paying down the environmental debt we reflect on scenarios of sustain able development constant utility paths in which the stock of pollution is drawn down by investments in environmental cleanup we also report on con stant utility as interest on the vector of capital stocks in our economy jel 02 the costs of cleaning up the environment involve multiyear programs for many sites and or problems and sums in the billions of dollars we have superfund activities in the united states in mind but obviously the site cleanup problems facing the people of eastern europe are also very large scale cleanup expenditures resemble programs of investment in infrastructure rather than once over disbursements for troubleshoot

sustainability policy and environmental policy a theoretical representative agent economy with a depletable resource stock polluting emissions and productive capital is used to contrast environmental policy which internalises externalised environmental values with sustainability policy which achieves some form of intergenerational equity the obvious environmental policy comprises an emissions tax and a resource stock subsidy each equal to the respective external cost or benefit sustainability policy comprises an incentive affecting the choice between consumption and investment and can be a consumption tax capital subsidy or investment subsidy or a combination thereof environmental policy can reduce the strength of the sustainability policy needed more specialised results are derived in a small open economy with no environmental effects on utility

intergenerational equity the capital environment trade off abstract this paper examines the trade off between capital accumulation and environmental quality that determines an intergenerationally equitable program according to the rawls maximin criterion this trade off is explored by an analysis of regular maximin programs in the framework developed by brock this results in a constant utility path supported by competitive prices with government imposed effluent charges and environmental rentals sufficient conditions for a regular maximin path to satisfy a hartwick rule in deciding on the combination of capital and environmental quality left to future generations are given

pollution abatement and balanced growth the analysis of endogenous growth models with pollution often concentrates on steady state trajectories under the assumption that the steady state is in some sense stable in the present note we provide examples showing that this issue should be dealt with carefully we use the rebelo ak model augmented with a stock of pollutants causing a negative externality it is found that optimal growth is not necessarily balanced contrary to the outcome of the standard rebelo model moreover the existence of the externality may affect long run optimal growth rates

the dating game do managers designate option grant dates to increase their compensation we provide evidence of two variants of a dating game that entails picking a grant date ex post that is after the board s compensation decision is made back dating picking a date before the board decision date and forward dating waiting after the board decision date to observe the stock price behavior consistent with back dating we find stock return behavior around the grant date to be positively related to reporting lag in the promptly reported sample we find stock return behavior and the pattern of reporting lags consistent with forward dating our calculations show that managers can obtain economically significant benefits by playing the dating game

pollution control and the ramsey problem pollution is an inevitable by product of production and is only gradually dissolved by the environment it can be reduced by producing less and by cleaning up the environment but neither occur when they are left to the market cleaning activities and the optimal emission charges increase with the stock of pollutants when one allows for pollution of the environment in the classical ramsey problem the capital stock is less than in the market outcome and a fortiori less than under the golden rule the analysis distinguishes between stock and flow externalities arising from pollution an increase in impatience can lead to more capital accumulation even though this leaves less room for current consumption

household production and environmental kuznets curves examining the desirability and feasibility of substitution this paper provides a theoretical explanation for the widely debatedempirical finding of environmental kuznets curves i e u shaped relationships between per capita income and indicators of environmentalquality we present a household production model in which the degradationof environmental quality is a by product of household activities householdscan not directly purchase environmental quality but can reduce degradation by substituting more expensive cleaner inputs to production for less costlydirty inputs if environmental quality is a normal good one expectssubstitution towards the less polluting inputs so that increases in incomewill increase the quality of the environment it is shown that this onlyholds for middle income households poorer households spend all income on dirty inputs when they buy more as income rises the pollution also rises they do not want to substitute as this would reduce consumption ofnon environmental services for environmental amenities that are alreadyabundant thus as income rises from low to middle levels a u shape can result yet an n shape might eventually result as richer households spend all income on clean inputs further substitution possibilities are exhausted thus as income rises again pollution rises and environmental quality falls

the optimal management of north sea herring abstract a discrete time dynamic bioeconomic model for a fish resource is developed the objective is maximization of discounted net revenues subject to changes in stock size the model of population dynamics is described by a delay difference equation natural growth and recruitment are related to stock size with recruitment taking place with a time lag conditions characterizing the optimal stock level are derived the model is applied to north sea herring estimates of the optimal stock level are given and optimal trajectories derived due to the schooling behaviour of herring it is shown that open access may cause stock extinction

