a dynamic analysis of a demand curve based capacity market proposal the pjm reliability pricing model because of high generation adequacy standards in the power industry some peaking capacity operates for a limited time during the year and may not receive sufficient energy revenues to meet its fixed costs this is particularly true when energy prices are capped in order to mitigate market power the northeastern u s independent system operators isos have responded to this issue by establishing capacity obligations for loads and markets for installed capacity thus providing a capacity revenue stream to generators the installed capacity icap markets in the northeastern u s markets are a response to this need for additional incentives to construct generation the federal energy regulatory commission ferc has accepted the pjm interconnection s pjm proposal to replace the present fixed icap requirement that is placed upon load serving entities lses with a demand curve based system in which the iso would be responsible for acquiring residual capacity on behalf of lses the demand curve approach pays more when reserve margins are smaller and provides a reduced incentive for investment when installed reserves are above the target another goal is to make revenues more predictable for generators making investment less costly and ultimately lowering prices for consumers a dynamic representative agent model is presented for projecting effects upon reserve margins generator profitability and consumer costs and is applied to alternative demand curves proposed for the pjm market the consumer costs resulting from a sloped demand curve are robustly lower compared to the present fixed requirement under a wide range of assumptions concerning behavior of generation owners including risk attitudes bidding behavior and willingness to build capacity as a function of forecast profit the cost savings arise from lower capital costs to generators due to reduced risk and risk premiums also average installed capacity is less for the same level of reliability because of reduced fluctuations in installed reserves

productive efficiency in public and private firms abstract this paper compares the degree of x inefficiency which emerges as a consequence of the imposition of the optimal incentive contracts in public and private firms using a straightforward principal agent model with two possible states of the world it establishes the rather surprising result that in the good state of the world public ownership always results in a higher degree of productive efficiency

bureaucratic discretion or congressional control regulatory policymaking by the federal trade commission this paper extends stigler and peltzman s approach to regulation by incorporating a legislature the model yields comparative statics results and hence testable implications the paper then tests between two opposing approaches about regulatory agency behavior the first assumes agencies operate independently of the legislature and hence exercise discretion the second assumes that congress controls agency decisions the recent behavior of the federal trade commission provides the empirical setting substantial evidence is found for the specific predictions of the model including the hypothesis of systematic congressional influence over ftc decisions

public service motivation as an argument for government provision a public service motivation psm inclines employees to provide effort out of concern for the impact of that effort on a valued social service though deemed to be important in the literature on public administration this motivation has not been formally considered by economists when a psm exists this paper establishes conditions under which government bureaucracy can better obtain psm motivated effort from employees than a standard profit maximizing firm the model also provides an efficiency rationale for low powered incentives in both bureaucracies and other organizations producing social services 2000 elsevier science s a all rights reserved

bureaucrats legislators and the size of government some recent theories have blamed the growth of government on budget maximizing bureaucrats who are assumedly capable of imposing their most preferred budget output combination on legislatures subject to cost and demand constraints however theoretical examination of the range of bargaining outcomes that might occur between bureau and legislature shows that budget maximizing behavior does not necessarily lead to super optimal levels of production nor do the suggested reforms of competition and privatization necessarily improve the situation in this bargaining model the central determinants of governmental growth are not budget maximizing bureaucrats but the legislature s decisions regarding mode of oversight and form of internal organization

economic interpretation of demand curves in multi product electricity markets part ii practice in the absence of demand side bids for certain reliability products in the wholesale electricity markets independent system operators isos traditionally use fixed demand requirements with penalty factors to clear the market this approach does not allow proper tradeoffs between cost and reliability due to the inelasticity of the fixed requirements therefore isos have been replacing the fixed requirements with sloped demand curves however the economic interpretation of demand curves especially for multiple coupled products is largely missing in both theory and practice this could lead to the misrepresentation of the demand benefit in the market clearing objective using a two product market model part i of this paper reveals two distinct interpretations of demand curves each associated with a specific form of the market clearing problem this implies that the construction of demand curves and the use of them in market clearing must be consistent with their economic interpretation in part ii of this paper we analyze the sequential and iterative market clearing processes currently implemented in some markets to demonstrate their solution sub optimality the root cause of the problem is the lack of a clear representation of the demand benefit the social surplus optimization based on the proper interpretation of demand curves is proposed

