government failure rent seeking and capture the design of climate change policy climate change has been described as one of the biggest market failures less attention has been paid to the government failures associated with interventions and the implications for the design of climate change policy this paper sets out the main types of government failure and shows how the processes of rent seeking and capture help to explain both why the choice of targets and instruments has been so inefficient and also why the resulting costs of carbon mitigation are likely to be considerably higher than the estimates provided by the stern review and other recent studies two examples are given emissions trading and renewables policy a number of generic conclusions are drawn about how taking account of government failures can help to improve policy design and limit the impact of the climate change pork barrel which existing policies have created copyright 2010 oxford university press

cap and trade a sufficient or necessary condition for emission reduction influenced by the success of emission trading in the us for sulphur dioxide so 2 some economists have argued for an upstream economy wide cap and trade scheme as the primary tool for achieving the required reduction in greenhouse gas ghg emissions this paper addresses that argument and concludes that cap and trade will need to be accompanied by complementary regulatory measures while it is a necessary component in a climate mitigation programme it is unlikely to be sufficient by itself to accomplish the desired emission reductions the paper reviews the evidence on how so 2 emissions were reduced and the extent to which actual emission trading was responsible for the reduction as opposed to other innovations it also identifies differences between the past regulation of so 2 and other air pollutants and the challenges presented by the regulation of ghg emissions what actually happened in the us with so 2 emission trading deviated in several significant respects from what would be predicted based on the conventional theoretical analysis while there was a dramatic reduction in so 2 emissions it occurred because of several factors some of which are unlikely to apply for ghg emissions and others of which argue for an activist regulatory policy by the government as a complement to the functioning of an emissions market for ghgs copyright 2010 oxford university press

the economics of development a survey i the subject our definition of the subject will be the use of economic analysis to understand the economies of poor or developing countries this includes in particular how standards of living in the population are determined and how they change over time and further how policy can or should be used in the influence of these processes the definition contains in principle much or most of analytical methods in economics insofar as they can be put to use in the examination of the issues of interest this is as it should be but it poses a problem for a survey in a journal a comprehensive treatment is infeasible so we shall follow a different route the survey will focus on what i take to be the major themes and approaches which characterise the productive aspects of the subject there is therefore no pretence at being exhaustive the purpose is rather to highlight some of the advances many of these have been of real substance there are a number of possible purposes for a survey and it is important to be clear at the outset for whom it is intended what it is and what it is not this survey is addressed to economists and students of economics who know the tools of their trade but not necessarily how they have been applied to and fashioned for the analysis of the economics of developing countries it is a description of the ways in which problems can be productively formulated and approached in terms of examples chosen for their intrinsic importance and interest the vastness of the subject means that we have to be highly selective it does not seek to provide a summary evaluation of the current view of the appropriate response to immediate policy questions it is not a history of thought nor a research manifesto nor an attempt to adjudicate or settle the major debates where they arise naturally from the major purpose some judgements on these subjects will be offered but they do not themselves constitute the primary intent of this survey there are three lines of enquiry or sets of questions which have i suggest been distinctive of the most fruitful work in development economics they will

environmental policy government and the market environmental policy is made in a context of both market failure and government failure on the one hand leaving environmental protection to the free market relying on notions of corporate social responsibility and altruistic consumer and shareholder preferences will not deliver optimal results on the other hand nationalizing the delivery of environmental protection is likely to fail because nation states rarely have the depth and quality of information required to instruct all the relevant agents to make appropriate decisions thus as for many areas of policy appropriate models of environmental intervention will lie between these two extremes while it is impossible to specify general rules concerning the precise form of intervention in part because the type of intervention depends upon value judgements this paper sets out some of the considerations that are particular to environmental policy and explores several principles for policy design including information coordination and principal agent problems with a particular focus on the international context

off farm work decisions of farm couples estimating structural simultaneous equations with ordered categorical dependent variables we estimate a full system of structural farm and off farm labor supply equations of farm couples as a set of simultaneous equations with categorical dependent variables in a first step the reduced form is estimated by ordered probit with unknown thresholds then the identified structural coefficients are recovered from the reduced form coefficients through minimum distance estimation using census data from israel we find that for men a one hour increase in farm labor supply causes a one hour decrease in off farm labor supply but not for women this could not have been found without estimating structural coefficients

