment decisions where the density of residential or commercial development is a choice variable as well as capital replacement decisions where capacity is variable the authors provide a general yet simple formation of the problem using an optimal stopping framework they characterize the value of the project the timing of investment and the intensity of development the authors show that intensity interacts in important ways with timing taxes and project values the ability to vary intensity raises hurdle rents and delays development decisions copyright 1994 by american economic association

the value of scarce water measuring the inefficiency of municipal regulations abstract rather than allowing urban water prices to reflect scarcity rents during periods of drought induced excess demand policy makers have mandated command and control approaches primarily rationing the use of water outdoors while such policies are ubiquitous and likely inefficient economists have not had access to sufficient data to estimate their economic impact using unique panel data on residential end uses of water in 11 north american cities we examine the welfare implications of urban water rationing in response to drought using estimates of expected marginal prices that vary both across and within markets we estimate price elasticities specific to indoor and outdoor water use our results suggest that current policies do target water uses that households themselves are most willing to forgo nevertheless we find that rationing outdoor water in cities has costly welfare implications primarily due to household heterogeneity in willingness to pay for scarce water we find that replacing rationing policies with a market clearing drought price would result in welfare gains of more than 29 of what households in the sample spend each year on water

congestion pricing of canadian airports abstract under congestion pricing canadian airports would annually save between 72 and 105 million social costs per landing and takeoff decrease about 300 at toronto and vancouver and 50 at calgary and montreal slot constraints fail to eliminate this airport congestion congestion prices are lower on average than existing weight based prices current airport capacity accommodates at least five more years of traffic growth before congestion reaches current levels substantial welfare gains occur even if dominant airlines already internalize their self imposed delays this article calculates equilibrium congestion pricing schedules traffic rates queuing delays layover times and connection times by time of day

the economics of airport congestion pricing abstract conventional economic wisdom suggests that congestion pricing would be an appropriate response to cope with the growing congestion levels currently experienced at many airports several characteristics of aviation markets however may make naive congestion prices equal to the value of marginal travel delays a non optimal response this paper develops a model of airport pricing that captures a number of these features the model in particular reflects that 1 airlines typically have market power and are engaged in oligopolistic competition at different sub markets 2 part of external travel delays that aircraft impose are internal to an operator and hence should not be accounted for in congestion tolls and 3 different airports in an international network will typically not be regulated by the same authority we present an analytical treatment for a simple two node network and some numerical results to illustrate our findings some main conclusions are that second best optimal tolls are typically lower than what would be suggested by congestion costs alone and may even be negative and that cooperation between regulators need not be stable but that non cooperation may lead to welfare losses also when compared to a no tolling situation

airlines strategic interactions and airport pricing in a dynamic bottleneck model of congestion abstract this paper analyzes efficient pricing at a congested airport dominated by a single firm unlike much of the previous literature we combine a dynamic bottleneck model of congestion and a vertical structure model that explicitly considers the role of airlines and passengers we show that a stackelberg leader interacting with a competitive fringe partially internalizes congestion and that there are various toll regimes that induce the welfare maximizing outcome widening the set of choices for regulators in particular charging the congestion toll that would apply for fully competitive carriers and that ignores any internalization to both the leader and the fringe yields the first best outcome

on the efficiency of competitive markets for operating licenses some economists and policy makers have suggested that market allocation of scarce operating licenses broadcasting licenses and airport slots for instance would lead to their efficient use this paper demonstrates that a competitive market allocation of operating licenses whether attained through auctioning selling or allowing resale of the rights does not in general assure efficiency the profit criterion that would guide the allocation of licenses in a competitive market would not necessarily lead to the uses that maximize social benefits the paper shows that the difference between private and social incentives in the allocation process can be quite large the theory is then applied to discussions of allocating airport takeoff and landing slots and broadcasting licenses

