environmental policy in the european union fostering the development of pollution havens abstract a pollution haven occurs when dirty industries from developed nations relocate to developing nations in order to avoid strict environmental standards or developed nations imports of dirty industries expand replacing domestic production the purpose of this study is to determine whether the european union eu has increased its imports of dirty goods from poorer less democratic countries during a period of more stringent environmental standards previous empirical studies such as those by levinson and taylor levinson a and taylor m s in press unmasking the pollution haven effect international economic review ederington levinson and minier ederington j levinson a and minier j 2005 footloose and pollution free review of economics and statistics 87 92 99 kahn and yoshino 2004 and ederington and minier ederington j and minier j 2003 is environmental policy a secondary trade barrier an empirical analysis canadian journal of economics 36 137 54 find evidence that united states imports are responsive to changes in environmental stringency but the effects of eu policy have not been examined as thoroughly our study follows kahn kahn m e 2003 the geography of us pollution intensive trade evidence from 1958 to 1994 regional science and urban economics 33 383 400 and examines the impact of industry energy intensity and toxicity measured by an energy index and a toxic release inventory tri index on imports into the eu at the 2 digit industry level from 1970 to 1999 we use the signing of the maastricht treaty to signify a period of more uniform and stringent community wide environmental standards 1993 1999 and identify the level of per capita gdp within an eu trading partner we find an increased amount of eu energy intensive trade with poorer countries during the period with more stringent eu environmental standards this result is not robust however when poorer countries are defined by oecd membership and geographic region we do not find an increased amount of eu toxic intensive trade with poorer countries although there is some evidence of increased eu imports of toxic goods from poorer oecd and non eu european countries for our full sample of trading partners in all regions the evidence supports the phh for eu energy intensive trade but not for toxic intensive trade results for regional trade analysis are less clear

interaction among china carbon emission trading markets nonlinear granger causality and time varying effect abstract china makes great efforts to reduce carbon emissions and mitigate global greenhouse gas in order to identify the interaction among china cet markets this paper comprehensively investigates nonlinear granger causality and time varying effect in markets by using the hiemstra and jones hj test diks and panchenko dp test and time varying parameter structure vector autoregressive tvp svar model the empirical analysis has demonstrated china major cet markets significantly bidirectional nonlinear granger cause each other as to time varying effect we have obtained convincing findings that time varying impulse responses are among china major cet markets in the short term specifically guangdong hubei and shenzhen cet markets are time varying co movement negatively or positively related to each other over time implying there are deep bases for china national cet market construction furthermore the specific time point impulse effects support our discoveries in time varying impulse responses

answering the skeptics yes standard volatility models do provide accurate forecasts a voluminous literature has emerged for modeling the temporal dependencies in financial market volatility using arch and stochastic volatility models while most of these studies have documented highly significant in sample parameter estimates and pronounced intertemporal volatility persistence traditional ex post forecast evaluation criteria suggest that the models provide seemingly poor volatility forecasts contrary to this contention we show that volatility models produce strikingly accurate interdaily forecasts for the latent volatility factor that would be of interest in most financial applications new methods for improved ex post interdaily volatility measurements based on high frequency intradaily data are also discussed

a model of the it products in fashion one of the characteristics of the fashion marketplace is the unpredictability and apparent randomness of fashion hits another one is the information asymmetry among consumers in this paper we consider fashion as a means consumers use to signal belonging to a higher social rank and propose an analytical model of fashion hits in the presence of competition and consumers who can coordinate on which product to use we show that consistent with the observed market phenomenon in equilibrium consumer coordination involves randomization between products chosen i e in randomness of fashion hits analyzing optimal consumer choice we find that whenever low type consumer demand for a product is positive a price increase results in a higher probability of high type consumers choosing this product but lower low type consumer demand we also show that although high type consumers may prefer higher prices that would lead to complete separation of the high and the low type consumers through product use in equilibrium firms always price as to attract positive demand from low type consumers the equilibrium price and profits turn out to be nonmonotonic in the low type consumer valuation of being recognized as belonging to a higher social rank equilibrium profits first increase and then decrease in this valuation

