second best carbon taxation in the global economy the green paradox and carbon leakage revisited acceleration of global warming resulting from a future carbon tax is large if the price elasticities of oil demand are large and that of oil supply is small the fall in the world interest rate weakens this weak green paradox effect especially if intertemporal substitution is weak still social damages from greenhouse gases drop if the fall in oil supply and cumulative emissions is strong enough if the current carbon tax is set too low the second best future carbon tax is set below the first best too to mitigate adverse green paradox effects unilateral second best optimal carbon taxes exceed the first best taxes due to an import tariff component the intertemporal terms of trade effects of the future carbon tax increase current and future tariffs and those of the current tax lower the current tariff finally carbon leakage and globally altruistic and unilateral second best optimal carbon taxes if non kyoto oil importers price carbon too low are analysed in a three country model of the global economy

market structure and resource depletion a contribution to the theory of intertemporal monopolistic competition a the theory of resource extraction in the model we present there exists a produced substitute to the natural resource the primary question with which we are concerned is the interaction of the resource and its substitute the model we present can thus be thought as providing a link between rent and production based price theories one of the general results in the earlier literature on resource extraction is that deposits with lower extraction costs will be exploited first the analysis

financial sector regulation bank franchise values and savings mobilization empirical studies show that financial development exhibits a positive relationship with economic growth and the extent of poverty alleviation implementing policies that best promote financial development such as mobilizing savings are therefore a matter of importance for all developing countries a recent theoretical proposal that draws inspiration from the east asian development experience hypothesises that by regulating to augment bank franchise values i e the capitalized value of expected future profits accruing to banks more savings can be mobilized compared with pursuing liberalization policies this article provides an empirical test of this theory using a panel data set that covers 101 countries over the period 1994 to 2001 the results are not supportive of the theoretical proposal in commenting on this result it is noted that while intervening in the financial sector might not boost the aggregate quantity of savings mobilized liberalization policies in developing countries should not

entrepreneurship financiership and selection we develop an equilibrium model of the market for entrepreneurial finance in which all agents have some personal wealth and a project whose quality is their private information all agents choose whether to invest either as entrepreneurs or financiers or to invest in storage technology we find that a binding economy level wealth constraint which renders credit scarce can create advantageous selection where productive agents become entrepreneurs and unproductive agents become their financiers if funding is easier to obtain entrepreneurship also attracts unproductive agents in our model individual wealth and entrepreneurship are positively negatively correlated if financial market participation is complete incomplete

the decision to go public accrued capital gains and taxation abstract the decision to go public is considered in a competitive capital market equilibrium with self selection linear progressive taxes on capital gains accruing from public offerings can increase the incentives to go public in this case the tax improves the risk allocation

necessary conditions for infinite horizon discounted two stage optimal control problems abstract in many situations in economics one would like to analyse the optimal timing of switching between alternative and consecutive regimes a natural framework for such an analysis seems to be one of multi stage optimal control problems where the switching instants between regimes are endogenously determined the existing literature considers only the case of two stage optimal control problems with finite horizon however in many cases it seems more appropriate to consider a problem with an infinite horizon by deriving the appropriate necessary conditions for such a problem we generalise the methodology in analysing endogenous regime switches

dynamic climate policy with both strategic and non strategic agents taxes versus quantities we study a dynamic game where blocs of fossil fuel importers and exporters exercise market power using taxes or quotas a non strategic fringe of emerging and developing countries consume and produce fossil fuels cumulated emissions from fossil fuel consumption create climate damages we examine markov perfect equilibria under the four combinations of trade policies and compare these to the corresponding static games taxes dominate quotas for both the strategic importer and exporter the fringe is better off under taxes than quotas because taxes result in lower fuel prices and less consumption by the strategic importer lowering climate damages

financial development economic growth and banking sector controls evidence from india this paper uses newly collected data from the reserve bank of india to examine the effects of various types of banking sector controls on the process of financial deepening with the exception of a lending rate ceiling these controls are found to influence financial deepening negatively independently of the well known effect of the real interest rate exogeneity tests suggest that financial deepening and economic growth are jointly determined thus policies which affect financial deepening may also have an influence on economic growth the role of banking sector controls in the process of economic development has received considerable attention in the literature the traditional approach due to mckinnon i973 and shaw i973 postulates that government intervention in the pricing and allocation of loanable funds dubbed financial repression inhibits financial development by depressing real interest rates see

the trade off between cash flow and net present value in a world of asymmetric information it is shown that firms need to convey information to the market about the quality of their earnings streams this effort to mitigate the adverse selection problem in financial markets results in a bias in project selection which has a myopic characteristic the result is developed in a simple model it is contrasted with alternative explanations of short termism which invoke earnings distortion by management to mislead a market perceived to be myopic the robustness of the result to the introduction of partially informative cash flows and alternative mechanisms for conveying information is also discussed