political authority expertise and government bureaucracies by applying the revelation principle we focus on how a sponsor who possesses political authority could minimise the efficiency losses when bureaucrats are experts that is when they control information about the true costs of public services production our results come in striking contrast to those in the literature on bureaucracies and public procurement in a two types setting and in the absence of monitoring and control mechanisms we find that the agency is productively efficient under certain conditions the agency is also allocatively efficient while under others the low cost bureau oversupplies and the high cost agency undersupplies its output

an estimate of the value of lost load for ireland this paper estimates the value of short term lost load in the all island electricity market which includes the republic of ireland and northern ireland the value of lost load voll is the average willingness of electricity consumers to pay to avoid an additional period without power voll is also known as the value of security of electricity supply and is inferred using a production function approach detailed electricity use data for the republic of ireland allows us to estimate the value of lost load by time of day time of week and type of user we find that the value of lost load is highest in the residential sector in both the republic of ireland and northern ireland our results can be used to advise policy decisions in the case of supply outages and to encourage optimum supply security in the context of this study short term is taken to be a matter of hours rather than days or weeks

the economics of career concerns part ii application to missions and accountability of government agencies the paper uses a simple multitask career concern model in order to analyse the incentives of government agencies officials incentives are impaired by the agency pursuing multiple missions a lack of focus is even more problematic in the case of fuzzy missions that is when outsiders are uncertain about the exact nature of the missions actually pursued by the agency consequently agencies pursuing multiple missions receive less autonomy the paper further shows that professionalization creates a sense of mission for the agency and that the specialization of officials raises their incentives last the paper compares its predictions with the stylized facts on government bureaucracies 1999 the review of economic studies limited

on decentralization and life satisfaction abstract we empirically analyze the impact of fiscal and political decentralization on subjective well being in a cross section of 60 000 individuals from 66 countries more spending or revenue decentralization raises well being while greater local autonomy is beneficial only via government consumption spending

the congressional bureaucratic system a principal agent perspective with applications to the sec this paper provides the theoretical perspective and empirical support for congressional dominance of agency decisions my thesis is twofold first because much of the previous evidence on this question is not evidence at all many scholars intuition and conclusions are based on a logically flawed foundation second i have provided here and in previous work a look at a variety of different agencies and in each case have shown how the events can plausibly be interpreted as involving congress agency problems within the congressional bureaucratic system are real and substantial just as they are within corporations however as in the latter institutional forms develop within the congressional system to partially if not wholly mitigate these problems the logical perspective together with the evidence provide a strong case against the agency dominance hypothesis as typified by the early sections of niskanen 1971 and wilson 1980

the limits of bureaucratic efficiency bureaucracies tend to be used when consumers cannot be trusted to choose outcomes efficiently but a primary means of bureaucratic oversight is consumer complaints but this can give bureaucrats an incentive to inefficiently accede to consumer demands to avoid a complaint i show that when this incentive is important bureaucracies efficiently respond by i ignoring legitimate consumer complaints ii monitoring more in situations in which it is not needed iii delaying decision making too long and iv biasing oversight against consumers i also show that bureaucracies are used only when consumers cannot be trusted as a result observed bureaucracies are always inefficient

a political theory of regulation with some observations on railway abandonments one of the main themes of partisan dispute in the recent past and doubtless in the foreseeable future is whether or not the value of detailed governmental regulation of the economy exceeds the cost this is exactly the kind of dispute that might be resolved by raising it from the level of mere partisan interest to the level of economic and political science unfortunately however it has not been raised because we do not have the necessary intellectual apparatus namely a theory about the motivation for the operation of and the consequences of regulation as a result most of the discussion consists of biased ad hoc explanations of particular cases with little effort to formulate and test alternative generalizations we have therefore nothing but unresolved and unresolvable disputes about a more or less random collection of stories and some contradictory recipes about cause and effect