on the dynamics of renewable resource harvesting and pollution control the paper presents a dynamic partial equilibrium model which combines optimal renewable resource harvesting and optimal pollution control pollution accumulates as a slowly decaying stock and is assumed to affect the growth and the quality of the renewable resource stock the aim is to maximize a social welfare functional which gives the present value of the difference between natural resource benefits and pollution control costs the existence uniqueness and the dynamic properties of the steady states are investigated the analysis also gives a general result concerning the steady state of any two state variable optimal control problems

employee reload options pricing hedging and optimal exercise reload options call options granting new options on exercise are popularly used in compensation although the compound option feature may seem complicated there is a distribution free dominant policy of exercising reload options whenever they are in the money the optimal policy implies general formulas for numerical valuation simpler formulas for valuation and hedging follow from black scholes assumptions with or without continuous dividends time vesting affects the optimal policy but numerical results indicate that it is nearly optimal to exercise in the money whenever feasible the results suggest that reload options produce similar incentives as employee stock options and share grants the valuation of options in compensation schemes is important for several reasons valuations are needed for preparing accounting statements and tax returns and more generally for understanding what value has been promised to the employees and what residual value remains with the shareholders furthermore understanding the hedge ratios and the overall shape of the valuation function clarifies the employee s risk exposure and incentives this article studies the optimal exercise and valuation of a relatively new but increasingly commonplace type of employee stock option the reload option these options have attracted a fair amount of controversy we believe that in large part this controversy is due to a seemingly complex structure in the statement of financial accounting standards sfas 123 financial accounting standards board 1995 paragraph 186 concludes the board continues to believe that ideally the value of a reload option should be estimated on the grant date taking into account all of its features however at this time it is not feasible to do so on close examination however these options are in fact comparatively simple to analyze and understand moreover under black and scholes 1973 assumptions on the stock price we are able to provide explicit valuation and hedging formulas we hope our analysis helps to demystify reload options and permit a more focused debate

investing in a green transition abstract at the rio 20 conference the world s governments affirmed a need to transition toward green economies and background reports in preparation for the event emphasized the role of investment subsequent authors noted that private investment flows overwhelm public ones arguing that private investment must be mobilized for a transition however the role of private investment in a major economic transition is poorly understood particularly when the investment is not inherently attractive to investors and must be made attractive through policy we present a model representing investment macroeconomic interactions with classical features among its novel features is a distinction between affected sectors which are sensitive to the amount of green capital in the economy because of network effects and forward backward linkages and unaffected sectors which are relatively insensitive we argue that affected sectors are both harder to change and nearer to the base of the economy in model runs we observe that in a green transition the affected sector lags the unaffected sector with possible implications for a transition strategy thus in the model firm and investor behavior postpones deeper and more systemic changes until late in the transition

exercise behavior valuation and the incentive effects of employee stock options abstract we use a large database on eso exercises to document characteristics of exercise behavior and calibrate a utility based model for measuring how differences in exercise behavior are manifested in option values and incentives option values and incentives computed from the model calibrations are compared to those computed from models used to value tradable options our analysis provides guidance to both academics and practitioners about how differences in exercise behavior and model choice affect measures of eso values and incentives and underscores the importance of gaining a thorough understanding of the underlying economic forces that affect the behavior of eso holders

a model for the multiperiod multiobjective power generation expansion problem a long term multiobjective model for the power generation expansion planning of electric systems is described and evaluated in this paper the model optimizes simultaneously multiple objectives i e minimizes costs environmental impact imported fuel and fuel price risks and decides the location of the planned generation units in a multiperiod planning horizon among the attributes considered in the model are the investment and operation cost of the units the environmental impact the amount of imported fuel and the portfolio investment risk the approach to solve this problem is based on multiobjective linear programming and the analytical hierarchy process a case study from the mexican electric power system is used to illustrate the proposed framework

backdating executive stock options an ex ante valuation abstract when backdating executive stock options esos the exercise price is set in favor of the recipient executive relative to a non backdated benchmark we find an ex ante upper bound for the cost of backdating to shrink from 10 to about 3 7 as a consequence of the regime change represented by the sarbanes oxley act sox we frame the backdating behavior as a compound exotic option considering both simple and extended models of the underlying eso in the latter case we draw on the analytical eso models of sircar and xiong 2007 post sox we use a longstaff schwartz inspired least squares monte carlo approach