conspicuous consumption and sophisticated thinking consumers purchase conspicuous goods to satisfy not only material needs but also social needs such as prestige in an attempt to meet these social needs producers of conspicuous goods like cars perfumes and watches highlight the exclusivity of their products in this paper we propose a monopoly model of conspicuous consumption using the rational expectations framework and then examine how purchase decisions are affected by the desire for exclusivity and conformity we show that snobs can have an upward sloping demand curve but only in the presence of consumers who are weakly followers laboratory tests lend support for this model prediction and for the rational expectations framework the experimental results suggest that subjects used some degree of sophisticated thinking to arrive at their first period decisions their behavior in the subsequent trials however can be adequately captured by a purely adaptive learning mechanism we discuss the implications of consumer learning for optimal dynamic pricing policy by a monopolist

market power in emission permit markets theory and evidence from the eu ets a well known result about market power in emission permit markets is that efficiency can be achieved by full free allocation to the dominant firm i show that this result breaks down when taking the interaction between input and output markets into account even if the dominant firm perceives market power in the permit market alone i then examine the empirical evidence for price manipulation by the ten largest electricity firms during phase i of the eu ets i find that some firms excess allowance holdings are consistent with strategic price manipulation and that they cannot be explained by price speculation or by precautionary purchases to insure against uncertain future emissions my results suggest that market power is likely to be an empirically relevant concern during the early years of emission permit markets

what explains the short term dynamics of the prices of co2 emissions using the vector auto regression var and the vector error correction models vecm this paper analyzes the short term dynamics of the prices of co2 emissions in response to changes in the prices of oil coal natural gas electricity and carbon emission allowances the results show that i a positive shock to the crude oil prices has a negative effect on the co2 allowance prices ii an unexpected increase in the natural gas prices raises the price of co2 emissions iii a positive shock to the prices of the fuel of choice coal has virtually no significant impact on the co2 prices iv there is a clear positive effect of the coal prices on the co2 allowance prices when the electricity prices are excluded from the var system and v a positive shock to the electricity prices reduces the price of the co2 allowances we also find that the energy price shocks have a persistent impact on the co2 allowance prices with the largest effect occurring six months after a shock strikes the effect is particularly strong in the case of the natural gas price shocks additionally we estimate that it takes between 7 3 and 9 6 months to halve the gap between the actual and the equilibrium prices of the co2 allowances i e to erase any price over or undervaluations after a shock strikes finally the empirical findings suggest an important degree of substitution between the three primary sources of energy i e crude oil natural gas and coal particularly when electricity prices are excluded from the var system

research note trading up a strategic analysis of reference group effects reference groups influence product and brand evaluations especially when the product is a publicly consumed luxury good marketers of such luxury goods need to carefully balance two important social forces 1 the desire of leaders to distinguish themselves from followers and 2 the countervailing desire of followers to assimilate with leaders in this paper we examine the theoretical implications of these social forces for firm prices product design and target consumer selection we show that the presence of reference group effects can motivate firms to add costly features which provide limited or no functional benefit to consumers furthermore reference group effects can induce product proliferation on one hand and motivate firms to offer limited editions on the other hand we find that offering a limited edition can increase sales and profits in some cases reference group effects can even lead to a buying frenzy

firm specific impacts of co2 prices on the stock market value of the spanish power industry abstract european union carbon emissions allowances eua price fluctuations can affect electricity companies stock market values as these oscillations may change firms profitability and thus investors decisions this outcome can differ not only contingent on the eu ets phase but also on firms generation mix moreover stock markets may react differently to eua increases in comparison to decreases thus asymmetrically by using daily data from january 2008 to july 2014 this article analyses long run equilibrium relations and short run interactions between the aggregated electricity industry stock market returns and eua price changes moreover we test if the relationship between eua price variations and electricity stock returns is asymmetric and if the carbon price effect and the asymmetry are power firm specific adding to earlier studies we initially provide an inspection of the individual impact of eu ets phase ii and on going phase iii followed by a comparative analysis between power firms which core activity relies on renewable energy sources and those whose sources are fundamentally non renewable ones a statistically significant positive long run impact of eu ets on the aggregated power sector stock market return is found concerning phase ii and works asymmetrically moreover evidence is provided demonstrating that asymmetry and eua effects are power firm specific

