on the practical limits to substitution abstract this paper considers the arguments for weak vs strong sustainability the weak sustainability position held by many mainstream neoclassical economists such as solow and weitzman is that almost all kinds of natural capital can be substituted by man made capital the contrary position known as strong sustainability holds that many of the most fundamental services provided by nature cannot be replaced by services produced by humans or man made systems the paper discusses the limits of substitution from a physical point of view it concludes that while there is considerable scope for substitution in some domains the limits to substitutability in the medium term at least are real and important in effect the paper supports the strong sustainability position

sustainable de growth mapping the context criticisms and future prospects of an emergent paradigm article i nfo sustainable de growth is both a concept and a social grassroots northern movement with its origins in the fieldsofecologicaleconomics socialecology economicanthropologyand environmentalandsocialactivistgroups this paper introduces the concept of sustainable de growth by mapping some of the main intellectual influences fromthese fields with special focus on the francophone and anglophone thinking about this emergent notion we propose hypotheses pertaining to the appeal of sustainable de growth and compare it to the messages enclosed within the dominant sustainable development idea we scrutinize the theses contradictions and consequences of sustainable de growth thinking as it is currently being shaped by a heterogeneous body of literature and as it interacts with an ample and growing corpus of social movements we also discuss possible future paths for the de growth movement compared to the apparent weakening of the sustainable development paradigm

global wind power development economics and policies abstract existing literature indicates that theoretically the earth s wind energy supply potential significantly exceeds global energy demand yet only 2 3 of global electricity demand is currently derived from wind power despite 27 annual growth in wind generating capacity over the last 17 years more than 95 of total current wind power capacity is installed in the developed countries plus china and india our analysis shows that the economic competitiveness of wind power varies at wider range across countries or locations a climate change damage cost of us 20 tco 2 imposed to fossil fuels would make onshore wind competitive to all fossil fuels for power generation however the same would not happen to offshore wind with few exceptions even if the damage cost is increased to us 100 tco 2 to overcome a large number of technical financial institutional market and other barriers to wind power many countries have employed various policy instruments including capital subsidies tax incentives tradable energy certificates feed in tariffs grid access guarantees and mandatory standards besides climate change mitigation policies such as the clean development mechanism have played a pivotal role in promoting wind power despite these policies intermittency the main technical constraint could remain as the major challenge to the future growth of wind power

limit theorems for markets with sequential bargaining this paper models trade as a non coopertative strategic game played at an inlinite sequence of dates a single indivisible commodity is traded buyers and sellers have transferable utility and are characterized by their reservation utilities they meet at random and bargain over the price at which a single unit of the good will be exchanged under a variety of circumstances it is shown that as the costs of search and bargaining become negligible the outcome of the game converges to the competitve flow equilibrium even when there is complete information journal of economic literature classification numbers 022 19x7

decentralized trading strategic behaviour and the walrasian outcome for a market with a finite number of agents pairwise matching and bargaining it is shown that even when the market is frictionless the equilibrium is not necessarily competitive it depends on the amount of information agents use if their behaviour is conditioned only on the sets of agents present and the time the competitive solution is the unique subgame perfect equilibrium if agents have full information and condition their behaviour on some of it there are also noncompetitive equilibria in which behaviour depends on specific information such as the identity of the trading partner and past events

investment decisions in finite lived monopolies abstract this paper studies the value and optimal timing for investment in finite lived monopolies extending the literature on real option games by considering the cases of random and certain lived monopolies under these settings firms face the risk of demonopolization that can occur as a random or a certain event we show that these new settings produce significantly different results when compared to the canonical monopolistic and duopolistic models in a certain lived monopoly the leader invests sooner than in a duopoly if there is a risk of being preempted and later than in a monopoly if the leader role is pre assigned in a random lived monopoly entry occurs somewhere between the duopoly and monopoly cases higher uncertainty delays investment in all cases

energy aesthetics and knowledge in complex economic systems it is argued that the fact that economic systems are dissipative structures must be taken fully into account in economics if we are to understand the nature of the economic ecological interface and how to deal with emergent environmental problems such as global warming such problems are a product of economic growth which is widely accepted to be the outcome of the acquisition and application of knowledge drawing upon disparate literatures within and outside economics it is argued that economic growth should be more properly viewed as the outcome of a co evolutionary process that involves the autocatalytic interaction of new knowledge and access of increasing amounts of free energy to do increasingly specialized forms of work specifically the relevance of the energy hypothesis associated with erwin schrodinger and more recently revived by eric schneider and his collaborators is assessed this hypothesis states that all dissipative structures have as their primary objective the reduction of accessible free energy gradients it is concluded that such a hypothesis cannot be rejected in the context of economic behaviour and that this opens up an important research agenda for economists

optimal investment policies with exhaustible resources an information based model an information based model of the optimal control type is developed using concepts from information theory to explore the dynamics of fossil resource exhaustion and the phenomenon of substitution by other forms of capital and technological knowledge all exhaustible resources stocks and forms of capital and knowledge are taken to be equivalent to forms of information in the physical sense it is shown that with optimal policies the planning period or cycle has several distinct phases with different optimal investment patterns the model has two important qualitative implications 1 economic growth rates are inherently discontinuous and 2 the model predicts an evolutionary structural change viz the creation of a new sector in response to the progressive exhaustion or obsolescence of previously essential resources or capital stocks a multiperiod extension is suggested leading to a tentative explanation for the kondratieff long wave phenomenon

auctions with a stochastic number of bidders abstract auction theory is generalized by allowing the number of bidders to be stochastic in a first price sealed bid auction with bidders having constant absolute risk aversion the expected selling price is higher when the bidders do not know how many other bidders there are than when they do know this thus the seller should conceal the number of bidders if he can moreover a bidder s ex ante expected utility is the same whether or not there is a policy of concealing the number of bidders concealment therefore pareto dominates announcement with risk neutral bidders the optimal auction is the same whether or not the bidders know who their competitors are