paradoxical consumption behavior when economic activity has environmental effects in a model where enhanced economic activity accumulation of produced capital leads to environmental eects depletion of natural capital competitive steady states corresponding to dierent discount rates are compared for positive discount rates the steady state stock of produced capital may exceed the size maximizing sustainable consumption this implies paradoxical consumption behavior that is a lower discount rate may be associated with lower steady state consumption the theoretical significance of this phenomenon for intergenerational equity is discussed and examples indicating the empirical relevance of the underlying assumptions are presented

a precursor to muth tinbergen s 1932 model of rational expectations this paper describes a model published in 1932 in which explicitly rational expectations are used to study a dynamic problem of intertemporal inventory allocation the model is very similar to muth 1961 except that the stochastic process in the latter is serially correlated whereas in tinbergen s model the disturbances are serially uncorrelated hence tinbergen was able to solve a rational expectations model thirty years before muth s much more well known contribution copyright 1991 by royal economic society

a general framework for evaluating executive stock options abstract motivated by recent recommendations by both european and american accounting standards boards that executive stock options be expensed in firms statements we provide an analytical and flexible framework for their evaluation our approach takes into account the vesting period american style resetting and reloading provisions that are features of many option programs and also considers the trading restriction on executives we identify a recursive structure in the stream of options that are granted to the executive over the course of her employment by exploiting this we are able to obtain a near explicit formula for the option value this enables us to discuss the joint effects of the different features on the exercising strategies and firms granting cost especially we highlight some significant interactions among these features

the duality of a dynamic model of equilibrium and an optimal growth model the heterogeneous capital goods case the equivalence between optimal growth solutions and solutions of decentralized models of intertemporal allocation is explored in a one consumer heterogeneous capital goods framework the decentralized economy follows a perfect foresight path the main result is that the decentralized economy will impose on itself a transversality condition this yields the interpretation of equilibrium prices as prices consistent with a certainty version of the efficient markets hypothesis the results rest on the recent contribution by benveniste and scheinkman providing sufficient conditions for infinite horizon concave programs to exhibit capital value transversality as a necessary condition for optimality

a theoretical basis for the environmental kuznets curve abstract this paper attempts to explain the environmental kuznets curve ekc or inverted u shaped relationship between income and environmental degradation in the framework of endogenous growth model considering a closed economy one part of capital is used for commodity production which generates pollution that degrades existing environment and the remaining part is used for abating pollution i e upgrading environment sufficient abatement activity improves restores environmental quality a sufficient abatement activity associated with commodity production could only lead optimally towards steady state the ratio of allocation of capital between two sectors production and abatement is fixed along the optimal path but it varies along the non optimal path that exists in the off steady state in the economy allocation of capital for abatement activity varies over time thus a change from insufficient to sufficient allocation of capital i e investment for abatement activity is the basis for an inverted u shaped relationship between environmental quality and economic growth

revaluing the hierarchy of paper recycling this article revalues the hierarchy of paper waste management policies in a dynamic general equilibrium model incineration material recycling and the distinction between non renewable fossil fuels and renewable forest assets are incorporated by comparing the first order conditions from the command optimum with the conditions from the market model it is discovered that the unregulated market fails to create an optimal resource allocation to see how the market behaves in absence of environmental policy compared to the first best solution a numerical model is used pigouvian taxes and subsidies are derived to correct for the externalities

sustainable development with extractive and non extractive use of the environment in production this paper considers an economy in which the environment plays a role both in welfare and production an endogenous growth model which allows for abatement activities is formulated in order to study the impact of pollution on welfare and long term growth conditions for optimal and balanced economic growth are discussed and a numerical example is given to provide some insight in the mechanisms at work in the model

is there really a green paradox abstract in the absence of a co2 tax the anticipation of a cheaper renewable backstop increases current emissions of co2 since the date at which renewables are phased in is brought forward and more generally future emissions of co2 will decrease the effect on global warming is unclear green welfare falls if the backstop is relatively expensive and full exhaustion of fossil fuels is optimal but may increase if the backstop is sufficiently cheap relative to the cost of extracting the last drop of fossil fuels plus marginal global warming damages as then it is attractive to leave more fossil fuels unexploited and thus limit co2 emissions we establish these results by analyzing depletion of non renewable fossil fuels followed by a switch to a clean renewable backstop paying attention to timing of the switch and the amount of fossil fuels remaining unexploited we also discuss the potential for limit pricing when the non renewable resource is owned by a monopolist finally we show that if backstops are already used and more backstops become economically viable as the price of fossil fuels rises a lower cost of the backstop will either postpone fossil fuel exhaustion or leave more fossil fuel in situ thus boosting green welfare however if a market economy does not internalize global warming externalities and renewables have not kicked in yet full exhaustion of fossil fuel will occur in finite time and a backstop subsidy always curbs green welfare