market structure and resource extraction under uncertainty this paper compares the rate of extraction of a natural resource under alternative market structures when there is uncertainty about the date of discovery of a substitute or about the date of discovery of a new deposit the analysis shows that imperfectly competitive market structures are excessively conservationist for any value of the initial stock of the natural resource the price is higher than in competitive equilibrium and therefore higher than the socially optimal level but markets with limited competition may have a higher price than markets with pure monopoly the same monopolist controlling the natural resource and its substitute in particular we find that the highest prices are associated with nash quantity setting duopolists the next highest prices occur in markets in which the monopolist controls the resource but the substitute is competitively produced the pure monopolist sets his price lower than this while the market in which a monopolist controls the substitute but the resource is competitvely owned is still lower

can carbon tax eat opec s rents abstract we consider the optimal emission tax for a stock pollutant when the pollutant flow is also regulated by a resource exporting cartel we consolidate clarify and generalize a set of previous results to obtain clear isolation of the pigouvian and trade policy components of the tax because of the trade policy component the tax can shift more rents from the cartel than the pollution causes damage related costs this leads to the possibility that the pollution problem accompanied by the coordination of taxation can bring about net benefits at the expense of the cartel

oil monopoly and the climate this paper takes as given that i the burning of fossil fuel increases the carbon dioxide content in the atmosphere which ii in turn leads to global heating and global climate change of a variety that iii on net is harmful to our welfare to answer questions about the policy implications of this a comprehensive and quantitative analysis of the two way interaction between the economy with its fossil fuel use and the climate is necessary in this paper however we focus on a particular aspect of this interaction the role played by the industrial organization in the oil producing sector of the world without a clear understanding of the world market for oil the consequences of taxes and other policy instruments cannot be evaluated analyses of the world oil market that are based on perfect competition and a finite amount of oil typically predict i that the oil price satisfies the hotelling rule i e increases so that the rate of return on storing oil is equal to the return on the capital market ii that oil consumption follows a decreasing path and iii that extraction is sequential in the sense that sources with lower extraction costs are depleted before high cost sources are used all these predictions are problematic to reconcile with data our main point here is that the polar opposite case where oil is supplied by a large agent with zero extraction costs who internalizes the effects of his decisions on all aggregates seems useful for understanding historic and future developments in the oil market

double limit pricing abstract we study oil extraction by a monopolist who faces demand from a climate aware and a climate ignorant region a renewable perfect substitute for oil is available at constant unit cost the climate aware region uses a carbon tax and a renewables subsidy as policy instruments due to heterogeneity in climate policies between regions the oil price path possibly contains two limit pricing phases we specify conditions under which a tightening of climate policies results in lower initial carbon emissions a renewables subsidy and a carbon tax effectively force the monopolist to sell more oil to the climate ignorant region during the stage when demand from the climate aware region has already vanished we calibrate the model and numerically investigate climate damage and welfare effects of the policies of the climate aware region we find that both the carbon tax and a renewables subsidy lower climate damage even though cumulative emissions are fixed

extraction of a resource with a substitute for some of its uses important resources e g oil may be used for several purposes there may exist good substitutes for such a resource in some of its uses but no substitute in other uses the price and extraction paths for the resource are analysed for several market structures some of these paths differ substantially from the corresponding paths for the case of no substitute and for the case of a substitute for all the resource s uses in particular a jump in the resource price may occur l extraction d une ressource quand il existe un substitut pour certains des usages qu on peut en faire certaines ressources importantes comme 1 huile par exemple peuvent etre utilisees a plusieurs fins dans certains cas il se peut qu il existe des substituts pour certains usages qu on peut en faire alors que dans d autres cas il n existe pas de substituts l auteur examine la tarification et les diverse strategies d extraction dans des structure de marches differentes certaines de ces strategies d extraction different substantiellement de celles qui auraient ete utilisees soit dans le cas oiu aucun substitut n existe soit dans le cas ou substitut existe pour tous les usages qu on peut faire de la ressource en particulier on peut observer un saut dans le prix de la ressource

the supply side of co2 with country heterogeneity several recent articles have analyzed climate policy paying explicit attention to the fact that carbon resources are non renewable in most of this body of literature the economy is treated as a single unit and in the context of climate policy it seems reasonable to interpret this as the whole world however carbon taxes and other climate policies differ substantially across countries with such heterogeneity the effects on the emission paths of changes in taxes costs and subsidies might be very different from what is found for a hypothetical world of identical countries

the nature of credit market failure abstract hidden knowledge gives rise to over lending if as evidence suggests the returns distributions preferred by borrowers are also favoured by lenders even the stiglitz weiss model yields over lending when entrepreneurs are sufficiently risk averse

capital market imperfections high tech investment and new equity financing highly variable returns asymmetric information and a lack of collateral should cause small high tech firms to have poor access to debt new equity financing has several advantages over debt but may be costly compared to internal finance we examine an unbalanced panel of over 2 400 publicly traded us high tech companies over the period 1981 98 most small high tech firms obtain little debt financing new equity financing in the form of the initial public offering is very important and permits a major increase in firm size after going public comparatively few firms make heavy use of external finacing

