assessing the effects of co2 price caps on electricity investments a real options analysis abstract this paper uses real options modeling to assess the impact of different climate change policy instruments on investment profits and cumulative emissions in the electricity sector even though co 2 price caps or safety valves have been suggested as methods to limit uncertainty emanating from fluctuating prices of co 2 permits that would hurt the industry s profit and thereby also energy security our analysis shows that price caps set at a too low level are detrimental to the adoption of e g modern biomass fired capacity as a replacement for existing coal fired power plants we therefore conduct a series of experiments with different policy scenarios to analyze under which regime emissions are most effectively reduced with respect to co 2 price uncertainty it turns out that even for moderately rising co 2 prices fluctuations frequently lead to investment into carbon capture and storage ccs while investment is often not triggered in the face of deterministic co 2 prices

computable general equilibrium models adjustment and the poor in africa abstract sahn and others at cornell have conducted a major research program on the impact of adjustment policies on the poor in africa making use of computable general equilibrium cge models their work was summarized in world development april 1996 they concluded that adjustment policies have not hurt and may have helped the poor this paper shows that such conclusions are highly dependent on the assumptions made about parameters relationships and closure in the models moreover in madagascar and tanzania where the cornell models suggest the poor benefited from adjustment there is evidence of worsening social and economic indicators our conclusion is that the cornell results are more a reflection of the assumptions made in developing the cge models than of reality

the competitive effects of partial equity interests and joint ventures abstract antitrust authorities should consider the trade off between enhanced efficiency and reduced competition in cases of partial ownership this paper examines the competitive effects side of that trade off in the context of a modified cournot model we show that in markets where entry is difficult partial ownership arrangements could result in less output and higher prices than otherwise even if the ownership shares are relatively small these effects arise solely because these arrangements link the fortunes of actual or potential competitors producing a positive correlation among their profits in this sense the effects are purely structural they arise not because of increased opportunities for collusion or changes in the concentration of control but because the linking of profits reduces each firm s incentive to compete since these links internalize free rider problems associated with policing collusion and investing in entry deterrence however they could also enhance cartel stability and profitability

beyond optimal city size an evaluation of alternative urban growth patterns the aim of the paper is to present a critical view of theoretical works on city size we begin with the consideration that during the 1960s and 1970s the question of optimal city size tended to b

are chinese cities too small this paper models and estimates net urban agglomeration economies for cities economic models of cities postulate an inverted u shape of real income per worker against city employment where the inverted u shifts with industrial composition across the urban hierarchy of cities this relationship has never been estimated in part because of data requirements china has the necessary data and context we find that urban agglomeration benefits are high real incomes per worker rise sharply with increases in city size from a low level they level out nearer the peak and then decline very slowly past the peak we find that a large fraction of cities in china are undersized due to nationally imposed strong migration restrictions resulting in large income losses

optimal urban population size national vs local economic efficiency this paper explores whether the population size of the seoul metropolitan area sma in korea is efficient in terms of the national economy to undertake this analysis a recursively dynamic interregional computable general equilibrium icge model with a population module is developed in this model the explicit costs and benefits of population growth are estimated by using the industrial value added and consumer price inflation functions for each region the counter factual analysis shows that national population decentralisation away from the sma is desirable for korea s economic growth korea s gdp is estimated to be maximised when the sma s national population share is at 39 per cent in the short term and 35 per cent in the long term however the sma government is likely to have incentive to maintain its population at around 40 per cent of the national population where per capita income at the regional not national level is maximised

economic development and co2 emissions a nonparametric panel approach we examine the empirical relation between co2 emissions per capita and gdp per capita during the period 1960 1996 using a panel of 100 countries relying on the nonparametric poolability test of baltagi et al baltagi b h hidalgo j li q 1996 a nonparametric test for poolability using panel data journal of econometrics 75 345 367 we find evidence of structural stability of the relationship we then specify a nonparametric panel data model with country specific effects estimation results show that this relationship is upward sloping nonparametric specification tests do not reject monotonicity but do reject the polynomial functional form which leads to the environmental kuznets curve in several studies

a model based on stochastic dynamic programming for determining china s optimal strategic petroleum reserve policy china s strategic petroleum reserve spr is currently being prepared but how large the optimal stockpile size for china should be what the best acquisition strategies are how to release the reserve if a disruption occurs and other related issues still need to be studied in detail in this paper we develop a stochastic dynamic programming model based on a total potential cost function of establishing sprs to evaluate the optimal spr policy for china using this model empirical results are presented for the optimal size of china s spr and the best acquisition and drawdown strategies for a few specific cases the results show that with comprehensive consideration the optimal spr size for china is around 320 million barrels this size is equivalent to about 90 days of net oil import amount in 2006 and should be reached in the year 2017 three years earlier than the national goal which implies that the need for china to fill the spr is probably more pressing the best stockpile release action in a disruption is related to the disruption levels and expected continuation probabilities the information provided by the results will be useful for decision makers