two stage robust generation expansion planning a mixed integer linear programming model this paper presents a new uncertainty handling framework for optimal generation expansion planning gep amalgamating the notions of single stage and two stage robust optimization ro the proposed multiyear robust gep methodology as a tractable mixed integer linear programming optimization problem copes with the inherent planning uncertainties associated with forecasted electricity load demand as well as estimated investment and operation costs through distribution free bounded intervals producing polyhedral uncertainty sets the optimal generation expansion plan obtained from the proposed ro approach is immunized against worst case planning uncertainties considering the adopted degree of conservatism for each uncertainty set therefore the proposed methodology is capable of controlling the robustness of the optimal investment schedule regarding the enforced planning uncertainties simulation results demonstrate the efficacy and efficiency of the proposed ro framework throughout gep studies

optimal transition from coal to gas and renewable power under capacity constraints and adjustment costs this paper studies the optimal transition from existing coal power plants to gas and renewable power under a carbon budget it solves a model of polluting exhaustible resources with capacity constraints and adjustment costs to build coal gas and renewable power plants it finds that optimal investment in renewable energy may start before coal power has been phased out and even before investment in gas has started because doing so allows for smoothing investment over time and reduces adjustment costs gas plants may be used to reduce short term investment in renewable power and associated costs but must eventually be phased out to allow room for carbon free power one risk for myopic agents comparing gas and renewable investment is thus to overestimate the lifetime of gas plants e g when computing the levelized cost of electricity and be biased against renewable power these analytical results are quantified with numerical simulations of the european commission s 2050 energy roadmap

optimal control of pollution accumulation with long run average welfare this paper considers the problem of pollution accumulation in order to maximize the long run average welfare functional in environmental economics we approach the problem by solving the associated hamilton jacobi bellman equation in the classical sense via the viscosity solution method the optimal policy is shown to exist in a feedback from and the maximum value is also obtained independently of the initial level of pollution an equilibrium of the optimal stock of pollution is discussed

optimal consumption and the environment choosing between clean and dirty goods in this paper a model with heterogeneous consumption goods is presented consumers are assumed to choose between two different consumption goods characterized by a different impact on the environment this implies that in a decentralized economy government can sustain the social optimum by setting two pigouvian taxes one on production as a whole and the other on dirty consumption acting as an incentive in favour of clean consumption in accordance with the previous literature a trade off between a clean environment and economic activity evolves however this trade off is now mitigated by the additional taxation on polluting consumption which allows the control of pollution stock evolution through the substitution between clean and dirty commodities

why finance ministers favor carbon taxes even if they do not take climate change into account fiscal considerations may shift governmental priorities away from environmental concerns finance ministers face strong demand for public expenditures such as infrastructure investments but they are constrained by international tax competition we develop a multi region model of tax competition and resource extraction to assess the fiscal incentive of imposing a tax on carbon rather than on capital we explicitly model international capital and resource markets as well as intertemporal capital accumulation and resource extraction while fossil resources give rise to scarcity rents capital does not with carbon taxes the rents can be captured and invested in infrastructure which leads to higher welfare than under capital taxation this result holds even without modeling environmental damages it is robust under a variation of the behavioral assumptions of resource importers to coordinate their actions and a resource exporter s ability to counteract carbon policies further no green paradox occurs instead the carbon tax constitutes a viable green policy since it postpones extraction and reduces cumulative emissions

optimal pollution abatement under sustainable and other social time preferences this paper analyses optimal pollution abatement expenditure and the pricing of pollution under alternative social time preferences including sustainable preferences defined as those that are consistent with two axioms of sustainable development introduced by chichilnisky land econ 73 467 491 1997 these axioms state essentially that neither the welfare of present nor future generations ought to be favoured over the other in determining the socially optimal path of economic development the method is to calibrate a modified ramsey model of optimal global growth and saving where pollution is generated by the global output of goods and services pollution in turn reduces output the simulation results illustrate how sensitive the optimal pollution price and abatement expenditure can be over time to assumptions about the social time preference rate they also show that sustainable preferences impose a lower burden on future generations in terms of the pollution price and abatement expenditure hence there is a case for governments to make explicit their value judgments about intergenerational welfare in the context of their notion of sustainable development when setting target pollution abatement levels and pollution prices over time