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

too much investment a problem of asymmetric information this paper shows that under plausible assumptions the inability of lenders to discover all of the relevant characteristics of borrowers results in investment in excess of the socially efficient level raising the rate of interest above the free market level will restore optimality this conflicts with generally held views and is contrasted with the stiglitz weiss model it is shown that the assumptions which yield overinvestment support debt as the equilibrium method of finance however under the stiglitz weiss assumptions used to derive an underinvestment result equity is shown to be the equilibrium method of finance

optimal taxes on fossil fuel in general equilibrium we analyze a dynamic stochastic general equilibrium dsge model with an externality through climate change from using fossil energy our central result is a simple formula for the marginal externality damage of emissions or equivalently for the optimal carbon tax this formula which holds under quite plausible assumptions reveals that the damage is proportional to current gdp with the proportion depending only on three factors i discounting ii the expected damage elasticity how many percent of the output flow is lost from an extra unit of carbon in the atmosphere and iii the structure of carbon depreciation in the atmosphere thus the stochastic values of future output consumption and the atmospheric co2 concentration as well as the paths of technology whether endogenous or exogenous and population and so on all disappear from the formula we find that the optimal tax should be a bit higher than the median or most well known estimates in the literature we also formulate a parsimonious yet comprehensive and easily solved model allowing us to compute the optimal and market paths for the use of different sources of energy and the corresponding climate change we find coal rather than oil to be the main threat to economic welfare largely due to its abundance we also find that the costs of inaction are particularly sensitive to the assumptions regarding the substitutability of different energy sources and technological progress

kyoto and carbon leakage an empirical analysis of the carbon content of bilateral trade abstract has the kyoto protocol induced carbon leakage we conduct the first empirical ex post evaluation of the protocol we derive a theoretical gravity equation for the carbon dioxide content of trade which accounts for intermediate inputs both domestic and imported the structure of our new panel database of the carbon content of sectoral bilateral trade flows allows controlling for the endogenous selection of countries into the kyoto protocol binding commitments under kyoto have increased committed countries embodied carbon imports from noncommitted countries by around 8 and the emission intensity of their imports by about 3 hence kyoto has indeed led to leakage

financial restraints in the south korean miracle abstract we provide novel empirical evidence on the effects of financial restraints on south korean financial development the evidence is linked to a simple model of the korean banking system that encapsulates its cartelised nature which predicts a positive association between financial development and i the degree of state control over the banking system ii mild repression of lending rates the model also predicts that in the presence of lending rate controls increases in the level of the administered deposit rate are unlikely to influence financial deepening we test the model empirically by constructing individual and summary measures of financial restraints our empirical findings are consistent with our theoretical predictions but contrast sharply with the predictions of earlier literature that postulates that interest rate ceilings and other financial restraints constitute sources of financial repression

carbon leakage the green paradox and perfect future markets policies of lowering carbon demand may aggravate instead of alleviate climate change green paradox in a two period three country general equilibrium model with finite endowment of fossil fuel one country enforces an emissions cap in the first or second periods when that cap is tightened the extent of carbon leakage depends on the interaction of various parameters and elasticities conditions for the green paradox are specified all determinants of carbon leakage resulting from tightening the first period cap work in the opposite direction when the second period cap is tightened tightening the second period cap does not necessarily lead to the green paradox

strategic climate policy with offsets and incomplete abatement carbon taxes versus cap and trade abstract this paper provides a first analysis of a policy bloc of fossil fuel importers which implements an optimal climate policy faces a non policy fringe of other fuel importers and an exporter bloc and purchases offset from the fringe we compare a carbon tax and a cap and trade scheme for the policy bloc in either case accompanied by an efficient offset mechanism for reducing emissions in the fringe the policy bloc is shown to prefer a tax over a cap since only a tax reduces the fuel export price and by more when the policy bloc is larger offsets are also more favorable to the policy bloc under a tax than under a cap the optimal offset price under a carbon tax is below the tax rate while under a cap and free quota trading the offset price must equal the quota price the domestic carbon and offset prices are both higher under a tax than under a cap when the policy bloc is small when the policy bloc is larger the offset price can be higher under a cap fringe countries gain by mitigation in the policy bloc more under a carbon tax since the fuel import price is lower