useful exergy is key in obtaining plausible aggregate production functions and recognizing the role of energy in economic growth portugal 1960 2009 abstract the role of energy in economic growth is controversial models based on aggregate production functions apf range from the neoclassical which downplay energy due to a cost share theorem but typically rely on exogenous total factor productivity tfp to the ecological economic which acknowledge energy s importance the validity of the apf concept itself is questioned here we apply cointegration analysis to identify apfs between output capital labor and possibly energy measured as primary energy or useful exergy we test for tfp growth by including a time trend we require that plausible apfs verify cointegration non negative output elasticities and granger causality linking inputs to output our method recognizes cases where a plausible apfs do not exist thereby addressing the apf critique b energy impacts growth directly c energy impacts growth indirectly through capital and labor we apply the method to portugal 1960 2009 considering standard and quality adjusted capital labor measures with a time trend or disregarding energy plausible apfs are never found without a trend plausible apfs are found only when considering capital energy labor combinations within these with quality adjusted capital and labor and useful exergy results are consistent with the cost share theorem but energy plays a central role through a constraint on all factors of production

cowboys cornucopians and long run sustainability abstract in the 1970s there was a lively debate on the relationship between natural resource availability and long run economic growth one side has been characterized as neo malthusian it emphasized the limited global stockpile of critical natural resources from cobalt to petroleum and the need to curb population and economic growth the other side of the debate has been characterized as cornucopian it emphasized the creative powers of technology and free markets to find substitutes for any and all scarce resources this paper argues that the original dichotomy was false it did not adequately represent either the real positions of most conservative business and political leaders today nor did it reflect the currently emerging consensus among environmentalists the former do not concern themselves with long run issues at all nor do they take a global view of the problems of mankind rather they argue from the standpoint of short run national and corporate interest environmentalists on the other hand do not fit the neo malthusian world view which emphasizes the role of natural resources and land as factors of production and points to the limited supply of renewable resources and the inevitable exhaustion of non renewables the most important scarcities in the emergent environmentalist world view are largely outside the market domain soil fertility clean fresh water clean fresh air unspoiled landscapes climatic stability biological diversity biological nutrient recycling and environmental waste assimilative capacity there are no plausible technological substitutes for these the irreversible loss of species and ecosystems and the buildup of greenhouse gases in the atmosphere and of toxic metals and chemicals in the topsoil groundwater and in the silt of lake bottoms and estuaries are not reversible by any plausible technology that could appear in the next few decades finally the great nutrient cycles of the natural world carbon oxygen nitrogen sulfur and phosphorus require that constant stocks in each environmental compartment and balanced inflows and outflows these conditions have already been violated by large scale and unsustainable human intervention

economics and sustainability balancing trade offs and imperatives the concept of sustainability has been increasingly invoked in scholarly and public policy debates discussion has been hampered however by uncertainty and lack of uniformity in the meaning of sustainability this paper seeks to identify some common ground among economists ecologists and environmen tal ethicists two issues seem salient require ments for intergenerational and the defi nition of social capital to be provided to future generations a concept of safe minimum standard which has received at least some recognition in the ecology philosophy and eco nomics literatures may provide the beginnings of a common ground for debate about sus tainability jel q2

sustainability and technical progress a rigorous model connects together the following three basic concepts 1 sustainability meaning the generalized future power of an economy to consume over time 2 green nnp meaning a current measure of national income that subtracts off from gnp not just depreciation of capital but also more generally depletion of environmental assets evaluated at current efficiency prices 3 technological progress meaning a projection onto the future of the so called solow residual a simple general formula is derived some crude calculations suggest a possibly strong effect of the residual which hints that our best present estimates of long term sustainability may be largely driven by predictions of future technological progress

frictions in project based supply of permits emissions trading in climate change can entail large overall cost savings and transfers between developed and developing countries however the search for acceptable ji or cdm projects implies a deviation from the perfect market framework used in previous estimations our model combines the search market for projects with a frictionless permit market to quantify the supply side frictions in the co2 market we also decompose the effects of frictions into the effects of search friction bargaining and bilateralism a calibration using previous cost estimates of co2 reductions illustrate changes in cost savings and allocative implications

real investment options with multiple sources of rare events abstract we value real investment options when the underlying asset follows a mixed jump diffusion process involving various types sources of rare events jumps these jumps are assumed independent of each other with each type having a log normally distributed jump size and a random poisson distributed arrival time they may represent uncertainties about the arrival and impact on the underlying investment of new information concerning technological innovation competition political risk regulatory effects and other sources an analytic solution is presented for european claims call or put options with multiple sources of jumps a discrete time markov chain methodology implemented within a finite difference scheme is proposed for the valuation of american as well as european options the approach is also applicable to financial options with multiple types of rare events the approach is illustrated through valuing complex real options with compound features involving interactions between optimal investment and subsequent operating decisions specifically we value a growth option and an extension option

equilibrium bid functions for auctions with an uncertain number of bidders abstract the number of rivals may be unknown when a bidding strategy is formulated in an auction in a symmetric model with risk neutral bidders holding independent information we obtain explicit equilibrium bidding functions for first price and second price auctions with uncertainty about the number of rivals five auctions are revenue equivalent first price and second price auctions each with the number of bidders known or uncertain and english auctions

dynamic matching and bargaining games a general approach this paper presents a new characterization result for competitive allocations in quasilinear economies this result is informed by the analysis of non cooperative dynamic search and bargaining games such games provide models of decentralized markets with trading frictions a central objective of this literature is to investigate how equilibrium outcomes depend on the level of the frictions in particular does the trading outcome become walrasian when frictions become small existing specifications of such games provide divergent answers the characterization result is used to investigate what causes these differences and to generalize insights from the analysis of specific search and bargaining games