easy money managerial power and the option backdating game revisited abstract this paper presents a model of a firm that backdates executive stock option grants in order to maximize actual compensation for a given level of reported compensation the model is used to estimate the magnitude of the difference between the actual and reported values of option grants although the sarbanes oxley act has reduced the likelihood of very large differentials it has had a relatively minor impact on the average differential misreporting has a greater magnitude on average when the share price is more volatile the options vest earlier or have shorter lifetimes or there is a longer window in which to grant the options we analyze more than 36 000 option grants between 2003 and 2019 and find that when recipients have more to gain from strategic backdating or when there is likely to be less monitoring from independent directors firms are more likely to exhibit behavior consistent with strategic backdating

intertemporal equilibrium dynamics with a pollution externality abstract a discrete model of a market economy is coupled to an accumulating pollutant and the intertemporal equilibrium dynamics of the resulting three dimensional economic environmental system is investigated through analysis and numerical methods conditions for the existence and stability of sustainable equilibria are studied under the usual assumption of linear uptake of the pollutant by the biosphere and under an alternative assumption of a threshold mechanism for uptake that leads to potential fold bifurcations and problems of existence for real equilibria over parts of the parameter space

pollution control under emission constraints switching between regimes in this paper we develop a model of pollution control the aim of the society is to maximize the net social benefits which are negatively affected by the emission of pollutants we show that the presence of an upper constraint on pollution growth rate affects the actual trajectory of emissions even when emissions are far below the level where the constraint binds we get three main results first we find that for a society it is optimal to take into account the impact of the latent constraint at the outset of the planning horizon and to modify the emission flows even when the constraint is still slack second we analyze how the constraint works effectively in the intermediate phases before the constraint binds one crucial result is that the constraint on pollution growth may generate the unexpected result of increasing instead of reducing the emissions at the beginning and in the intermediate phases before the constraint binds finally we state the boundary conditions to compute the optimal trajectory of emissions switching between regimes

the economics of ccs why have ccs technologies not had an international breakthrough abstract eleven years on since the united nations intergovernmental panel on climate change was awarded the nobel peace prize in recognition of its efforts in combating climate change fossil fuels remain the most dominant global energy source as the total replacement of fossil fuel energy is not expected to take place immediately in the near future the international energy agency has repeatedly declared carbon capture and sequestration ccs as a key technology for mitigating climate change however ccs lacks the scale required for substantial reduction in carbon dioxide emissions from fossil fuel power generation even though ccs is one of the key technologies for mitigating climate change why has this technology not had an international breakthrough to shed light on this question this paper employs a simple model of energy generation scrutinizes the economic drivers of ccs based on the analytical results and discusses the possible obstacles that can prevent a widespread rollout of the technology this is followed by a state of the art in literature pertaining to the economics of ccs and a discussion that points to a dichotomy between the economic theory and reality the study concludes with some policy suggestions and directions for future research

pricing executive stock options under employment shocks abstract we obtain explicit expressions for the subjective objective and market value of perpetual executive stock options esos under exogenous employment shocks driven by an independent poisson process previously we obtain the executive s optimal exercise policy from the subjective valuation that is necessary for the objective one or fair value the perpetual eso is compared with the true finite maturity eso finding that the approximation is reasonably good to illustrate the usefulness of the objective valuation for accounting purposes we analyze the statistical distribution of the fair value when there is uncertainty about the employment shock intensity finally the role of esos in the design of executives incentives is also discussed

optimal investment planning for distributed generation in a competitive electricity market this paper proposes a new heuristic approach for distributed generation dg capacity investment planning from the perspective of a distribution company disco optimal sizing and siting decisions for dg capacity is obtained through a cost benefit analysis approach based on a new optimization model the model aims to minimize the disco s investment and operating costs as well as payment toward loss compensation bus wise cost benefit analysis is carried out on an hourly basis for different forecasted peak demand and market price scenarios this approach arrives at the optimal feasible dg capacity investment plan under competitive electricity market auction as well as fixed bilateral contract scenarios the proposed heuristic method helps alleviate the use of binary variables in the optimization model thus easing the computational burden substantially