bubbles crashes and endogenous expectations in experimental spot asset markets1 spot asset trading is studied in an environment in which all investors receive the same dividend from a known probability distribution at the end of each of t 15 or 30 trading periods fourteen of twenty two experiments exhibit price bubbles followed by crashes relative to intrinsic dividend value when traders are experienced this reduces but does not eliminate the probability of a bubble the regression of changes in mean price on lagged excess bids number of bids minus the number of offers in the previous period p pt a f b 1 o l supports the hypothesis that a e d the one period expected value of the dividend and that f 0 where excess bids is a surrogate measure of excess demand arising from homegrown capital gains losses expectations thus when bt 1 o goes to zero we have convergence to rational expectations in the sense of fama 1970 that arbitrage becomes unprofitable the observed bubble phenomenon can also be interpreted as a form of temporary myopia tirole 1982 from which agents learn that capital gains expectations are only temporarily sustainable ultimately inducing common expectations or priors tirole 1982 four of twenty six experiments all using experienced subjects yield outcomes that appear to the chart s eye to converge early to rational expectations although even in these cases we get 0 and small price fluctuations of a few cents that invite scalping

context dependent preferences and innovation strategy disruptive innovations introduce a new performance dimension into a product category but often suffer from inferior performance on key performance dimensions of their existing substitutes hence the followers of these innovations face an important decision to make they must choose to improve the new technology either on the key performance dimension shared with the old technology or on the new performance dimension this paper investigates which path firms should choose when they face such a dilemma in the absence of any cost or capability issues in doing so we integrate customer response into the theory of technological evolution and allow preferences on the product choices to be context dependent we show that context dependent preferences may encourage the follower to improve the new technology on the new performance dimension later we extend our game to a dynamic one and show that the context dependent preferences may cause the pioneer to innovate less this paper was accepted by j miguel villas boas marketing

econometric analysis of australian emissions markets and electricity prices emissions trading schemes aim to reduce the emissions in certain pollutants using a market based scheme where participants can buy and sell permits for these emissions this paper analyses the efficiency of the two largest schemes in australia the nsw greenhouse gas abatement scheme and the mandatory renewable energy trading scheme through their effect on the electricity prices from 2004 to 2010 we use a long run structural modelling technique for the first time on this market it provides a practical long run approach to structural relationships which enable the determination of the effectiveness of the theoretical expectations of these schemes the generalised forecast error variance decomposition analysis finds that both schemes emissions prices have little effect on electricity prices generalised impulse response function analysis support this finding indicating that when shocks are applied to electricity by the two schemes it returns to equilibrium very quickly this indicates that these schemes are not having the effect anticipated in their legislation

carbon value dynamics for france a key driver to support mitigation pledges at country scale the climate agenda in france and several other countries is a complex combination of unilateral commitments with regional and international objectives when analyzing national policies the findings of worldwide analyses are of limited accuracy and the large aggregates on which they are built level out most local specificities and inertia specific assessments are hence needed this paper quantifies the dynamic evolution of carbon values for french climate and energy policy its time dependency over successive periods and the effects of setting intermediate targets are evaluated using a long term optimization model addressing critical issues for france we produce consistent energy emissions and carbon value estimates with a 5 year time step our results are situated above the upper range of carbon value estimates of world models with an overlapping zone we show that the official policy guideline value is only consistent with an optimistic combination of assumptions the central estimates are 4 times greater than the guideline carbon value for 2050 and up to 14 times greater in 2020 because of short term inertia that are costly to move we also find that with intermediate objectives the carbon value s dynamic is more than a simple upward curve and that its variability is itself time dependent