the efficiency paradox bureaucratic and organizational barriers to profitable energy saving investments abstract the paradox of why profitable energy saving investments are not undertaken continues to provoke debate the underlying phenomenon might be called the efficiency paradox because it represents a case in which business firms which are often presumed or taken axiomatically to be economically efficient make decisions that do not maximize profits new data from one of the us environmental protection agency s voluntary pollution prevention programs enables this paradox to be explored statistically the data show that both the level and variation in returns to lighting upgrade investments cannot be explained by standard economic models substantial gains in energy efficiency can be achieved without sacrificing profitability both economic and organizational factors account for some of the variation in observed returns to these investments but the results suggest a need for improved and more comprehensive theories of the investment behavior of firms and other organizations

imperfect competition in auction designs we study the competition between two owners of identical goods who wish to sell them to a pool of potential buyers the sellers compete simultaneously setting reserve prices for their second price sealed bid auctions upon observing the set reserve prices the buyers decide simultaneously in which auction to bid we show that this game has at least one equilibrium and that all equilibria are inefficient reserve prices are not driven to zero cost we also discuss where and why the parallel between optimal auction design and optimal pricing in the case of monopoly breaks down for oligopoly

finite maturity caps and floors on continuous flows models of interest rate caps and floors are typically based on discrete rates over finite horizons while existing real option models describe perpetual claims on the maximum of two continuous flows in this paper we produce formulae for finite maturity caps and floors that are contingent on continuous flows we present hedge ratios and discuss applications where a lognormally distributed flow variable is suitable for other situations where practitioners use proprietary models the formula presented is useful as a quick tractable and universal means for mapping quoted implied to prices and vice versa

the rate of convergence to perfect competition of matching and bargaining mechanisms abstract we study the steady state of a market with incoming cohorts of buyers and sellers who are matched pairwise and bargain under private information a friction parameter is the length of the time period until the next meeting we provide a necessary and sufficient condition for the convergence of mechanism outcomes to perfect competition at the linear rate in which is shown to be the fastest possible among all bargaining mechanisms the condition requires that buyers and sellers always retain some bargaining power the bargaining mechanisms that satisfy this condition are called nonvanishing bargaining power nbp mechanisms simple random proposer take it or leave it protocols are nbp while k double auctions k da are not we find that k das have equilibria that converge to perfect competition at a linear rate converge at a slower rate or even do not converge at all

dynamic matching two sided incomplete information and participation costs existence and convergence to perfect competition consider a decentralized dynamic market with an infinite horizon and participation costs in which both buyers and sellers have private information concerning their values for the indivisible traded good time is discrete each period has length and each unit of time continuums of new buyers and sellers consider entry traders whose expected utility is negative choose not to enter within a period each buyer is matched anonymously with a seller and each seller is matched with zero one or more buyers every seller runs a first price auction with a reservation price and if trade occurs both the seller and the winning buyer exit the market with their realized utility traders who fail to trade continue in the market to be rematched we characterize the steady state equilibria that are perfect bayesian we show that as converges to zero equilibrium prices at which trades occur converge to the walrasian price and the realized allocations converge to the competitive allocation we also show the existence of equilibria for sufficiently small provided the discount rate is small relative to the participation

equilibrium in a market with sequential bargaining this paper considers a market where pairs of agents who are interested in carrying out a transaction are brought together by a stochastic process and upon meeting initiate a bargaining process over the terms of the transaction the basic bargaining problem is treated with the strategic approach the paper derives the steady state equilibrium agreements analyzes their dependence on market conditions such as the relative numbers of agents of different types and discusses their relations with the competitive equilibrium outcome and other results in the search equilibrium literature this paper considers a market that operates in the following way pairs of agents who have mutual interest in carrying out a transaction are brought together by a stochastic process when two agents meet they initiate a bargaining process over the terms of the transaction if two agents reach an agreement a transaction takes place and they leave the market of course the bargaining positions and hence the agreement reached in any particular meeting will be affected by the conditions prevailing in the market these will include the chances that each of the negotiating parties have of meeting other partners in the event that the agreement in the current negotiations is delayed also the expected length of time required to achieve an alternative transaction and the expected behavior of alternative partners the study of such a market mechanism is of interest for two reasons firstly it captures some realistic aspects of the trade in certain specific markets e g asset markets such as housing and some labor markets secondly it contributes to an understanding of the micro mechanisms of price formation and their role in shaping market outcomes in both cases the features studied are largely neglected in the traditional market equilibrium analyses the related literature includes the articles by diamond 4 5 diamond and maskin 6 mortensen 8 9 and zusman and bell 13 these articles consider markets of the type described above in which transactions are concluded at pairwise meetings of agents the major difference between our work and these articles is in the approach to the basic bargaining problem in the cited articles it is assumed that a meeting is concluded with an instantaneous agreement which divides the associated surplus in an arbitrary predetermined way when the surplus is assumed to be divided equally the division rule is in fact nash s axiomatic bargaining solution in contrast the present paper treats the basic bargaining problem with the strategic approach see rubinstein 19 which constitutes an attempt to look into the bargaining black box this approach explicitly models the time dimension of the bargaining process describes in detail the bargaining procedure and justifies the agreement as a perfect equilibrium in

the extraction of natural resources the role of thermodynamic efficiency abstract the modelling of production in microeconomics has been the subject of heated debate the controversial issues include the substitutability between production inputs the role of time and the economic consequences of irreversibility in the production process a case in point is the use of cobb douglas type production functions which completely ignore the physical process underlying the production of a good we examine these issues in the context of the production of a basic commodity such as copper or aluminium we model the extraction and the refinement of a valuable substance which is mixed with waste material in a way which is fully consistent with the physical constraints of the process the resulting analytical description of production unambiguously reveals that perfect substitutability between production inputs fails if a corrected thermodynamic approach is used we analyze the equilibrium pricing of a commodity extracted in an irreversible way we force consumers to purchase goods using energy as the means of payment and force the firm to account in terms of energy the resulting market provides the firm with a form of reversibility of its use of energy under an energy numeraire energy resources will naturally be used in a more parsimonious way