cap and trade policy challenges a tale of three markets cap and trade policy instruments have been applied to a number of environmental problems with varying success this article examines cap and trade programs for so2 allowances fishery quotas and water rights design and implementation of cap and trade mechanisms involves challenging policy tradeoffs accommodating equity concerns balancing use levels with resource conditions facilitating transactions accounting for externalities assuring adequate monitoring and documenting welfare gains efficient trading mechanisms are more readily implemented when there is a strong political or legal mandate to cap resource use and trades are perceived as a means to ease adjustment to use limits

imperfections in the economics of public policy imperfections in markets and climate change the economics of public policy has suffered from collective amnesia we have forgotten or ignored much of the tradition of public policy in imperfect economies whose foundations were laid by james meade and paul samuelson this has been associated with a period of around two decades from the early 1980s to the early 2000s where the economics of public policy has bent to political winds and has fed arguments for government to get out of the way and leave everything to the markets to self interest and to self regulation this has manifested itself via the choice of models those which imply often directly from assumptions passive government patterns of teaching the marginalisation of public economies in imperfect economics and compartmentalisation examples in climate change where this amnesia has misled include approaches to discounting and the failure to make non marginal change central to analysis on the other hand creative application of modern public economics gives interesting results such as the possibility of making both current and future generations better off and of informed discussion complementing economic instruments there are strong formal analogies between policy on climate change and on behavioural economics indeed there seems to be great potential in the combination of these two fields jel a10 a12 d61 d62 d63

assessment economic policy towards the environment the article presents an overview and assessment of economic policy toward the environment the first part reviews the core theoretical literature a classification of environmental externalities differentiated by institutional contexts is presented conventional economic theory approaches are reviewed with their associated strong informational assumptions these are then relaxed demonstrating why cooperative solutions to global externalities may prove hard to achieve having reviewed the theoretical nature of environmental problems the article then turns to policy options including privatization taxes and marketable permits and presents a number of suggestions for future policy copyright 1990 by oxford university press

the social cost of carbon and its policy implications the shadow price or social cost of carbon is an important indicator of the global incremental damage done by emitting greenhouse gases today cost benefit analysis would set the optimal amount of greenhouse gas emission reduction at the point where this social cost just equals the incremental cost of controlling emissions the higher the value for the social cost of carbon the more control is warranted this comparison assumes that cost benefit analysis is the correct way of determining climate change policy and many believe this is not the case because of the very long term irreversible and potentially catastrophic nature of global warming but in the short run at least a comparison of cost and benefits is required and in any event all decisions imply costs and benefits but what is the right figure for the social cost of carbon this paper reviews the uk government s assessment of the cost and concludes that it has been set far too high because of a misreading of the integrated assessment models used to balance costs and benefits moreover adoption of the uk government s shadow price would have formidable implications for energy policy in the uk and for policies on afforestation copyright 2003 oxford university press

environmental prices uncertainty and learning there is an increasing demand for putting a shadow price on the environment to guide public policy and incentivize private behaviour in practice setting that price can be extremely difficult as uncertainties abound there is often uncertainty not just about individual parameters but about the structure of the problem and how to model it a further complication is the second best nature of real environmental policy making in this paper we propose some practical steps for setting prices in the face of these difficulties drawing on the example of climate change we consider how to determine the overall target for environmental protection how to set shadow prices to deliver that target and how we can learn from the performance of policies to revise targets and prices perhaps most significantly we suggest that estimates of the marginal cost of environmental protection rather than the marginal benefit will often provide the more consistent and robust prices for achieving targets

off farm labor supply responses to permanent and transitory farm income a sample of iowa farm couples is used to evaluate whether off farm labor supply decisions respond to permanent and transitory components of farm income off farm labor supply of both spouses declines in response to increases in permanent farm income farm wives also reduce off farm labor supply in response to positive transitory farm income shocks consequently one mechanism farm households use to smooth their goods consumption when facing fluctuating farm income is to modify their consumption of leisure ability to smooth goods consumption does not imply the absence of liquidity constraints among farm households unless leisure consumption is also smoothed

threshold effects and incentives for the conservation of biodiversity biological diversity is a central component of the stock of natural capital on which all economic development is based other things being equal loss of biologically diversity implies loss of development potential and its conservation through sustainable use or outright protection implies the protection of that potential one characteristics of biodiversity loss of especial importance is that biodiversity loss more than any other current environmental problem is associated with ecological threshold effects the paper explores the implication of this characteristics for the properties of a biodiversity conservation strategy