social responsibility and product innovation this paper examines the incentives of firms to invest in socially responsible product innovations our analysis connects the existence of socially responsible innovations to the presence of intrinsic and extrinsic social responsibility preferences in addition to deriving economic value from the product consumers have heterogeneous intrinsic needs to consume products that are socially responsible they also have extrinsic social comparison preferences that are based on their meetings with others in social interactions the frequency of these meetings are endogenous to the consumption choices of consumers a consumer enjoys a social comparison benefit if her consumption decision is more socially responsible than the consumer that she meets in a social interaction and a social comparison cost if it is less socially responsible the analysis reveals a nonmonotonic effect of social comparison effects on innovation incentives when the economic value of a product is relatively small the incentive to innovate

prospects of the european gas market abstract this paper discusses prospects for increased consumption of natural gas within the european union eu up to 2030 particular emphasis is on the power generation sector where the main growth in demand is expected to occur on supply and infrastructural constraints and on future price of natural gas it can be concluded that eu gas import needs will increase substantially up to 2010 driven by a combination of rapid increase in demand in southern europe and declining production in northern europe as a result there will be an increased import dependency which will affect security of supply not only in the gas sector but also in the electricity sector gas demand after 2010 will partially depend on the level of continued co2 emission restrictions a possible nuclear phase out in the uk germany and belgium and to what extent the option to store co2 in subsurface reservoirs will be applied however supplies of gas are plentiful at least in the medium term up to 2010 2015 and a number of new countries will emerge as substantial suppliers to the european gas market increasing competition and possibly leading to a situation of oversupply between 2008 and 2012 which in turn may create a downward pressure on gas prices in addition the us market may pending on demand and indigenous production experience considerable oversupply between around 2008 and 2015 reducing the possibilities of conducting arbitrage between the two main markets in the atlantic basin and further contributing to a downward pressure on the gas price on the other hand the oil price will continue to be a major determinant of the gas price and a tight oil supply demand balance will create an upward pressure on the gas price global liquefaction and regasification capacity is expected to more than double between now and 2010 leading to a more flexible and global gas trading and increasing spot sales and although the cost of lng has decreased substantially over the past three decades it is still more costly than piped gas at distances up to 3000 4000 km within comparable regions thus an increased use of lng will contribute to an increase in average gas prices locally problems related to gas production capacity together with abundant supply to the eu markets and increased competition points to that russia will loose market share in the short run in particular as piped russian gas is not competitive on the main growth markets i e uk and italy spain nevertheless in the long run it can be expected that the eu dependency on gas from russia as well as on the middle east will increase the vulnerability in supply security and the high dependency on russian gas has been highlighted by the latest events january 2006 with russia cutting supplies to ukraine a critical factor is the large and timely investments required along the entire fuel chain in order to meet rapidly increasing demand often in regions with uncertain investment conditions also the producing countries are likely to invest according to national interest rather than to supply an increasing global demand

european emission trading scheme and competitiveness a case study on the iron and steel industry abstract we quantify the impact of the european emission trading scheme ets on the two dimensions of competitiveness production and profitability for the iron and steel industry among those covered by the scheme this sector is one of the most exposed since it is both highly co 2 intensive and relatively open to international trade we also examine the robustness of these results to various assumptions marginal abatement cost curve trade and demand elasticities as well as pass through rates and updating of allocation rules of which the latter two are scarcely debated we conclude that for this sector competitiveness losses are small we prove this conclusion to be robust hence arguments against tightening the environmental stringency of the ets in phase ii are not justified on grounds of competitiveness loss our systematic sensitivity analysis allows us to identify the important assumptions for each output variable it turns out that pass through rates and updating rules are significant despite being often implicit and least debated in existing analyses

correlations in price changes and volatility across international stock markets the short run interdependence of prices and price volatility across three major international stock markets is studied daily opening and closing prices of major stock indexes for the tokyo london and new york stock markets are examined the analysis utilizes the autoregressive conditionally heteroskedastic arch family of statistical models to explore these pricing relationships evidence of price volatility spillovers from new york to tokyo london to tokyo and new york to london is observed but no price volatility spillover effects in other directions are found for the pre october 1987 period article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