sequential auctions with randomly arriving buyers we analyze a dynamic market in which buyers compete in a sequence of private value auctions for differentiated goods new buyers and new objects may arrive at random times since objects are imperfect substitutes buyers values are not persistent instead each buyer s private value for a new object is a new independent draw from the same in this paper we consider a model of dynamic markets in which buyers and sellers arrive randomly to the market and examine the equilibrium behavior of market participants in response to these arrivals in particular we investigate the role of current and anticipated future market conditions in determining endogenous outside options in this setting we characterize the influence of these outside options on equilibrium price determination and study the manner in which equilibrium payoffs and behavior are affected by both current conditions and future dynamics in our model buyers face an infinite sequence of auctions for heterogeneous but stochastically equivalent objects each buyer s private value for a new object is a new independent draw from a fixed distribution that arrive at random times moreover new buyers probabilistically arrive on the market in each period thus in any given auction buyers are presented with the outside option of participating in a future auction for an imperfectly substituted equivalent object but with a potentially different number of competitors we describe the unique symmetric markov equilibrium of this model by deriving a precise characterization of this option value

sustainability economics general versus specific and conceptual versus practical we clarify the definition and interpretation of sustainability economics baumgartner and quaas 2010 in response to recent comments by van den bergh 2010 bartelmus 2010 and others for that sake we distinguish between general and specific definitions of sustainability and sustainability economics as well as between conceptual and practical approaches

the choice of techniques and the optimality of market equilibrium with rational expectations this paper shows that in the absence of a complete set of risk markets prices provide incorrect signals for guiding production decisions even if all individuals have rational expectations concerning the distribution of prices which will prevail on the market next period the market allocation is in general not a constrained pareto optimum essentially the only conditions under which for all technologies the market equilibrium is a constrained pareto optimum are those in which risk markets are redundant we derive the necessary and sufficient conditions for redundancy of risk markets which turn out to be extremely restrictive

economic growth and environmental degradation the environmental kuznets curve and sustainable development abstract in this paper we critically examine the concept of the environmental kuznets curve ekc it proposes that there is an inverted u shape relation between environmental degradation and income per capita so that eventually growth reduces the environmental impact of economic activity the concept is dependent on a model of the economy in which there is no feedback from the quality of the environment to production possibilities and in which trade has a neutral effect on environmental degradation the actual violation of these assumptions gives rise to fundamental problems in estimating the parameters of an ekc the paper identifies other econometric problems with estimates of the ekc and reviews a number of empirical studies the inference from some such ekc estimates that further development will reduce environmental degradation is dependent on the assumption that world per capita income is normally distributed when in fact median income is far below mean income we carry out simulations combining ekc estimates from the literature with world bank forecasts for economic growth for individual countries aggregating over countries to derive the global impact within the horizon of the bank s forecast 2025 global emissions of so 2 continue to increase forest loss stabilizes before the end of the period but tropical deforestation continues at a constant rate throughout the period

mechanism design by competing sellers a dynamic model with many sellers and buyers is constructed agents failing to trade may trade in the next period an equilibrium is found where sellers hold identical auctions and buyers randomize over the sellers they visit the distribution of buyer valuations is endogenous an auction with efficient reserve is an optimal mechanism from each seller s point of view in spite of the ability of any seller to alter the distribution of buyer types participating in the seller s mechanism by altering the mechanism copyright 1993 by the econometric society

capital investment strategies under uncertain regulation this article presents a positive model of investment choices by regulated firms that offers rational explanations for electric utilities recent behavior of delaying investment and choosing smaller shorter lead time technologies the model assumes thatfirms capital investments require long lead times during which the value of the completed project is uncertain firms anticipate regulatory profit and loss restrictions but expectations about the value of a completed project change over time firms decisions are modelled using an option pricing approach that incorporates the value of flexibility to delay or abandon projects the article shows why rational firms invest in smaller shorter lead time plants or delay investment when faced with uncertain and asymmetric profit and loss restrictions it also looks at decisions to abandon partially completed plants and shows that the static result that a higher cost allowance on abandoned projects increases the incentive for investment is not generally true in a dynamic model

price dispersion in stationary networked markets abstract different sellers often sell the same good at different prices using a strategic bargaining model i characterize how the equilibrium prices of a good depend on the interaction between its sellers costs its buyers values and a network capturing various frictions associated with trading it in contrast to the standard random matching model of bargaining in stationary markets i allow agents to strategically choose whom to make offers to which qualitatively changes how the network shapes prices as in the random matching model the market decomposes into different submarkets and in the limit as bargaining frictions vanish the law of one price holds within but not across them but strategic choice of partners changes both how the market decomposes into different submarkets and the determinants of each submarket s price

a walrasian rubinstein and wolinsky model we provide a full dynamic analysis of a continuous time variant of rubinstein and wolinsky 1985 matching and bargaining model with unbalanced flows of buyers and sellers the focus is on the price limit as the frictions of search are removed it is found that a necessary and sufficient condition for the limit price to be walrasian at all times is the alignment of the initial buyer and seller stocks with the flows

pricing the limits to growth from minerals depletion this paper evaluates the loss of global welfare from exhaustion of nonrenewable resources such as oil the underlying methodology represents an empirical application of some recent developments in the theory of green accounting and sustainability the paper estimates that the world loses the equivalent of about 1 percent of final consumption per year from finiteness of the earth s resources compared with a counterfactual trajectory where global extraction of minerals is allowed to remain forever constant at today s flow rates and extraction costs