multiproduct nonlinear pricing typically work on mechanism design has assumed that all private information can be captured in a single scalar variable this paper explores one way in which this assumption can be relaxed in the context of the multiproduct nonlinear pricing problem it is shown that the firm will choose to exclude some low value consumers from all markets a class of cases that allow explicit solution is derived by making use of a multivariate form of integration by parts in such cases the optimal tariff is cost based

competition and incentives with motivated agents a unifying theme in the literature on organizations such as public bureaucracies and private nonprofits is the importance of mission as opposed to profit as an organizational goal such mission oriented organizations are frequently staffed by motivated agents who subscribe to the mission this paper studies incentives in such contexts and emphasizes the role of matching the mission preferences of principals and agents in increasing organizational efficiency matching economizes on the need for high powered incentives it can also however entrench bureaucratic conservatism and resistance to innovations the framework developed in this paper is applied to school competition incentives in the public sector and in private nonprofits and the interdependence of incentives and productivity between the private for profit sector and the mission oriented sector through occupational choice jel d23 d73 h41 l31 the late twentieth century witnessed a historic high in the march of market capitalism with unbridled optimism in the role of the profit motive in promoting welfare in the production of private goods moreover this generated a broad consensus on the optimal organization of private good production through privately owned competitive firms when it comes to the provision of collective goods no such consensus has emerged debates about the relative merits of public and private provision still dominate this paper suggests a contracting approach to the provision of collective goods it focuses on two key issues how to structure incentives and the role of competition between providers at its heart is the idea that organizations that provide collective goods cohere around a mission 2 thus production of collective goods can be viewed as mission oriented

a structural model of turnout and voting in multiple elections this paper develops a unified approach to study participation and voting in multiple elections the theoretical setting combines an uncertain voter model of turnout with a spatial model of voting behavior we apply our framework to the study of turnout and voting in u s presidential and congressional elections we structurally estimate the model using individual level data for the 2000 elections and quantify the relationships between observed individual characteristics and unobserved citizens ideological preferences information and civic duty we then use the estimated model which replicates the patterns of abstention selective abstention split ticket voting and straight ticket voting observed in the data to assess the effects of policies that may increase citizens information and sense of civic duty on their turnout and voting behavior

constructing demand curves in forward capacity market this paper presents an economic framework for designing demand curves in forward capacity market fcm capacity demand curves have been recognized as a way to reduce the price volatility inherited from fixed capacity requirements however due to the lack of direct demand bidding in fcm obtaining demand curves that appropriately reflect load s willingness to pay for reliability is challenging the proposed framework measures the value of reliability by the avoided cost of unserved energy cue i e expected unserved energy eue multiplied by value of lost load voll the total cost of capacity and cue are then minimized allowing economic tradeoffs between different reliability levels eue a multivariate function of the total system capacity and its distribution among capacity zones is decomposed into single variable functions which form the base for system and zonal demand curves voll is implied from the net cost of new entry net cone based on long term market equilibrium properties the proposed framework is applied to a multizone iso new england system to demonstrate its effectiveness