does ecological economics have a future contradiction and reinvention in the age of climate change abstract this paper addresses the role of neoclassical methodologies in ecological economics and the contradictions these methodologies pose to the field s critical founding principles we first consider robert costanza s treatment of nicholas stern s global deal and then survey climate change related articles published in this journal over the past five years this survey reveals how mainstream neoclassical methodologies dominate discourse and do so by marginalizing more critical political economy analyses this situation imperils the field s founding vision of a no growth steady state it also fails to address the related growth dynamics of capitalism without such a critical treatment the field s formal embrace of methodological pluralism actually entails an ideological empiricism that renders ecological economics theoretically incoherent this situation undermines the field s historical promise as an alternative economic paradigm ecological economics now faces a problematic future its survival in a form faithful to its founding vision will require an explicit choice to address its internal contradictions and reinvent itself in ways relevant to our contemporary context without such a choice ecological economics will likely succumb to an implicit acceptance of the hegemony of mainstream economic methodologies and their pro growth imperatives

time varying correlations in oil gas and co2 prices an application using bekk ccc and dcc mgarch models previous literature has identified oil and gas prices as being the main drivers of co2 prices in a univariate generalized autoregressive conditional heteroscedasticity garch econometric framework alberola et al 2008 oberndorfer 2009 by contrast we argue in this article that the interrelationships between energy and emissions markets shall be modelled in a vector autoregressive var and multivariate garch mgarch framework so as to reflect the dynamics of the correlations between the oil gas and co2 variables overtime using the baba engle kraft kroner bekk constant conditional correlation ccc and dynamic conditional correlation mgarch dcc mgarch models on daily data from april 2005 to december 2008 we highlight significant own volatility cross volatility spillovers and own persistent volatility effects for nearly all markets indicating the presence of strong autoregressive conditional heteroscedasticity arch and garch effects besides we provide strong empirical evidence of tim

sectoral and regional impacts of the european carbon market in portugal abstract across europe co 2 emission allowances represent one of the main policy instruments to comply with the goals of the kyoto protocol in this paper we use microdata to address two issues regarding the impact of the european carbon market eu ets first we analyze the sectoral effects of the eu ets in portugal the goal is to study the distributive consequences of imbalances with the novelty of taking into account firm financial data to put values into context we show that a large majority of installations in most sectors had surpluses and the opportunity to raise remarkable revenues in some cases we also look at the regional impact since the pre existing specialization of different regions in the production of different goods and services might lead to an uneven economic impact of the allowance market in particular portuguese data indicate a distribution of revenue from low income to high income regions or rather between installations located in those regions we focus on the first phase of the eu ets using data for each one of the 244 portuguese installations in the market as well as financial data for 80 of these installations although we also present data for 2008 and 2009

modeling eu allowances and oil market interdependence implications for portfolio management abstract this paper examines the dependence structure between european union allowances euas and crude oil markets during the second commitment period of the european union emissions trading scheme and the implications for portfolio management using different copula models our findings suggest positive average dependence and extreme symmetric independence that is consistent with interdependence and no contagion effects between the eua and crude oil markets the implication of this result for eua oil portfolios points to the existence of diversification benefits hedging effectiveness and value at risk reductions the eua market is therefore an attractive market for investors in terms of diversifying market risk and reducing downside risk in crude oil markets

the formation of price forecasts in experimental markets this study utilizes laboratory experimental methods to evaluate the empirical validity of 1 muthian rational expectations assumptions 2 an adaptive expectations model and 3 an extrapolative expectations model over 5 00 price forecasts from 146 participants in twelve experimental double auction m arkets with a cash reward structure are analyzed the forecasting objective is t hemean price over a sequence of trading periods governed by stationary market parameters the price forecasts are found to be inconsistent with strict muthian rational expectations and the extrapolative modelis not supported by the data however the forecasts generally support the adaptive expectations model copyright 1987 by ohio state university press