the value of biodiversity markets society and ecosystems the value of biodiversity is discussed at different levels including market value non market values to humans and the value of biodi versity to ecosystems the main conclusion is that although market exchange values of environmental services may be used to justify biodiversity protec tion measures it must be stressed that exchange value constitutes a small portion of total biodiver sity value the total value of existing biodiversity is largely unknown but indications are that it is essen tial to human existence the various levels of biodi versity value point to the need for a hierarchical and pluralistic methodology to determine appropri ate policies for its preservation jel q21 i introduction among ecologists there is a general con sensus that biodiversity1 is of critical impor tance to the health of ecosystems and even for the long term survival of the human species there is also a consensus that bio diversity is being lost at a rate which is a cause for concern 2 economists on the other hand generally view biodiversity as just an other good which is to be placed in the basket of market choices just as any other the discussion of the specifics of biodiver sity policy has been unsatisfactory partly because of the different meanings of the word value used by economists and ecolo gists many ecologists fail to understand the logic of market allocation and why biologi cal resources are used in seemingly irra tional ways many economists fail to ap preciate the narrowness of the concept of economic value as indicated by relative prices determined by market exchange fol lowing anderson 1966 and brown 1984 the discussion below considers economic measures of value to be species of the genus assigned value which belongs to the family value many biologists and paleontologists be lieve that we are at a critical point in the history of the human species and perhaps even in the 600 million year history of com plex multicelled life on earth if the paleon tologists and biologists who study the phe nomenon of mass extinction are correct the current human induced mass extinction may be of the same order of magnitude as the five other major extinction episodes which destroyed between 20 and 96 percent of existing species on the planet ehrlich and ehrlich 1992 ward 1994 wilson 1992 we are living in a truly remarkable period in earth s 41 billion year history the valua tion decisions our species has made in the recent past and will make during the next few decades will determine the fate of life on earth for the next tens of millions of years it is critical to clarify the language and concepts we use to estimate the value of biodiversity and thus policies leading to its destruction or preservation the importance attached to the issue of biodiversity preservation necessarily in volves ethical judgments about duty to fu ture generations and responsibility toward the nonhuman natural world although in dividuals hold a variety of conflicting beliefs about human responsibility to the natural world this does not mean that policy choices

towards an ecological economics of sustainability abstract persistent disagreement both as to the interpretation to be given to sustainability and as to the relation between ecological and economic sustainability has hindered the development of an ecological economics of sustainable resource use this paper identifies the main concepts of sustainability deriving from the two disciplines in order to explore the difference implied by an ecological approach to the problem it is argued that present economic and ecological approaches are largely disjoint and that they address basically different phenomena by combining the efficiency requirements of what is usually thought of as economic sustainability with the stability requirements of an ecological approach it is shown that an intertemporally efficient allocation of resources that satisfies the conditions for constant levels of consumption is not necessary to assure ecological sustainability ecological sustainability requires that the allocation of economic resources should not result in the instability of the economy environment system as a whole

weak sustainability and viable technologies abstract the context of the concept of weak sustainability is examined using a three tier hierarchy of value we argue that weak sustainability is relevant only in the context of market exchange at a particular point in time it offers an inadequate guide to the sustainability of social institutions and of the natural world on the other hand georgescu roegen s concept of a viable technology recognizes that the integrity of the social and environmental systems surrounding market activity must be maintained if the human species is to persist through time the concept of viability recognizes that market activity depends not only upon the sustaining functions of the environment but also upon the social sustaining functions of human institutions

ecosystems externalities and economies this paper incorporates an ecosystem model into a model of a simple economy the decisionmaking agents in the ecosystem are individual organisms aggregated to the species level a species may provide utility directly to humans or it may provide utility indirectly because it is used either as a raw material in goods fabrication or as sustenance for other species we describe a comparative static equilibrium of the ecosystem where species demands for other species are equal to the supplies of those other species and energy is conserved the ecosystem is then embedded in the economy so that the effects of human intervention can be traced through both the ecosystem and the economy human intervention creates ecosystem externalities such that ecosystem equilibria are shifted and the new equilibria affect the utility or the production processes of other humans this framework allows us to describe in principle which ecosystem services can be efficiently usurped by humans which waste flows can be efficiently allowed into ecosystems and which ecosystem organisms and physical attributes can be efficiently maintained

price setting and competition in a simple duopoly model the paper studies a market in which there are two sellers and one buyer each agent wants to trade at most one unit of an indivisible commodity the sellers are uncertain whether the buyer is receiving offers from one or both of them at any given time this model induces competitive and monopolistic outcomes for particular parameter values but other things being equal as the buyer becomes very patient the equilibrium price converges to the competitive one

an option valuation analysis of investment choices by a regulated firm this paper analyzes a utility power plant construction project using an option pricing model of the value of the capital investment it includes descriptive factors frequently ignored in the valuation of capital investments by regulated firms including lead time lumpy and sequential cost outlays irreversibility of expenditures and uncertainty about regulatory outcomes for completed projects the analysis shows the value of shorter lead time technologies the value of flexibility to delay or abandon construction the incentive to delay construction under uncertain regulation and how cost recovery policies such as possible disallowance of allow for funds used during construction afudc create incentives to invest less but to complete construction quickly the analysis may also apply in unregulated contexts where the value of a completed project is affected by taxation the possibility of nationalization or possible competitors actions that create uncertain restrictions on potential profits

regulation and corporate investment policy in a previous paper it was shown that the traditional rule that the allowed return on the equity of a regulated firm should be set equal to its cost of equity capital was conceptually deficient 2 this deficiency arises because the cost of equity capital of a regulated firm depends upon its risk which depends in turn upon the regulatory policy that will be followed in the future including the allowed rate of return it was argued therefore that this traditional rule should be replaced by the requirement that the regulatory policy be consistent a consistent regulatory policy achieves what the traditional rule only attempts it ensures that at the time of a regulatory hearing the market value of the firm equity is equal to the equity financed portion of the rate base to devise a consistent regulatory policy it is necessary to have a valuation model which takes explicit account of regulatory policy such a model was developed in the above mentioned paper in this paper we generalize the earlier valuation model so that the investment policy of the regulated firm is determined by the value maximizing decisions of the management instead of being taken as exogenous to the extent that investment policy is discretionary its endogeneity must be taken into account in devising a consistent regulatory policy and this is made possible by the generalized model in reality it seems unclear to what extent the investment policies of regulated firms are predetermined by the requirement that they meet demand and to what extent they are discretionary since the model presented here easily accommodates constraints on the investment policy it is the more appropriate model so long as there exists any element of discretionary investment behaviour and permits a more adequate approach to the determination of consistent regulatory policies with discretionary investment policy an important consequence of any particular consistent regulatory policy is the investment policy it induces in section 4 we show how the value maximizing investment policy is affected by the choice of regulatory policy on the other hand regulated firms are wont to argue that their investments are in the main predetermined by demand and must be undertaken regardless of their profitability this putative lack of discretion it is maintained means that the appropriate allowed rate of return is higher than would otherwise be the case in section 4 also we evaluate the strength of this consideration by comparing the allowed rate of return under consistent regulatory policies when investment policy is and is not discretionary section 5 shows briefly how the analysis can be extended to account for the effect of debt in the capital structure