bertrand competition when firms hold passive ownership stakes in one another abstract we show that the bertrand oligopoly model with cost asymmetries may admit multiple nash equilibria when firms hold passive ownership stakes in each other the equilibrium price may be as high as the monopoly price of the most efficient firm

economics of climate change under uncertainty benefits of flexibility abstract the selection of climate policy has to be made in an extremely uncertain environment both benefits and costs of a particular climate policy are unknown and in the best case could be described by the probability distribution of various outcomes dominated in literature the expected value approach to the cost benefit analysis of climate policy under uncertainties relies on the aggregated estimation of various outcomes of climate policy weighted and averaged by probabilities the variance skewness and kurtosis are important characteristics of uncertainties but can be easily lost in the process of aggregation the real option analysis roa explicitly accounts for both the expected value of underling assets and the variance of the expected value as well as skewness and kurtosis that are important to describe a fat tail phenomenon in the paper we propose an application of the real option analysis in order to formulate rules for the selection of a climate policy emission target and estimate the economic value of the future flexibility created by interim climate policy which may be corrected in the future in response to new knowledge that hopefully reduces uncertainties the initially selected interim policy has an option value and methodology for its valuation presented in the paper

gibrat s law for all cities two empirical regularities concerning the size distribution of cities have repeatedly been established zipf s law holds the upper tail is pareto and city growth is proportionate census 2000 data are used covering the entire size distribution not just the upper tail the nontruncated distribution is shown to be lognormal rather than pareto this provides a simple justification for the coexistence of proportionate growth and the resulting lognormal distribution an equilibrium theory of local externalities that can explain the empirical size distribution of cities is proposed the driving force is a random productivity process of local economies and the perfect mobility of workers

an options approach to investment in a hydrogen infrastructure this paper discusses the investments needed for the introduction of hydrogen as a transport fuel using option theory we develop a model to calculate the value and optimal timing of a first commercial rollout of hydrogen vehicles in a larger area taking japan as a specific example we find that the project is best viewed as an out of the money call option with a small but positive option value we estimate this value at approximately 1 5 billion euros without tax advantages an important finding is that the moment of investment is first and foremost determined by the maturing of the technology by contrast the investment timing is not as much affected by deployment strategy as is frequently thought in particular whether or not the hydrogen retail infrastructure is introduced smoothly does not sensitively influence the investment timing fairly independent of parameter assumptions the project value at the moment of deployment is negative for the retailer and positive for the car manufacturer this implies the need for a negotiated partnership finally we assess various forms of government support e g subsidies or tax cuts looking at the effectiveness of this support spending in relation to the advancement of hydrogen deployment we find again because investment timing is primarily determined by technology maturation that tax incentives are relatively ineffective we are lead to believe that government subsidy for technology development is a more effective means to achieve earlier investment as faster production cost reductions for hydrogen and fuel cell vehicles lead to accelerated investment

cross shareholdings and competition in a rent seeking contest abstract we consider a tullock rent seeking contest with two firms and two investors each investor owns a majority share in one firm and a silent minority cross shareholding in the other firm we measure competition by either firms aggregate efforts or rent dissipation we show that aggregate efforts are smaller in our contest than in the benchmark case without cross shareholdings next we provide the necessary and sufficient conditions such that equilibrium rent dissipation in our contest is larger than in the benchmark case rent dissipation is larger under cross shareholdings if and only if one firm is much more efficient than the other firm and the cross shareholding in the more efficient firm is sufficiently smaller than the cross shareholding in the less efficient firm

an empirical analysis of the dynamic programming model of stockpile acquisition strategies for china s strategic petroleum reserve abstract the world s future oil price is affected by many factors the challenge therefore is how to select optimal stockpile acquisition strategies to minimize the cost of maintaining a reserve this paper provides a new method for analyzing this problem using an uncertain dynamic programming model to analyze stockpile acquisition strategies for strategic petroleum reserve using this model we quantify the impact of uncertain world oil price on optimal stockpile acquisition strategies of china s strategic petroleum reserve for the period 2007 2010 and 2011 2020 our results show that the future stockpile acquisition is related to oil prices and their probability and if not considering the occurrence of oil supply shortage china should at least purchase 25 million barrels when world oil price is at an optimal level the optimal price of stockpile acquisition of every year has a stronger relationship with the probability of high price and the optimal expected price and size of stockpile acquisition is different in each year

vertical cross shareholding theory and experimental evidence abstract this paper analyzes vertical cross shareholding that is the mutual holding of a minority of shares between vertically related firms first we explore the issue in a game theoretic model and show that cross shareholding is sufficient to obtain efficient outcomes we then test the model s predictions in an experiment theory predicts the seller decisions accurately but the buyer decisions only to a small extent buyers are more likely to agree on cross shareholding than sellers in an attempt to avoid the winner s curse cross shareholding occurs more frequently than predicted and it increases the likelihood of trade