oil and energy price volatility it is commonly believed that since the 1973 oil crisis oil and energy prices have been more volatile than other commodity prices this study examines monthly producer prices for thousands of products over the period january 1945 through august 2005 the results show that crude oil refined petroleum and natural gas prices are more volatile than prices for about 95 of products sold by domestic producers relative to crude commodities however crude oil prices are currently more volatile than about 65 of other products and oil price volatility first exceeded the median for crude commodities following the 1986 drop in oil prices

risk adverse selection and capital market failure this paper investigates the implications of adverse selection for capital market equilibrium when borrowers are risk averse k j arrow and r c lind 1970 argue that when capital markets fail to spread risk properly interest rates are too high the market adds a risk premium that the social planner would not this paper shows that when projects differ in quality in a pooling equilibrium the private market sets interest rates too low even accounting for the risk premium hence there is overinvestment the result is shown to be robust to the introduction of moral hazard copyright 1990 by royal economic society

when additional resource stocks reduce welfare in the dominant firm model we show that an increase of the fringe s reserves of a nonrenewable resource may lead to a decrease in aggregate discounted social welfare this happens when the difference between the fringe s extraction cost and the dominant firm s is positive and large enough we also show that welfare might decrease if the fringe s marginal extraction cost decreases

are business startups debt rationed using a large random sample of u k start ups and a rich data set the paper demonstrates that human capital is the true determinant of survival and that the correlation between financial capital and survival is spurious provision of finance is demand driven with banks supplying funds elastically and business requests governing take up firms self select for funds on the basis of the human capital endowments of the proprietors with better businesses more likely to borrow a reason why others have seemingly identified start up debt gaps may be the failure to test a sufficiently rich empirical model copyright 1996 by royal economic society

the third oil price surge what s different this time the period from 2003 to 2008 was marked by an oil price increase comparable to the two oil price crises in the 1970s this paper looks in detail at the situation of the oil price crises 30 years ago and compares them along various aspects on the demand and supply side with the recent price increase to identify similarities and differences while both oil price crises in 1973 and 1979 1980 were ultimately caused by supply actions of members of the organisation of petroleum exporting countries opec all three oil price crises were preceded by high demand growth other aspects that favoured a high oil price in all three cases were low investments in new oil fields as a consequence low spare capacity and a weak us dollar in addition the recent oil price surge has been characterised by a high global refinery utilisation and refineries that did not adapt fast enough to the rising demand for lighter oil products moreover broader geopolitical uncertainties combined with risks associated with the oil trade helped push the oil price into a triple digit zone speculation played only a limited and temporary role in accelerating price movements during the recent price increase

unilateral climate policies incentives and effects we analyze the effect of climate policies using a two region partial equilibrium model of resource extraction the regions are heterogeneous in various aspects such as in their climate policies and resource extraction costs we obtain analytical and numerical conditions for a green paradox to occur as a consequence of a unilateral increase in carbon taxation and backstop subsidy in order to assess the welfare and climate consequences of unilateral policy changes we calibrate the model to real world parameter values we find that forming a climate coalition and introducing carbon taxation even in the absence of real climate concerns is the best course of action for the largest fossil fuel using regions

on nonrenewable resource oligopolies the asymmetric case we give a full characterization of the open loop nash equilibrium of a nonrenewable resource game between two types of firms differing in extraction costs we show that i there almost always exists a phase where both types of firms supply simultaneously ii when the high cost mines are exploited by a number of firms that goes to infinity the equilibrium approaches the cartel versus fringe equilibrium with the fringe firms acting as price takers and iii the cheaper resource may not be exhausted first a violation of the herfindahl rule that may be detrimental to social welfare

financial development and economic growth views and agenda this critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth the body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sideshow responding passively to economic growth many gaps remain however and the paper highlights areas in acute need of additional research

capital income taxation and risk spreading with adverse selection domar and musgrave 1944 showed that taxing the return from risky investments may encourage risk taking the effect has come under attack as being one of partial analysis that would disappear in general equilibrium this paper shows that the contrary is true if capital markets suffer from adverse selection asymmetric information induces investors to bear risk that could be spread in the capital market the tendency to such behaviour may be increased by a tax on risky capital income in that case social risk spreading decreases while the opposite effect would hold if general equilibrium repercussions were ignored imposition du revenu de capital et repartition des risques quand il y a selection adverse domar et musgrave 1944 ont montre que l imposition des rendements sur les investisse ments risques pouvait encourager a courir plus de risque ce resultat a ete attaque comme resultat emergeant d une analyse d equilibre partiel et devant disparaitre en equilibre general