energy use and economic development a comparative analysis of useful work supply in austria japan the united kingdom and the us during 100 years of economic growth this paper presents a societal level exergy analysis approach developed to analyse transitions in the way that energy is supplied and contributes to economic growth in the uk the us austria and japan throughout the last century we assess changes in exergy and useful work consumption energy efficiency and related gdp intensity measures of each economy the novel data provided elucidate certain characteristics of divergence and commonality in the energy transitions studied the results indicate that in each country the processes of industrialization urbanisation and electrification are characterised by a marked increase in exergy and useful work supplies and per capita intensities there is a common and continuous decrease in the exergy intensity of gdp moreover for each country studied the trend of increasing useful work intensity of gdp reversed in the early 1970s coincident with the first oil crisis

between ostrom and nordhaus the research landscape of sustainability economics abstract we survey the emerging research area of sustainability economics through a quantitative full text analysis of peer reviewed journal publications from 1987 to 2013 to identify relevant contributions we draw on existing definitions of sustainability economics for a keyword based identification strategy a combined focus on a the human nature relationship b the long term uncertain future c normative orientation towards sustainability and d economic analysis our analysis of a random subsample of 343 relevant papers reveals that i sustainability economics is a rapidly developing research area ii while theoretical contributions shaped the area in earlier years applied work now constitutes the largest share of contributions iii the research landscape can be clustered into eleven research clusters these range from participatory governance of social ecological systems associated with the work of elinor ostrom to questions of intertemporal allocation and distribution applied to climate economics associated with the work of william nordhaus iv the research area is broad in scope and heterogeneous and there is relatively little interaction between important clusters v relevant contributions are published in more than 100 journals ten journals publish half of all contributions led by ecological economics and 40 appear in non economics journals underscoring the importance of interdisciplinary dialogue

the long side of the market and the short end of the stick bargaining power and price formation in buyers sellers and balanced markets the determinants of bargaining power and price formation in a dynamic exchange market where new traders enter randomly over time are studied when agents on the long side of the market possess the option to wait for the arrival of future partners the terms of trade in the spot market must honor the value of this option the equilibrium terms of trade are expressed in intuitive closed form equations that highlight the distinct influences of short run spot market conditions and long run market demographics i introduction few concepts in economics are as intuitive as the idea that traders on the long side of a market wind up holding the short end of the stick that is they receive little or none of the gains from trade consider for instance the classic setting in which b identical buyers each with unit demands for an indivisible homogeneous good face s identical sellers each with one unit of the good for sale it is well known that in a broad class of one shot trading games all of the surplus in this setting goes to the short side of the market in equilibrium that is if b s buyers bid the price up to their reservation value often it is only when b s that market institutions the rules of the game have any bearing on the equilibrium division of surplus this classic result is somewhat brittle because of the discontinuity in the terms of trade when moving from positive to negative levels of excess demand its logic is familiar however from bertrand competition and it is very compelling the option value to an agent frozen out of a trade in a one shot market game is his reservation payoff of zero any outcome that confers nonzero surplus to a long side agent cannot be sustained in equilibrium because all of the long side agents who would otherwise be frozen out possess a strict incentive to undercut

walras retrouve decentralized trading mechanisms and the competitive price we extend the standard analysis of decentralized markets to allow for the possibility that traders interact simultaneously with more than one trader on the opposite side of the market in contrast with the literature we reconcile the walrasian equilibrium with the outcome of decentralized strategic trade we show that there exist generic matching technologies that determine local market conditions such that as market frictions vanish the equilibrium price is the one that would result in the static walrasian market our analysis highlights the importance of local market conditions for the determination of equilibrium prices

the post growth challenge secular stagnation inequality and the limits to growth abstract critics have long questioned the feasibility and desirability of exponential growth on a finite planet more recently mainstream economists have begun to suggest some secular limits to growth declining growth rates have in their turn been identified as instrumental in increased inequality and the rise of political populism this paper explores these emerging arguments paying a particular attention to the dynamics of secular stagnation it examines the underlying phenomenon of declining labour productivity growth and unpacks the close relationships between productivity growth the wage rate and social inequality it also points to the historical congruence and potential causal links between declining productivity growth and resource bottlenecks contrary to some mainstream views this paper finds no inevitability in the rising inequality that has haunted advanced economies in recent decades suggesting instead that it lies in the pursuit of growth at all costs even in the face of challenging fundamentals this strategy has hindered technological innovation reinforced inequality and exacerbated financial instability at the very least this paper argues it is now time for policy to consider seriously the possibility that low growth rates might be the new normal and to address carefully the post growth challenge this poses