corporate failure prediction in the european energy sector a multicriteria approach and the effect of country characteristics this study examines the development of corporate failure prediction models for european firms in the energy sector using a large dataset from 18 countries the construction of the models is based on a multiple criteria decision aid mcda approach taking into account both ordinal criteria and nominal country sector effects the analysis is based on different modeling specifications first traditional financial variables are examined which are then extended with additional country level data related to the economic and business environment as well as data about the energy efficiency policies of the countries and the characteristics of their energy markets and networks the results indicate that energy related attributes have high discriminating power and add valuable information compared to the other attributes

price drivers and structural breaks in european carbon prices 2005 2007 this article aims at characterizing the daily price fundamentals of european union allowances euas traded since 2005 as part of the emissions trading scheme ets the presence of two structural changes on april 2006 following the disclosure of 2005 verified emissions and on october 2006 following the european commission announcement of stricter phase ii allocation allows to isolate distinct fundamentals evolving overtime the results extend previous literature by showing that eua spot prices react not only to energy prices with forecast errors but also to unanticipated temperatures changes during colder events besides the sub period decomposition of the pilot phase gives a better grasp of institutional and market events that drive allowance price changes

the advertising mix for a search good we extend the persuasion game to bring it squarely into the economics of advertising we model advertising as exciting consumer interest into learning more about the product and determine a firm s equilibrium choice of advertising content over quality information price information and horizontal match information equilibrium is unique whenever advertising is necessary the outcome is a separating equilibrium with quality unravelling lower quality firms need to provide more information for a given quality level as a function of consumer visit costs first quality information is disclosed then price information and then horizontal product information are added to the advertising mix some suggestive evidence is provided from airline ads in newspapers this paper was accepted by j miguel villas boas marketing

optimal pricing of a conspicuous product during a recession that freezes capital markets abstract this paper considers the problem of how to price a conspicuous product when the economy is in a recession that disrupts capital markets a conspicuous product in this context is a luxury good for which demand is increasing in brand image brand image here means the ability of a consumer to impress observers by conspicuously displaying consumption of the good brand image is built up when the good is priced high enough to make it exclusive and eroded if the good is discounted recession is modeled as having two effects it reduces demand and it freezes capital markets so borrowing is not possible in pricing the conspicuous product the firm faces the following trade off reducing price helps maintain sales volume and cash flow in the face of reduced demand but it also damages brand image and thus long term demand the paper analyzes the firm s pricing policy facing scenarios of mild intermediate and severe recessions while taking the threat of bankruptcy into account for an intermediate recession the optimal solution is history dependent the results have implications for policy interventions in capital markets and for timing of mergers and acquisitions

asymmetric relationship between carbon emission trading market and stock market evidences from china abstract this paper has investigated the asymmetric relationship between carbon emission trading market and stock market in china by using the nonlinear auto regressive distributed lag nardl model based on our investigation on both of the overall and sector level of stock market we have obtained interesting and convincing empirical results that show there are significantly negative long run and short run asymmetric relationships between carbon emission trading market and overall stock market in china specifically we have noticed that while passing the effects from the former to the later the increasing of carbon emission trading price would make greater effects on the stock price than its decreasing also on the sector level carbon emission trading price is significantly related to some energy intense sectors and financial sector stock market furthermore we have surprisingly found out that there are no significant effects passing from stock index to carbon emission trading price in china neither on the overall level nor on the sector level of stock market

the profitability of electricity generating firms and policies promoting renewable energy using a cross country firm level dataset this study empirically analyses how the implemented renewable electricity promotion systems tradable green certificates vs feed in tariffs affected the pro