investing in electricity production under a reliability options scheme abstract reliability options ros are used to enhance the security of supply in electricity systems when a power producer writes a ro s he agrees to set a cap on the price of electricity that s he cashes in return the system operator i e the party that is buying the option pays to the option issuer a fixed premium in this paper we analyze how ros affect the timing and value of investments in the energy sector and we show under what conditions they can be used as investment stimuli we prove that contrarily to what is expected ros can potentially harm the security of supply by delaying the adoption of new capacity and by reducing the value of investing in it to avoid such a result a careful setting of the relevant parameters is needed

sequential peak load pricing the case of airports and airlines we investigate airport peak load pricing using a vertical structure of airport and airlines we find that a profit maximizing airport would charge higher peak and off peak runway prices and a higher peak off peak price differential than a public airport consequently airport privatization would lead to both fewer total passengers and fewer passengers in the peak period although peak travelling passengers benefit from fewer delays this low level of peak congestion is not efficient suggesting that airport privatization cannot be judged based on its effect on congestion alone we also examine pricing behaviour of a public airport constrained to charge a time independent price on etudie la tarification de pointe dans une structure verticale d aeroports et de compagnies d aviation on decouvre qu un aeroport qui maximise ses profits chargerait des prix plus eleves pour l usage des pistes tant aux heures de pointe qu en autre temps qu un aeroport public ainsi qu un differentiel plus grand entre ces differents moments en consequence la privatisation des aeroports va entrainer a la fois moins de passagers et moins de passagers aux heures de pointe meme si ceux qui voyagent aux heures de pointe vont devoir subir moins de delais cette moindre congestion n est pas efficace voila qui suggere qu on ne doit pas evaluer la privatisation des aeroports seulement a l aune de l impact sur la congestion les auteurs examinent aussi les strategies de tarification d un aeroport public contraint a imposer une tarification qui ne peut varier selon le moment d usage dans le temps

does renewable energy generation decrease the volatility of electricity prices an analysis of denmark and germany although variable renewable energy vre technologies with zero marginal costs decrease electricity prices the literature is inconclusive about how the resulting shift in the supply curves impacts price volatility because the flexibility to respond to high peak and low off peak prices is crucial for demand response applications and may compensate for the losses of conventional generators caused by lower average prices there is a need to understand how the penetration of vre affects volatility in this paper we build distributed lag models with danish and german data to estimate the impact of vre generation on electricity price volatility we find that in denmark wind power decreases the daily volatility of prices by flattening the hourly price profile but in germany it increases the volatility because it has a stronger impact on off peak prices our analysis suggests that access to flexible generation capacity and wind power generation patterns contribute to these differing impacts meanwhile solar power decreases price volatility in germany by contrast the weekly volatility of prices increases in both areas due to the intermittency of vre thus policy measures for facilitating the integration of vre should be tailored to such region specific patterns

how loan portfolio diversification affects risk efficiency and capitalization a managerial behavior model for austrian banks abstract the aim of this paper is to analyze how diversification of banks across size and industry affects risk cost and profit efficiency and bank capitalization for large austrian commercial banks over the years 1997 2003 employing a unique dataset provided by the austrian central bank we test for several different types of managerial hypotheses formalized according to a modified version of the berger and deyoung model berger a n deyoung r 1997 problem loans and cost efficiency in commercial banks journal of banking and finance 21 849 870 we find that although diversification negatively affects cost efficiency it increases profit efficiency and reduces banks realized risk finally diversification seems to have a positive impact on banks capitalization

risk based capital requirements for mortgage loans abstract we contribute to the debate over the reform of the basel accord by developing risk based capital requirements for mortgage loans held in portfolio by financial intermediaries our approach employs simulation of both economic variables that affect default incidence and conditional loss probability distributions results indicate that appropriate capital charges for credit risk vary substantially with loan characteristics and portfolio geographic diversification hence rules that offer little risk differentiation including the current basel i regime and standardized approach proposed in basel ii result in significant divergence between regulatory and economic capital these results highlight the incentive problems inherent in simplified methods of capital regulation