the assessment economic policy for transport this paper considers the economic principles underlying contemporary british transport policy issues and the contributions that recent theoretical and empirical work can make to assessing policy solutions it discusses two alternative highly stylised approaches to transport policy 1 transport services supplied by privately owned companies and financed by charges to users 2 statutory publicly owned transport monopolies it considers the corresponding problems of market failure and regulatory failure types of market failures include circumstances where competitive solutions are either 1 feasible but not achieved because of actions by companies or 2 achieved but undesirable for various reasons or 3 not feasible because the relevant sectors have natural monopolies and high entry costs the authors conclude that both the stylised approaches that they analysed have serious drawbacks the most important consequence of the nationalisation of uk transport in the late 1940s was significant inefficiency in production and pricing the public transport deregulation of the 1980s resulted in significant product innovation and changes in the level and structure of prices however artificial restriction of competitive outcomes seems to be the most important source of regulatory failure

calibration of the default probability model abstract in this paper we study the calibration problem for the merton vasicek default probability model robert merton on the pricing of corporate debt the risk structure of interest rate journal of finance 29 1974 449 470 we derive conditions that guarantee existence and uniqueness of the solution using analytical properties of the model we propose a fast calibration procedure for the conditional default probability model in the integrated market and credit risk framework our solution allows one to avoid numerical integration problems as well as problems related to the numerical solution of the nonlinear equations

regulatory reform capture and the regulatory burden this paper provides a critique of broad aggregate proposals to reduce the regulatory burden it argues that the public debate about regulatory reform and red tape is loose and general with little regard for the complex ways in which regulation imposes costs and benefits on the economy although there are theoretical reasons to expect regulation to be in excess supply there is little empirical analysis to link aggregate regulation with productivity and economic growth regulation is itself a public good and many aspects of economic efficiency require regulation to address market failures the main efficiency issues are better addressed through a disaggregated approach focusing on when where and how to regulate rather than on crude aggregate estimates of the total burden the design of regulation needs to take account of regulatory capture and it is argued that market based instruments and independent regulatory bodies tend to reduce the scope for capture the incentives and employment rules governing regulatory institutions are also discussed in ignoring these disaggregated regulatory design problems crude aggregate targets for the reduction of regulation and rules such as one in one out may be counter productive copyright 2006 oxford university press

regulation by prices quantities or both a review of instrument choice choosing appropriate policy instruments is an important part of successful regulation once objectives are agreed and suitable targets adopted policy makers can employ command and control regulation and or economic instruments and choose between fixing a price or a quantity this paper examines the relative advantages of price quantity and hybrid instruments according to their efficiency under uncertainty the trade off between credible commitment and flexibility implementation international considerations and political economy various illustrations of the theory are provided with two detailed applications to climate change and transport policy specifically congestion and safety pricing

credible carbon policy the paper sets out the credibility problem in carbon policy provides a number of examples of non credibility in recent energy policy and identifies the costs of failing to address it the time inconsistency of carbon policy arising because of multiple objectives the irreversibility of energy investments and the scope for ex post reneging on ex ante commitments to set policy instruments such as carbon taxes or emission permits at appropriate levels is set in a conceptual framework analogies with monetary policy are drawn and a solution to the time inconsistency problem is proposed through the establishment of an energy carbon agency

environmental policy and the economic downturn this paper considers how environmental policies should respond to macroeconomic downturns it first explores the implications of the global economic downturn of 2008 09 for environmental policies focusing in particular on the example of action against climate change the arguments for and against activist fiscal policies in general are then reviewed and the case made that a demand induced downturn provides a very good opportunity to undertake a necessary step change in the public spending component of environmental policies and to start working through a backlog of public investment to improve the environment fiscal policy should be used to improve the allocation of resources across time and space recent fiscal stimuli are considered in the light of this discussion it is also argued that there is little cause to delay the introduction of price signals to internalise environmental externalities but the levels at which such signals should be set requires careful analysis changes over the business cycle may be warranted depending on the nature of the environmental externality and the cause s of the business cycle in question