moral development of the economic actor abstract in this article we argue that the changes in moral content in economics can be explained as an evolution in accordance with the maturing process presented in kohlberg s stages of moral development firstly we describe and discuss the three levels of moral progress pre conventional conventional and post conventional as presented in kohlberg s theory secondly we draw a distinction between classical economics neoclassical economics and ecological economics and discuss to what extent the differences in ethics within the three theories can be explained by referring to the ethical development characterizing kohlberg s moral stages thirdly we discuss some of the hallmarks characterizing economics based upon what kohlberg termed universal principles at the highest stage in the development of moral reasoning to exemplify the evolution of moral reasoning in different economic theories we describe the changes that take place in the image of man over the last 2 300 years the human being in economics has been discussed in this journal with reference to three different relations to himself community and nature we have used the metaphors economic man social man and ecological man to characterize the ethical content of the three first stages at the first stage economic man interpreted as an egocentric individual seeking personal gain characterizes classical economics at the second stage social man seeks the best for a group of people within the perspective of neoclassical economics at the third stage ecological man is aware of the interrelatedness between economy and nature within ecological economics the agent is termed ecological man to indicate the interconnectedness between economy and the ecosystems while being aware of the weakness in predictive power inherent in these kinds of stage theories we find it stimulating to conclude with a description of economics based upon the ideas characterizing the highest level stage 7 in kohlberg s theory we put forward a hypothesis concerning a fourth stage in the development of economics termed neo ecological economics we describe the economic actor as cosmic man cosmic man has an extended self and incorporates all the other images of man

the concept of weak sustainability abstract this paper surveys the links between growth theory with exhaustible resources and the concept of weak sustainability it examines the underlying assumptions behind this concept and questions the usefulness of the weak sustainability index as an indicator of sustainable development

dynamic markets with competitive bidding the model features a dynamic market in steady state in which prices are determined in first price auctions it combines competition over time familiar from the pairwise meeting models with instantaneous bidding competition it inquires how different properties of the model determine the relative importance of these two aspects of the competition and in particular how the non market clearing price result of the matching and bargaining models is affected by the

what energy levels can the earth sustain abstract several official reports on future global primary energy production and use develop scenarios which suggest that the high energy growth rates of the 20th century will continue unabated until 2050 and even beyond in this paper we examine whether any combination of fossil nuclear and renewable energy sources can deliver such levels of primary energy around 1000 ej in 2050 we find that too much emphasis has been placed on whether or not reserves in the case of fossil and nuclear energy or technical potential in the case of renewable energy can support the levels of energy use forecast in contrast our analysis stresses the crucial importance of the interaction of technical potentials for annual production with environmental factors social political and economic concerns and limited time frames for implementation in heavily constraining the real energy options for the future together these constraints suggest that future energy consumption will be significantly lower than the present level

regulation competition and liberalization in many countries throughout the world regulators are struggling to determine whether and how to introduce competition into regulated industries this essay examines the complexities involved in the liberalization process while stressing the importance of case specific analyses this essay distinguishes liberalization policies that generally are procompetitive from corresponding anticompetitive liberalization policies

environmental effects of shipping imports from china and their economic valuation the case of metallic valve components this paper aims to consider the total cost including polluting environmental emissions of imports from china to europe of five valve components in aluminium steel and iron these are compared with locally produced alternatives to investigate whether internalising such external costs affects their price competitiveness seaborne trade represents 90 of international trade and is growing faster than the world s economy but marine pollution emissions are not reflected in market prices chinese aluminium iron and steel production are about 2 5 times more polluting than their european counterparts but this is also not reflected in prices in this paper both types of extra emissions are calculated valued and added to the cost of the components analysed for comparison with locally produced alternatives the locally produced components generally remain uncompetitive with chinese imports for all likely values of external cost except for heavy aluminium components under high external cost assumptions the chinese iron components analysed are simply too low in cost for european in this case spanish equivalents to be competitive even allowing for environmental costs while the stainless steel ones are so small and light that transport cost even including externalities is not significant while these specific results are of limited generalizability they provide insight into an issue of considerable and growing importance some suggestions are offered for further research

investment in oligopoly under uncertainty the accordion effect this paper studies investments in new markets where more than two anticipated identical competitors are present in case of three firms an accordion effect is detected an exogenous demand shock results in a change of the wedge between investment thresholds of the first and second investor that is qualitatively different from the change of the wedge between the second and third investment threshold furthermore it turns out that in the three firm case the investment timing of the first investor lies in between the one and the two firm case these results are numerically extended to the n firm case

bilateral matching and bargaining with private information we study equilibria of a dynamic matching and bargaining game dmbg with two sided private information bilateral bargaining the model is a private information replica of mortensen and wright 2002 there are two kinds of frictions time

sustainability economics where do we stand abstract environmental economics which is a branch of resource economics the environment as a scarce resource is essentially about market failures the costs of pollution and pollution abatement and the economics of regulation sustainability economics includes the problem of maintaining economic growth while reducing pollution and or its impacts with special attention to the linked problems of energy supply not to mention the supply other exhaustible resources climate change and most urgently fossil fuel consumption there is a need for integration of resource and environmental economics under a new rubric sustainability economics

exploring the existence of kuznets curve in countries environmental efficiency using dea window analysis abstract this paper using data envelopment dea window analysis and generalized method of moments gmm estimators examines the existence of a kuznets type relationship between countries environmental efficiency and national income specifically it measures the environmental efficiency of 17 oecd countries by constructing environmental efficiency ratios for the time period 1980 2002 the analysis with the application of dynamic panel data reveals that there isn t a kuznets type relationship between environmental efficiency and income allowing for dynamic effects we find that the adjustment to the target ratio is instantaneous we also find that increased economic activity does not always ensure environmental protection and thus the path of growth is important in addition to the growth itself

developing real option game models by mixing concepts from both game theoretic analysis and real options theory an investment decision in a competitive market can be seen as a game between firms as firms implicitly take into account other firms reactions to their own investment actions we review two decades of real option game models suggesting which critical problems have been solved by considering game theory and which significant problems have not been yet adequately addressed we provide some insights on the plausible empirical applications or shortfalls in applications to date and suggest some promising avenues for future research