optimal dynamic carbon taxes in a climate economy model with distortionary fiscal policy how should carbon be taxed as a part of fiscal policy the literature on optimal carbon pricing often abstracts from other taxes however when governments raise revenues with distortionary taxes carbon levies have fiscal impacts while they raise revenues directly they may shrink the bases of other taxes e g by decreasing employment this article theoretically characterizes and then quantifies optimal carbon taxes in a dynamic general equilibrium climate economy model with distortionary fiscal policy first this article establishes a novel theoretical relationship between the optimal taxation of carbon and of capital income this link arises because carbon emissions destroy natural capital they accumulate in the atmosphere and decrease future output consequently this article shows how the standard logic against capital income taxes extends to distortions on environmental capital investments second this article characterizes optimal climate policy in sub optimal fiscal settings where income taxes are constrained to remain at their observed levels third this article presents a detailed calibration that builds on the seminal dice approach but adds features essential for a setting with distortionary taxes such as a differentiation between climate change production impacts e g on agriculture and direct utility impacts e g on biodiversity existence value the central quantitative finding is that optimal carbon tax schedules are 8 24 lower when there are distortionary taxes compared to the setting with lump sum taxes considered in the literature

ceo stock option awards and the timing of corporate voluntary disclosures abstract we investigate whether ceos manage the timing of their voluntary disclosures around stock option awards we conjecture that ceos manage investors expectations around award dates by delaying good news and rushing forward bad news for a sample of 2 039 ceo option awards by 572 firms with fixed award schedules we document changes in share prices and analyst earnings forecasts around option awards that are consistent with our conjecture we also provide more direct evidence based on management earnings forecasts issued prior to award dates our findings suggest that ceos make opportunistic voluntary disclosure decisions that maximize their stock option compensation

the fairness of discounting a majority rule approach a model of majority rule is developed in which each of a finite number of generations votes on a redistribution of income between itself and the other generations in voting each generation expresses tastes for its own income and for the distribution of income across generations the model is then used to derive the conditions under which discounting is justified namely those conditions for which the majority rule exhibits a positive marginal rate of time preference it is demonstrated that when each generation is wealthier than those preceding it the parameters representing the taste for income equality must be relatively high for the majority rule to exhibit a positive marginal rate of time preference

the effects of emission permits on growth and the environment we develop an overlapping generations model of growth and the environment in which industrial firms produce environmentally harmful emissions a government controls the emissions by assigning emission quotas to firms and permits could be issued and freely traded as financial instruments across firms on the basis of the quotas we show that an environmental policy that decreases an aggregate number of emission quotas could degenerate economic growth and lower environmental quality in the long run we also show the implications of this result for environmental policy

climate change and uneven development in this paper using a theoretical model with endogenous capital depreciation we study the effects of climate change and adaptation on long run development we show that climate change affects economic growth depending on climate exposure and adaptation efficiency which are asymmetric between different countries poor countries are likely to be hurt more because of the negative effects of climate change on the rate of depreciation of the assets that represent the engine of growth these asymmetries generally induce growth deficits and unsustainability traps in less developed economies

employee stock option exercises an empirical analysis this paper describes the exercise behavior of over 50 000 employees who hold longterm options on employer stock at eight corporations employees typically exercise options years before expiration commonly sacrificing half of the black scholes value exercise is strongly associated with recent stock price movements the market to strike ratio proximity to vesting dates time to maturity volatility and the employee s level within the company these findings have implications for compensation planners the fasb as it develops a new accounting standard for options and financial statement users and preparers who apply and interpret the new fasb standard

non transferable non hedgeable executive stock option pricing abstract to value non transferable non hedgeable ntnh contingent claims and price executive stock options esos we use a replication argument to translate portfolios with ntnh derivatives into portfolios of primary assets only with stochastic portfolio constraints by identifying stochastic discount factors and finding subjective prices of ntnh european and american esos for block and continuous partial exercise we derive executives optimal exercise policies and use these to find objective prices costs of esos to firms through numerical simulations we obtain policy implications regarding esos incentivizing efficiency for the first time we demonstrate that unlike under block exercise subjective prices under continuous partial exercise may be higher than objective ones moreover volatility regimes and executives other wealth are important in eso pricing and are thus essential to empirical executive compensation studies