contracting problems and regulation the case of the fishery the inefficiencies of common property fisheries are of continuing concern to economists the early work by scott gordon 1954 and anthony scott 1955 outlined the problem and later studies by james crutchfield and giulio pontecorvo 1969 and frederick bell 1972 provided empirical estimates of the losses that result those studies were followed by the dynamic models of colin clark 1976 and james quirk and vernon smith 1970 of optimal harvest rates and the use of corrective taxes or quotas to achieve them but in spite of a large and growing literature and the persuasiveness of the outlined efficiency criteria most fisheries retain common property aspects with overcapitalization and excessive labor input why those conditions persist and the failure of the regulatory response to them are the issues addressed in this paper we examine a number of fisheries but focus on the texas shrimp industry which is one of the nation s most valuable fisheries for a single species and which shares the common property characteristics observed elsewhere it is considered overcapitalized and catch per unit of effort is falling 2 examination of the fishery reveals the many margins along which rent dissipation occurs and the nature of the regulations necessary for controlling fishing effort to avoid those losses the regulatory environment in texas is complicated by conflict within the fishery between inshore and offshore fishermen the latter assert that bay shrimping reduces the number of shrimp that successfully migrate to the gulf the inshore fishery is highlighted by another issue the recent resettlement of some 30 45 000 vietnamese refugees including many fishermen along the texas coast marine advisory service paul starr their entry has been met by hostility and violence from existing shrimpers who recognize that they are in an environment characterized by the absence of property rights bay shrimpers have lobbied the texas legislature for broad limits on new entrants yet ironically the sale of additional boats by individual shrimpers to the vietnamese has facilitated entry of the refugees into the fishery regulations in the texas shrimp and other fisheries are incomplete leaving many options for rent dissipation uncontrolled because of high contracting costs among fishermen and political factors that mold government actions contracting costs are high among heterogeneous fishermen who vary principally with regard to fishing skill 3 montana state university and texas a m university respectively we benefitted from comments by terry anderson raymond c battalio gardner brown oscar burt micha gisser wade griffin john r moroney anthony d scott peter temin and participants in workshops at texas a m university and the university of washington research assistance was provided by scott barnhart and phil mizzi funding was provided by sea grant texas a m university throughout this paper we use the terms common property and open access interchangeably here the terms describe a situation where no property rights group or individual exist s for the resource 2catch per unit of effort in the inshore texas gulf and federal gulf waters is presented for 1963 77 by w l griffin c g tydlacka and w e grant they show catch per unit of effort generally falling in inshore and offshore waters while catch per unit of effort fluctuates from year to year it falls from approximately 360 kg shrimp per unit of effort to 220 kg from 1963 to 1977 the common property nature of the fishery is reflected in the following statistics since 1975 the number of vessels has grown by 23 percent nelson swartz for fish houses the record of entry is similar between 1970 a d 1977 the number of firms grew from 259 to 287 though during that period many left the industry as others entered the number of fish houses was calculated from license data supplied by the texas parks and wildlife department the record of entry by fish houses suggests that monopsony as discussed by colin clark and gordon munro is absent in the fishery 3there may be minor differences in labor leisure choices and capital but our statistical evidence and discussions with fishermen indicate that catch variations are largely due to skill government regulations in the texas bays restrict capital and our empirical evidence shows boats to be relatively homogeneous

the swing voter s curse the authors analyze two candidate elections in which some voters are uncertain about the realization of a state variable that affects the utility of all voters they demonstrate the existence of a swing voter s curse less informed indifferent voters strictly prefer to abstain rather than vote for either candidate even when voting is costless the swing voter s curse leads to the equilibrium result that a substantial fraction of the electorate will abstain even though all abstainers strictly prefer voting for one candidate over voting for another copyright 1996 by american economic association

a critical comment on niskanen s model niskanen s model has been largely criticized but it still remains a standard explanation of bureaucracy s behaviour in this paper we criticize the monopoly power that niskanen assigns to the bureaucracy a bilateral monopoly between bureaucrats and politicians might be a much more adequate framework for explaining the bureaucracy s behaviour than niskanen s original formulation of a perfect discriminating bureaucracy in a bilateral monopoly model in no case the type of relationship which holds between the sponsor and the bureau leads to an oversupply of output should an excess output occur it would be a consequence of the political decision making mechanisms this result stands in sharp contrast to the niskanen s model but at the same time it is coherent with the fact that when the sponsor introduces control and monitoring mechanisms the sponsor does not pretend to decrease the output but rather to supervise and to reduce the costs of producing the output

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had