multiple job holdings among dairy farm families in new york and ontario abstract previous empirical studies of multiple job holding have tended to focus on the characteristics of those obtaining off farm employment and the factors affecting the hours supplied to those obtaining off farm activities none of these studies have explicitly addressed the reasons behind the decision to seek off farm employment neither have they been able to examine in depth the important issue of how this major component of the farm sector responds to alternative policies since most studies have used cross sectional data for a given region a comparison between countries would permit the analysis of how multiple job holding responds to differing government policies the purpose of this paper is to examine the reasons for and factors affecting multiple job holdings of dairy farm families in neighboring regions of two counties united states and canada the bordering regions of new york and ontario have similar geographic conditions but significantly different farm support and social service policies the results indicate the importance of farm income on why people work off the farm and provide evidence of multiple job holding as a flexible mechanism for coping with changes in the economic environment facing the household for operators the driving characteristics influencing off farm labor participation is the farm s financial position the supply managed milk marketing system ensures higher and more stable returns for ontario dairy farm labor in contrast it is family demographics educational level and social support policy that appears to largely influence spousal off farm employment decisions free medical care in ontario lowers the reservation wage for household members the effect of these farm and social support policies on the relative returns to labor in agriculture and non farm employment explains the lower participation rate and hours supplied in off farm work by both operators and hours supplied in off farm work by both operators and spouses in ontario dairy farm household

the market for sulfur dioxide emissions the 1990 clean air act amendments initiated the first large scale use of the tradable permit approach to pollution control the theoretical case for this approach rests on the assumption of an efficient market for emission rights the authors empirical analysis shows that the emission rights market created by the 1990 amendments had become reasonably efficient by mid 1994 they also show that the auctions specified in the amendments to jump start trading had become a small part of the overall market finally the authors demonstrate that the strategic bidding behavior discussed in the literature has had no effect on market prices copyright 1998 by american economic association

voluntary compliance with market based environmental policy evidence from the u s acid rain program the u s acid rain program implemented a nationwide market for electric utilities sulfur dioxide so2 emissions and included voluntary compliance possibilities for nonaffected sources i observe significant voluntary participation albeit with small impact on the so2 market mostly from sources with counterfactual emissions below their allowance allocations an ex post analysis suggests that costs from the resulting higher emissions outweigh savings from shifts in emissions reductions from high cost affected sources to low cost nonaffected sources further utilities voluntary participation is well explained by economic variables which provides new evidence of cost effective compliance strategies and low transaction costs

default probability estimation via pair copula constructions abstract in this paper we present a novel approach for firm default probability estimation the methodology is based on multivariate contingent claim analysis and pair copula constructions for each considered firm balance sheet data are used to assess the asset value and to compute its default probability the asset pricing function is expressed via a pair copula construction and it is approximated via monte carlo simulations the methodology is illustrated through an application to the analysis of both operative and defaulted firms

corporate social responsibility business strategy and the environment we examine the concept of firms sacrificing profits in the social interest within the environmental realm with particular focus on the case of the united states by addressing four key questions may they do so within the scope of their fiduciary responsibilities to their shareholders can they do so on a sustainable basis or will the forces of a competitivemarketplace render such efforts and their impacts transient at best do firms in fact frequently or at least sometimes behave this way reducing their earnings by voluntarily engaging in environmental stewardship should firms carryout such profit sacrificing activities i e is this an efficient use of social resources we address these questions through the lens of economics including insights from legal and business scholarship

to what extent are eu steel companies susceptible to competitive loss due to climate policy abstract in recognition of their competitive vulnerability a set of special rules have been devised for managing sectors such as iron and steel within the eu ets under these rules the eu steel sector has received free allocations in excess of their compliance needs to now and will continue to receive some free allowances up to 2020 however perceptions of the sector s competitive vulnerability have been largely based on inherently hypothetical analyses which rely heavily on counterfactual scenarios and abatement cost estimates often provided by firms themselves this paper explores how the three largest steel firms in the eu acerlormittal corus and thyssenkrupp have sought to strategically exaggerate their vulnerability to carbon pricing to the effect of an inefficient policy outcome we conduct a qualitative assessment of two of the key narratives underpinning the competitive vulnerability argument of eu steel companies lack of abatement opportunities and inability to pass through cost increases based on interviews case studies and publicly available data we find that these arguments provide only partial and weak justifications for competitive loss and preferential treatment under the eu ets the strategy however remains successful due to information asymmetry and the peculiar political economy of eu climate regulation