negative equity and foreclosure theory and evidence abstract recent declines in housing prices have focused attention on the relationship between negative housing equity and mortgage default theory implies that negative equity is a necessary condition for default but not a sufficient one this often misunderstood result is clearly illustrated in a dataset of massachusetts homeowners during the early 1990s fewer than 10 percent of borrowers likely to have had negative equity at the end of 1991 experienced a foreclosure during the following three years an econometric model of default estimated on two decades of massachusetts housing data also predicts low default rates for current negative equity borrowers we develop a simple theoretical model to interpret these empirical findings and to assess potential foreclosure reduction policies our results imply that lenders and policymakers face an information problem in trying to help borrowers with negative equity because it is hard to determine which owners really need help in order to stay in their homes

do carriers internalize congestion costs empirical evidence on the internalization question abstract economists have long suggested overhauling the existing u s airport landing departure fees to reflect market valuations of scarce runway capacity economists however do not agree on the optimal congestion based pricing scheme while some researchers advocate for a uniform congestion fee regardless of a carrier s airport market share others suggest that airport tolls should only reflect the congestion costs imposed on other carriers this paper uses ten years of ontime performance data to empirically determine if carriers internalize congestion costs while previous researchers e g mayer christopher sinai todd 2003a network effects congestion externalities and air traffic delays or why all delays are not evil american economic review 93 4 1194 1215 use excess travel time to measure flight delays the contribution of this paper is the addition of on time arrival and delay measures based on actual versus scheduled arrival and departure times we find that estimates based on these new delay measures reverse earlier findings by mayer and sinai 2003a network effects congestion externalities and air traffic delays or why all delays are not evil american economic review 93 4 1194 1215 and hence imply that carriers are not internalizing flight congestion costs

manipulable congestion tolls the recent literature on congestion pricing with large agents contains a remarkable inconsistency though agents are large enough to recognize self imposed congestion and exert market power over prices they do not take into account the impact of their own actions on the magnitude of congestion tolls when large agents are confronted with tolls derived under this parametric assumption but understand the rule used to generate them the toll system will no longer guide the market to the social optimum to address this problem the present paper derives alternate manipulable toll rules which are designed to achieve the social optimum when agents anticipate the full impact of their actions on toll liabilities

the main determinants of subprime securitization in the spanish rmbs securities this article is a model to identify the determinants of subprime securitizations in several countries there is no classification of the underlying assets consequently investors have fewer tools to identify which securitizations are subprime using a sample of mortgage securitization transactions issued in spain from 1998 until the first half of 2009 we analyse the effects of a great securitization expansion according to previous literature we identify main determinants of residential mortgage backed security default rate and construct a prediction model of default rate by means of different probit models our results show the importance of loan to value and seasoning among other determinants as predictive indicators of default rates the results obtained point to more relaxed lending standards due to higher securitization levels our findings help to gain a more accurate perspective of the true effects of the mortgage securitization process and reinforce the role of certain determinants as defau

an optimal multiple stopping approach to infrastructure investment decisions abstract the energy and material processing industries are traditionally characterized by very large scale physical capital that is custom built with long lead times and long lifetimes however recent technological advancement in low cost automation has made possible the parallel operation of large numbers of small scale and modular production units amenable to mass production these units can be more rapidly deployed but they are also likely to have a much quicker turnover such a paradigm shift motivates the analysis of the combined effect of lead time and lifetime on infrastructure investment decisions in order to value the underlying real option we introduce an optimal multiple stopping approach that accounts for operational flexibility delay induced by lead time and multiple finite infinite future investment opportunities we provide an analytical characterization of the firm s value function and optimal stopping rule this leads us to develop an iterative numerical scheme and examine how the investment decisions depend on lead time and lifetime as well as other parameters furthermore our model can be used to analyze the critical investment cost that makes small scale short lead time short lifetime alternatives competitive with traditional large scale infrastructure