bidding for talent in sport we present a realistic and novel micro structure for the market for athletes in league sports in our trading mechanism the clubs bid for individual players internalizing the effect that a player not hired might play for the competition for inelastic talent supply our wage minimizing equilibrium supports the coasian results of rottenberg 1956 and fort and quirk 1995 talent allocation is independent of initial ownership and revenue sharing arrangements when talent supply is elastic revenue sharing decreases the aggregate amount of talent hired this negative effect on the talent level may be efficiency enhancing when the competition for talent results in excess talent being hired for the first time in the literature we carry out our entire analysis using a newly formulated unified club objective incorporating both pecuniary and non pecuniary benefits

on economic disequilibrium and free lunch there is a sharp disagreement between mainstream economists and advocates of energy efficiency as regards the potential for free lunches or no regrets policies to cut greenhouse gas emissions from an economics perspective the critical question is whether the economic system is or is not close to a pareto optimum equilibrium state if so it follows that most technological systems now in place are optimum or nearly so from an economic perspective if not there may be many sub optimal technologies in place with corresponding opportunities for very high returns on appropriate investments this paper presents some of the evidence supporting the latter thesis

the greenhouse effect the fallacies in the energy efficiency solution abstract the view that widespread improvements in energy efficiency can by themselves do anything to halt the build up of greenhouse gases around the globe is fundamentally unsound it is based on the same fallacies that underlie the claim that energy savings from improving efficiency can substitute for new energy supply the paper by keepin and kats1 claiming that per tonne of coal not burned improvements in energy efficiency are more cost effective than substituting nuclear for coal fired power is therefore an irrelevancy as far as this debate is concerned reductions is energy intensity of output that are not damaging to the economy are associated with increases not decreases in energy demand at the macroeconomic level even within the boundaries of their own flawed approach their attempt2 to refute the critique of their thesis made by jones3 was little more than misdirected grape shot with no discernable connected thread of argument

the energy efficiency gap what does it mean abstract as renewed attention has been given by policy makers to energy conservation issues it has frequently been asserted that an energy efficiency gap exists between actual and optimal energy use the critical questions is how to define the optimal level of energy efficiency this paper seeks to disentangle some confusing strands of argument that are frequently brought to bear on this question by identifying the major conceptual issues that determine the set of feasible answers we identify five separate and distinct notions of optimality the economists economic potential the technologists economic potential hypothetical potential the narrow social optimum and the true social optimum each of these has associated with it a corresponding definition of the energy efficiency gap our analysis demonstrates that necessary preconditions for identifying the right measure of the energy efficiency gap include understanding and disentangling market failure and non market failure explanations for the gradual diffusion of energy efficient technologies

non competition covenants in acquisition deals we study the changes in the consumers and producers surplus associated with acquisition deals where there is a non competition covenant that forbids the seller from re entering the market over a given time period we find that these acquisition deals can lead to significant negative positive changes in the producers consumers surplus which decrease significantly with the time period of the covenant we also show that the effect of the time period of the covenant on the welfare change can be positive or negative it depends largely on the market conditions such as the profit uncertainty and growth rate

strategic entry and market leadership in a two player real options game abstract we analyse the entry decisions of competing firms in a two player stochastic real option game when rivals earn different but correlated uncertain profitabilities from operating in the presence of entry costs decision thresholds exhibit hysteresis the range of which is decreasing in the correlation between competing firms a measure of the expected time of each firm being active in the market and the probability of both rivals entering within a finite time are explicitly calculated the former latter is found to decrease increase with the volatility of relative firm profitabilities implying that market leadership is shorter lived the more uncertain the industry environment in an application of the model to the aircraft industry we find that boeing s optimal response to airbus launch of the a380 super carrier is to accommodate entry and supplement its current product line as opposed to the riskier alternative of committing to the development of a corresponding super jumbo

bargaining search costs and equilibrium price distributions this paper studies a bargaining model of equilibrium price distributions consumers choose a seller at random and face search costs to switching to another store in the market equilibrium the prices at all stores are determined simultaneously as the perfect equilibrium of a bargaining game in this game the buyer has the outside option to search for another seller differences between the sellers types create price dispersions typically the number of active sellers increases with higher search costs the market equilibrium converges to the competitive equilibrium under perfect information when search costs become small

strategic bargaining and competitive bidding in a dynamic market equilibrium this paper extends the bargaining and matching literature such as rubinstein 1985 and gale 1986 and 1987 by considering a new matching process we assume that a central information agency exists such as job centres and newspapers in the labour market or real estate agents in the housing market which puts potential traders into direct contact with each other with agent heterogeneity equilibrium trade is characterized by existing traders on the other side since existing traders have already sampled and rejected each other two procedures of trade coexist namely strategic bilateral bargaining and a competitive bidding process depending on the number of potential matches a new trader obtains we characterize the unique symmetric markov perfect equilibrium to this stochastic trading game

unraveling the veil of fuzziness a thick description of sustainability economics this article provides a thick description geertz 1973 of sustainability economics baumgartner and quaas 2010a b have proposed as an alternative to ecological economics the new field of sustainability economics which has triggered various replies the purpose here is to order and to review these contributions building upon a literature review of sustainability economics the paper argues that the concept currently has more of a fuzzy and declamatory character the rhetoric mccloskey 1998 of sustainability economics contains general issues of sustainability economics externalities and the capability approach the article argues that it is currently not clear how the solutions for science and policy proposed by sustainability economics differ from those of ecological economics efforts should be directed towards further development of the theory and the operationalization of sustainability principles the systemic view of co evolutionary development social learning and sustainability economics normative underpinning merits more consideration in the debate about sustainability economics

asymmetric information in bilateral trade and in markets an inversion result abstract i consider bilateral trade between a seller and a buyer with private valuations the seller makes a take it or leave it price offer if the seller observes the buyer s valuation symmetric information bilateral trade is trivially efficient if the seller cannot observe the valuation asymmetric information bilateral trade is inefficient this bilateral trading game is embedded into a large matching market in the steady state equilibrium of the market game the relation between the informational regime and efficiency is inverted with small frictions efficiency obtains if information is asymmetric if information is symmetric however the trading outcome can be very inefficient even if frictions vanish