dynamic oligopoly with partial cooperation and antitrust threshold correspondance corresponding author tel 39 011 6705753 fax 39 011 6705783 merlone ugo

horizontal integration in the dutch financial sector in this paper the consequences of cross shareholding in an n firm industry are analyzed our attention focuses on the case where firms have silent interests in each other these interests can be direct or indirect we analyze the effects of cross shareholding on the price cost margins in a cournot and a bertrand setting in all cases competition is reduced due to shareholding interlocks as an empirical example the dutch financial sector is used comparing the case of shareholding with the case of no shareholding the price cost margins are found to be up to 2 higher in a bertrand market and at least 8 higher in a cournot market c 2000 elsevier science b v all rights reserved jel classification g20 l13 l41

optimal cross holding with externalities and strategic interactions we analyze a two period setting where firms first choose equity positions in each other and second engage in operating activities that cause externalities firms facing positive externalities optimally choose long equity positions to increase their profits firms facing negative externalities encounter a prisoners dilemma where each firm optimally chooses short positions in the first period committing to a more aggressive operating stance that results in lower profits in contrast to the prior literature regulation restricting cross holdings reduces consumer surplus and economic welfare when the number of firms is fixed however such regulation can increase entry improving net welfare

inequality and convergence in europe s regions reconsidering european regional policies europe s regions income disparities and regional policies in this paper we take a critical look at current european regional policies first we document the motivation for such policies that is the large income disparities across the regions of the eu15 large disparities are certainly present second we illustrate the various instruments adopted and discuss their underpinnings in established economic theories next we look at available data searching for three kinds of evidence 1 if disparities are either growing or decreasing we conclude they are neither 2 which are the major factors explaining such disparities and in particular if they are the factors predicted by the economic models adopted by the commission to justify current policies we conclude this is most certainly not the case 3 if there are clear signs that eu policies as opposed to other social and economic factors are actually reducing such disparities we cannot find any clear sign of such desired impact our conclusion is that regional and structural policies serve mostly a redistributional purpose motivated by the nature of the political equilibria upon which the european union is built they have little relationship with fostering economic growth this casts a serious doubt on their social value and furthermore strongly questions extending such policies to future members of the european union a successful eu enlargement in our view calls for an immediate and drastic revision of regional economic policies michele boldrin and fabio canova

a real option analysis of investments in hydropower the case of norway abstract this paper presents a valuation study of hydropower investment opportunities in the norwegian context according to nve norwegian water resources and energy directorate the regulator there is a potential of 39 twh not yet developed generation in a normal year is approximately 120 twh by using the conceptual real option framework of dixit and pindyck 1994 investment under uncertainty princeton university press princeton nj one can estimate the value of investment opportunities to nok 11 million gwh eur 1 4 million gwh furthermore the optimal trigger price for initiating an investment based on electricity forward prices is calculated to nok 0 32 kwh eur 0 04 kwh the analysis shows consistency between real option theory and aggregate investment behaviour in norwegian hydropower

applying real options analysis to assess cleaner energy development strategies abstract the energy industry accounts for the largest portion of co 2 emissions is facing the issue of compliance with the national clean energy policy the methodology for evaluating the energy mix policy is crucial because of the characteristics of lead time embedded with the power generation facilities investment and the uncertainty of future electricity demand in this paper a modified binomial model based on sequential compound options which may account for the lead time and uncertainty as a whole is established and a numerical example on evaluating the optional strategies and the strategic value of the cleaner energy policy is also presented it is found that the optimal decision at some nodes in the binomial tree is path dependent which is different from the standard sequential compound option model with lead time or time lag concept the proposed modified binomial sequential compound real options model can be generalized and extensively applied to solve the general decision problems that deal with the long lead time of many government policies as well as capital intensive investments

carbon dioxide emissions and global gdp abstract a positive relationship between carbon dioxide emissions the most important greenhouse gas ghg implicated in global warming and gdp is shown in this paper examining per capita income and co2 emissions of 137 countries across 21 years it also appears that as per capita incomes accelerate across countries emissions increases for the most part tend to decelerate it could be that higher income levels lead to increased demand for environmental protection only emissions reduction proposals that assure incomes will not be adversely affected particularly those of less developed countries ldcs will have any possibility of successful implementation

zipf s law for cities an explanation zipf s law is a very tight constraint on the class of admissible models of local growth it says that for most countries the size distribution of cities strikingly fits a power law the number of cities with populations greater than s is proportional to 1 s suppose that at least in the upper tail all cities follow some proportional growth process this appears to be verified empirically this automatically leads their distribution to converge to zipf s law