alternative approaches to economic environmental interactions abstract the key questions raised by recent developments in resource and environmental economics have been what useful economic functions does the environment provide and how are these functions affected by the process of economic environmental interaction this paper distinguishes between two different formal approaches to answering these questions the more conventional approach which is concerned with the optimal allocation of economically valuable exhaustible resources and an alternative analysis that considers the trade off between on the one hand environmental quality and on the other resource depletion and waste generation by the economic process to illustrate and extend the latter approach a model is constructed to show how this trade off might lead to continuously declining environmental quality and a future ecological constraint society must therefore optimally allocate output between consumption and services to improve the environment and choose between increased capital accumulation and environmental degradation although strict application of such a model may be limited it has wider implications for the role of technological change and the value of the environment in any system experiencing deteriorating environmental quality

environmental abatement and intergenerational distribution this paper employs an overlapping generations model to explore the impact of public abatement on private investment and the intergenerational distribution of welfare whereas public abatement benefits old generations in terms of non environmental welfare future generations gain most in terms of environmental welfare the overall benefits tend to be smallest for generations born at the time of the unanticipated policy shock public debt policy however can be employed to ensure that welfare gains are distributed more equally across the various generations such a policy implies that natural capital crowds out man made capital

risk aversion and block exercise of executive stock options abstract it is well documented that executives granted stock options tend to exercise early and in a few large transactions or blocks standard risk neutral valuation models cannot explain these patterns and attempts to capture the exercise behavior of risk averse executives have been limited to the special case of one option this paper solves for the optimal exercise behavior for a risk averse executive who is granted multiple stock options we show that utility based models do not predict block exercise behavior rather the risk averse executive exercises stock options individually at a sequence of increasing price thresholds when in addition the executive faces frictions such as costly exercise he faces a trade off between exercising little and often to maximize return and exercising larger quantities on fewer occasions to minimize effort this generates realistic block exercise behavior and yields new predictions in particular executives should begin by exercising large blocks of options but the block sizes should become smaller over time our framework also allows us to study the impact of multiple exercise dates on estimates of the cost of options to the company we find that assuming the executive can only exercise on a single occasion underestimates the cost of the options compared with allowing for optimal exercise behavior

measuring the trade off between economic growth and a clean environment this article surveys various aspects of the measurement of environmental quality from the view point of national accounting and welfare economics it focuses on the question whether gnp or nnp should be corrected for environmental change green or eco gnp or whether physical accounts provide sufficient information for an assessment of the trade off mentioned above we conclude that valuation of services from environmental capital cannot be avoided for such assessment but can only be made using a model based approach statistical agencies should continue to collect data on environmental quality and to value changes in environmental capital in the context of national resource accounting however official statisticians should refrain from correcting gnp or nnp for environmental change as this correction implicitly contains a political judgment and cannot be based on mere technical knowledge

economic growth with environmental damage and technical progress the papers on economic growth with environmental constraints usually ignore the effect of technical progress this results in static steady state solutions this paper examines the problem of optimal economic growth with environmental damage technical progress taken into account which produces a steady state solution that corresponds to an equilibrium growth with non constant emissions and pollutant stock as a means of steering the economy along the optimal path two types of tradeable pollution permits are analyzed the method of stabilizing the optimal path leading to a steady state is suggested

nonresponse in panel data the impact on estimates of a life cycle consumption function if missing observations in a panel data set are not missing at random many widely applied estimators may be inconsistent in this paper we examine empirically several ways to reveal the nature and severity of the selectivity problem due to nonresponse as well as a number of methods to estimate the resulting models using a life cycle consumption function and data from the expenditure index panel from the netherlands we discuss simple procedures that can be used to assess whether observations are missing at random and we consider more complicated estimation procedures that can be used to obtain consistent or efficient estimates in case of selectivity of attrition bias finally some attention is paid to the differences in identification consistency and efficiency between inferences from a single wave of the panel a balanced sub panel and an unbalanced panel

managing the international commons resource use and pollution control the simultaneous management in an international context of free access renewable resources and transboundary pollution is examined in a dynamic game framework first best outcomes under international cooperation are determined and compared to noncooperative outcomes when countries follow linear markov strategies an international policy consisting of taxes on emissions and harvesting with international redistribution of tax receipts is used to achieve the cooperative solution in addition side payments may be required to prevent free riding and thus make the international policy implementable