consumption externality and yield uncertainty in the influenza vaccine supply chain interventions in demand and supply sides we study the impact of yield uncertainty supply side and self interested consumers demand side on the inefficiency in the influenza vaccine supply chain previous economic studies focusing on demand side find that the equilibrium demand is always less than the socially optimal demand because self interested individuals do not internalize the social benefit of protecting others via reduced infectiousness positive externality in contrast we show that the equilibrium demand can be greater than the socially optimal demand after accounting for the limited supply due to yield uncertainty and manufacturer s incentives the main driver for this result is a second negative externality self interested individuals ignore that vaccinating people with high infection costs is more beneficial for the society when supply is limited we show that the extent of the negative externality can be reduced through more efficient and less uncertain allocation mechanisms to investigate the relative effectiveness of government interventions on supply and demand sides under various demand and supply characteristics we construct two partially centralized scenarios where the social planner i e government intervenes either on the demand side or the supply side but not both we conduct an extensive numerical analysis this paper was accepted by yossi aviv operations management

what triggers environmental management and innovation empirical evidence for germany abstract it is frequently hypothesized that environmental management systems emss may improve firms environmental innovation performance whether this hypothesis is true is as critical for environmental policy as questions pertaining to the relevant incentives for 1 a firm s voluntary adoption of an ems and 2 its environmental innovation behavior based on ample empirical evidence for german manufacturing this paper addresses the simultaneity of these issues on the basis of a recursive bivariate probit model that explores the hypothesis that a facility s decision on innovation activities is correlated with the decision on ems adoption our empirical results indicating that environmental innovation activities are not associated with ems implementation nor any other single policy instrument reflect the perceptions of the survey respondents and hence should be interpreted as correlations rather than causal relationships according to these perceptions innovation behavior seems to be mainly correlated with the stringency of environmental policy

forecasting carbon futures volatility using garch models with energy volatilities abstract this article examines the volatility forecasting abilities of three approaches garch type model that uses carbon futures prices an implied volatility from carbon options prices and the k nearest neighbor model based on the results we document that garch type models perform better than an implied volatility and the k nearest neighbor model this result suggests that carbon options have little information about carbon futures due to their low trading volume we also investigate whether the volatilities of energy markets i e brent oil coal natural gas and electricity forecast following day s carbon futures volatility according to the results we suggest that brent oil coal and electricity may be used to forecast the volatility of carbon futures

a note on dynamic monopoly pricing under consumption externalities we analyze dynamic monopoly pricing under consumption externalities focusing on pricing under negative externalities we also attempt to generalize models in the previous literature which encompass both negative and positive externalities by incorporating a consumer s discount factor for past sales as a parameter analyzing our model reveals oscillation as the optimal price path in the presence of negative externalities

price volatility and risk exposure on market based environmental policy instruments abstract we explore the efficacy of price and quantity controls as environmental policy instruments in a stochastic setting in which agents are risk averse we demonstrate that the assumption of risk aversion may improve the performance of a tax relative to that of a system of tradable quotas and that restricting quota trade may enhance efficiency even though risk aversion in itself limits volumes of trade the government may be able to improve the performance of a tradable quota system by judicious choice of distribution and amount of initial quotas and by trading pro actively in the quota market

what happens to the relationship between eu allowances prices and stock market indices in europe abstract the stock market may reflect the economic conditions of an economy and a positive economic situation is expected to improve the companies profits which makes company shares more attractive since the expected dividends to shareholders will be larger theoretically higher economic activity leads to higher energy demand and consequently higher carbon emissions which give rise to higher eu allowances eua prices therefore the stock market and eua prices seem to be connected with causality going from the stock markets to eua prices this paper formally tests for it showing that the causality effectively runs from the stock market to the european climate exchange market furthermore the paper studies the effects of the evolution of european stock markets on the eua spot prices

the role of explanations and need for uniqueness in consumer decision making unconventional choices based on reasons this research investigates the interaction between a very common task explaining decisions and an individual difference need for uniqueness nfu on buyer decision making we propose that explaining or providing reasons for decisions shifts the focus from the choice of options to the choice of reasons furthermore buyers who explain their decisions and have high nfu tend to select unconventional reasons and are consequently more likely to make unconventional choices these predictions were supported in a series of studies involving choices between conventional and less conventional options such as whether to switch to a brand on sale whether to select a compromise option and whether to accept a gamble with a possible loss the findings also indicate that the effects of providing reasons are not due to attempts to act rationally or to concerns about being evaluated three boundary conditions on the generalization that high nfu consumers who provide reasons tend to make unconventional choices we