the nature of co2 emission kuznets curve this paper reveals that co2 emission kuznets curve merely reflects the peak theory of energy intensity the situation of real energy use should be used as a fundamental stone for both energy and environmental policy making

european co2 prices and carbon capture investments we assess the option to install a carbon capture and storage ccs unit in a coal fired power plant operating in a carbon constrained environment we consider two sources of risk namely the price of emission allowance and the price of the electricity output first we analyse the performance of the eu market for co2 emission allowances specifically we focus on the contracts maturing in the kyoto protocol s first commitment period 2008 to 2012 and calibrate the underlying parameters of the allowance price process then we refer to the spanish wholesale electricity market and calibrate the parameters of the electricity price process we use a two dimensional binomial lattice to derive the optimal investment rule in particular we obtain the trigger allowance prices above which it is optimal to install the capture unit immediately we further analyse the effect of changes in several variables on these critical prices among them allowance price volatility and a hypothetical government subsidy we conclude that at current permit prices immediate installation does not seem justified from a financial point of view this need not be the case though if carbon market parameters change dramatically carbon capture technology undergoes significant improvements and or a specific governmental policy to promote these units is adopted

the optimal size distribution of cities abstract properties of the optimal size distribution of cities are derived by using the hierarchy model explicitly considering the productivity of cities properties are i in allocating workers to the same industry in cities with different hierarchies it is optimal to allocate so that marginal effects upon the gnp are the same ii in allocating workers to different industries in the same city it is optimal to allocate so that the direct marginal effects upon that city s grp are the same iii at optimum all hierarchies have the same weight in a national economy based upon these properties an optimality index for the size distribution of cities is constructed values of this optimality index are estimated for u s and korea the construction and estimation of an optimality index make it possible to investigate the degree and major sources of departures from the optimum

when is it rational for firms to acquire silent interests in rivals abstract the cartelizing effects of firms shareholding in rivals have been well established theoretically yet empirical instances of such are rate to nonexistent it is argued here that if the stock market is efficient in the sense that share prices reflect post share trading product market equilibria then acquiring shares in rivals is not subgame perfect for cournot oligopolies but is subgame perfect for some bertrand oligopolies acquiring a silent interest in a rival is an example of the fat cat ploy that the stock market is not a cartel maker is consistent with cournot having wide empirical application but not with bertrand

passive cross holding as a strategic entry deterrence this paper builds a duopoly model to study the strategic effects of cross holding on entry deterrence we show that in equilibrium the incumbent optimally chooses strictly positive cross holdings in each other to deter entry for the potential entrant

urban concentration agglomeration economies and the level of economic development there is a view among planners in the developing nations that the process of economic development invariably results in the concentration of population in one or two primal cities there is also however considerable disagreement over whether this apparent relationship is either necessary or desirable proponents on the one hand argue that concentrated urbanization strongly supports industrial development through the realization of scale and agglomeration economies 2 dissenters from this view feel that urban concentration creates serious social costs and results more from historical or political forces than economic ones in this case policies aimed at decentralizing growth can achieve social objectives without sacrificing economic efficiency despite these deliberations it is surprising that there has been little or no empirical study of urban concentration on either a longitudinal or cross national basis the major related work which exists is williamson s research on economic development and income inequality 3 williamson demonstrates that as economic growth begins inequality initially increases but then diminishes in the more advanced stages of development this coincides with hirschman s4 view that industrialization eventually spreads into more backward areas reduc

reciprocal shareholding and takeover deterrence reciprocal shareholding has been argued to increase managerial power and facilitate takeover resistance the latter may translate into higher premiums in the event of an actual takeover thus benef

impact of climate policy uncertainty on the adoption of electricity generating technologies this paper presents a real options model where multiple options are evaluated simultaneously so that the effect of the individual options on each other is accounted for we apply this model to the electricity sector where we analyze three typical technologies based on fossil fuel fossil fuel with carbon capture and renewable energy respectively in this way we can analyze the transition from co2 intensive to co2 neutral electricity production in the face of rising and uncertain co2 prices in addition such a modelling approach enables us to estimate precisely the expected value of perfect information i e the willingness of investors and producers to pay for information about the correct co2 price path as can be expected the expected value of information rises with increasing co2 price uncertainty in addition the larger the price uncertainty the larger are the cumulative co2 emissions over the coming century the reason for this is that the transition to less co2 intensive technologies is increasingly postponed with rising co2 price uncertainty by testing different price processes geometric brownian motion versus jump processes with different jump frequencies we can also make useful recommendations concerning the importance of policy predictability we find that it is better to have climate change policies that are stable over a certain length of time and change abruptly than less abrupt but more frequently changing policies less frequent fluctuations reduce the expected value of information and result in smaller cumulative co2 emissions