the optimal control of emissions and renewable resource harvesting under uncertainty a model of a renewable resource is developed where the growth and quality of the resource are reduced by pollution ambient pollution concentrations and the renewable resource stock are modeled as stochastic processes conditions for the optimal harvest plan and the optimal emissions rate are derived the effect of stochastic variations on the optimal management of the resource is analyzed the steady state joint probability distribution of the resource and pollution stocks is shown to exist under certain conditions

growth and pollution convergence theory and evidence stabilizing pollution levels in the long run is a pre requisite for sustainable growth we develop a neoclassical growth model with endogenous emission reduction predicting that along optimal sustainable paths pollution growth rates are i positively related to output growth scale effect and ii negatively related to emission levels defensive effect this dynamic law reduces to a convergence equation that is empirically tested for two major and regulated air pollutants sulfur oxides and nitrogen oxides with a panel of 25 european countries spanning the years 1980 2005 traditional parametric models are rejected by the data more flexible regression techniques confirm the existence of both the scale and the defensive effect supporting the model predictions

the conditions for achieving environmentally sustainable development this paper is interested in the narrower interpretation the relationship between environmental quality and sustainable economic activity the latter is interpreted as that level of economic activity which leaves the environmental quality level intact with the policy objective corresponding to this notion being the maximization of net benefits of economic development subject to maintaining the services and quality of natural resources over time 3

population density pollution and growth we analyze a growth model where the damage of pollution depends on population density and the character of pollution from the steady state rates of change in the social optimum of a neoclassical and a semi endogenous growth model respectively we conclude that the less responsive the damage of pollution is to population density the more likely is a development path with positive growth in consumption per capita and declining perceived pollution per capita non awareness of the character of pollution may thus give suboptimal solutions in particular the commonly held view that pollution is a pure public bad may lead to growth rate targets that are lower than optimal finally we find that the character of pollution does not influence the transitional dynamics qualitatively

growth renewables and the optimal carbon tax optimal climate policy is investigated in a ramsey growth model of the global economy with exhaustible oil reserves an infinitely elastic supply of renewables stock dependent oil extraction costs and convex climate damages four regimes can occur depending on the initial social cost of oil being larger or smaller than that of renewables and depending on the initial oil stock being large or small we also offer some policy simulations for the first and second regime which illustrate that with a lower discount rate more oil is left in situ and renewables are phased in more quickly we identify the conditions under which the optimal carbon tax rises or decreases subsidizing renewables without a carbon tax induces more oil to be left in situ and a quicker phasing in of renewables but oil is depleted more rapidly initially the net effect on global warming is ambiguous abstract from author

pollution control under uncertainty and sustainability concern we analyze the implications of environmental policy on pollution in a stochastic framework with finite horizon and sustainability concern the social planner seeks to minimize the social environmental and economic costs associated with pollution we allow for the planner to attach different relative weights to the discounted and end of planning horizon costs in order to assess how sustainability concern might affect the optimal level of policy intervention we show that the optimal environmental policy increases with the degree of sustainability concern reducing thus the amount of pollution the society is forced to bear a calibration based on world textit co 2 data supports our conclusions further highlighting the importance of higher degrees of sustainability concern to achieve greener long run outcomes it also allows us to show that under a realistic model s parametrization the optimal environmental policy tends to rise with higher degrees of uncertainty in a precautionary manner

intertemporal effects of environmental mandates environmental mandates can impose large costs on the businesses that must comply with them understanding the effects of those costs on production decisions may require a dynamic framework if environmental damages and the costs of complying with mandates depend on cumulative production or the passage of time this paper focuses on the time dimension of general categories of fixed and variable costs arising from different types of mandates the paper develops an optimal control model to predict how such costs may jointly affect current production rates plant closure dates and cumulative production theoretical results derived from the comparative statics of the system of equations describing the solution to that model identify circumstances in which the policy goals of greater production and greater environmental protection may not always be at odds

international aspects of pollution control pollution is a by product of production is only gradually dissolved by the environment and crosses national borders the market outcome ignores the adverse effects of pollution and thus yields higher levels of output and pollution than would prevail under a supranational social planner which does care about pollution in practice governments often do not cooperate and this leads to outcomes of pollution and production in between the market outcomes and the outcomes under supra national social planning absence of precommitment leads to lower emission charges less cleaning up activities and more pollution appropriate levels of emission charges under the various outcomes are a result of this analysis attention is also paid to investment in clean technology the debate between optimists who believe that higher production is compatible with sound environmental policy and pessimists can be analysed in this way