are we consuming too much this paper articulates and applies frameworks for examining whether consumption is excessive we consider two criteria for the possible excessiveness or insufficiency of current consumption one is an intertemporal utility maximization criterion actual current consumption is deemed excessive if it is higher than the level of current consumption on the consumption path that maximizes the present discounted value of utility the other is a sustainability criterion which requires that current consumption be consistent with non declining living standards over time we extend previous theoretical approaches by offering a formula for the sustainability criterion that accounts for population growth and technological change in applying this formula we find that some poor regions of the world are failing to meet the sustainability criterion in these regions genuine wealth per capita is falling as investments in human and manufactured capital are not sufficient to offset the depletion of natural capital

the off farm work behavior of farm operators there is widespread concern about the opportunities for people to begin farming most observers argue that the financial barrier to entry into agriculture has risen relative to farm incomes several authors have pointed to off farm earnings as one important way to overcome this barrier coffman carlin and ghelfi steeves steeves in particular cited evidence that fewer than 20 of canadian farm entrants between 1966 and 1971 recorded no significant off farm work in 1971 nearly 43 of these entrants worked 229 to 365 days off the farm in that year similar evidence for farm entrants in iowa is found in kaldor and jetton hence off farm work by new farmers is often viewed as an important way to manage the high capital investment required to establish a viable farm this viewpoint is not the only one possible neoclassical theory predicts that farmers increase off farm work when marginal returns to off farm work become larger than marginal returns to farming lee bollman sumner because entering farmers often have current off farm work skills they may choose some off farm work regardless of the financial obligations of farming because offfarm work skills depreciate and returns to farming appreciate over time established farmers are less likely to engage in off farm work clearly a simple correlation between farm entry and off farm work will not allow us to distinguish between these views this paper develops two formal models of offfarm labor supply to examine these two interpretations first it analyzes the off farm work decisions in a conventional utility maximizing framework consistent with the view that off farm work is chosen when marginal returns to farming fall below potential off farm returns the paper then analyzes the off farm work decisions when an income target reflecting the need to meet the financial obligations of farming is the objective the paper demonstrates that these models produce divergent predictions about off farm work decisions only under the assumption that the higher financial obligations exceed the higher returns to work on larger farms the models are then tested under this assumption using the 1978 agricultural enumerative survey for the canadian province of saskatchewan

the role of markets and policies in delivering innovation for climate change mitigation this paper identifies market incentives and international and domestic policies that could technologically alter energy systems to achieve greenhouse gas stabilization targets while also meeting other societal goals i consider the conceptual basis and empirical evidence on the effectiveness and efficiency of climate technology policies the paper reviews the literature on trends and prospects for innovation in climate change mitigation and examines the evidence on induced innovation and the implications for the choice of technology policy i then consider the impact of technological advances on the environment the role of direct government support for r d and the complementarities between policies internalizing

government failure and market failure on the inefficiency of environmental and energy policy in this article we describe some important themes in energy and environmental policy there are two main reasons for our interest in these policies first such policies will likely be important in the coming decades as issues related to climate change and energy security come to the fore second there are important lessons to be learned from a careful review of the actual performance of energy and environmental policies we undertake a selective survey of the literature to highlight what is known about the efficiency of particular kinds of policies laws and regulations in these areas this paper makes three key contributions the first is to synthesize a large literature on energy and environmental policy in a way that can be easily digested by both non experts and experts the second contribution is to suggest that if history is a guide then we should not expect many interventions in these policy areas to come close to maximizing net economic benefits the third is to suggest what might be needed for the development of more efficient energy and environmental policies copyright 2010 oxford university press

the uk economy analysis and prospects world trade and output expanded rapidly in 1984 led by a high rate of growth in the united states however the recovery which started in 1983 has not been evenly spread across countries in the us fiscal policies have been lax and domestic demand has expanded at a breakneck pace japan benefited significantly from rapid growth in the us but europe has done less well partly because fiscal policies remain very tight and domestic demand restrained high real interest rates and the strength of the dollar held down commodity prices and thus stopped the pick up in activity feeding through into inflation rates however unemployment has continued to rise in most countries and in total 30 million people are now out of work in the oecd area

analytical methods for hedging systematic credit risk with linear factor portfolios abstract multi factor credit portfolio models are used widely today for managing economic capital and pricing collateralized debt obligations cdos and asset backed securities commonly practitioners allocate capital to the portfolio components sub portfolios counterparties or transactions the hedging of credit risk is generally also focused on the deltas of underlying names we present analytical results for hedging portfolio credit risk with linear combinations of systematic factors based on the minimization of systematic variance of portfolio losses we solve these problems within a multi factor merton type credit portfolio model and apply them to hedge systematic credit default losses of loan portfolios and cdos