pricing of conspicuous goods a competitive analysis of social effects abstract social needs play an important role in the purchase of conspicuous goods in this article the authors extend traditional economic models to accommodate social needs such as desire for uniqueness and conformism and examine their implications for pricing conspicuous goods first in the context of a duopoly the authors identify the conditions under which the desire for uniqueness can increase demand among some consumers as the price of a product increases second the authors show that though the desire for uniqueness leads to higher prices and firm profits a desire for conformity leads to lower prices and profits third the authors find that consumers purchase high quality products not because of their desire for uniqueness but despite it finally marketers of conspicuous goods may find it beneficial not to emphasize the functional differences among their products when the need for uniqueness is high in a laboratory test the authors find support for the claim that demand for a product amo

the initial impact of eu ets verification events on stock prices this paper studies the impact of verified emissions publications in the european emissions trading scheme eu ets on the market value of participating companies using event study methodology on a unique sample of 368 listed companies we show that verified emissions only resulted in statistically significant market responses when the carbon price was high and allowance scarcity was anticipated the cross section analysis of abnormal returns surrounding the publication of verified emissions shows that share prices decrease when actual emissions relative to allocated emissions increase this negative relationship between allocation shortfalls and firm value is only significant for firms that are either carbon intensive compared to sector peers or are less likely to pass through carbon related costs in their product prices the results suggest that although the eu ets has been deemed unsuccessful so far due to over allocation and low carbon price shareholders initially perceived allowance holdings as value relevant our results highlight that a significant carbon market price and addressing pass through costing are essential for successful future reforms of the eu ets and other analogous carbon cap and trade systems implemented or planned worldwide

modeling the price dynamics of co2 emission allowances abstract in this paper we analyze the short term spot price behavior of carbon dioxide co 2 emission allowances of the new eu wide co 2 emissions trading system eu ets after reviewing the stylized facts of this new class of assets we investigate several approaches for modeling the returns of emission allowances due to different phases of price and volatility behavior in the returns we suggest the use of markov switching and ar garch models for stochastic modeling we examine the approaches by conducting an in sample and out of sample forecasting analysis and by comparing the results to alternative approaches our findings strongly support the adequacy of the models capturing characteristics like skewness excess kurtosis and in particular different phases of volatility behavior in the returns

a literature based multi criteria evaluation of the eu ets abstract this article reviews the existing literature on the european union emission trading scheme eu ets focusing on empirical ex post research since the end of the first period 2007 the literature is presented through a multi criteria evaluation concerning environmental effectiveness despite over allocation during the first period abatement is estimated between 2 5 and 5 trade driven carbon leakage was not observed even if long term economic models predict divergent leakage estimates for certain at risk sectors the abatement target was likely to be below an economically efficient level but was reached in a fairly cost effective way even if free allocation gave rise to several distortional effects equity concerns were manifold and constitute a major drawback to the policy finally institutional feasibility can be considered positive in that the eu ets passed the european legislative process unlike the previously proposed eu wide carbon tax

consumer uncertainty and purchase decision reversals theory and evidence this research examines how prepurchase information that reduces consumer uncertainty about a product or service can affect consumer decisions to reverse an initial product purchase or service enrollment decision one belief commonly held by retailers is that provision of greater amounts of information before the purchase reduces decision reversals we provide theory and evidence showing conditions under which uncertainty reducing information provided before the purchase decision can actually increase the number of decision reversals predictions generated from an analytical model of consumer behavior incorporating behavioral theory of reference dependence are complemented by empirical evidence from both a controlled behavioral experiment and econometric analysis of archival data combined the theory and evidence suggest that managers should be aware that their information provision decisions taken to reduce decision reversals may actually increase them data as supplemental material are available at http dx doi org 10 1287 mksc 2015 0906

can an emission trading scheme promote the withdrawal of outdated capacity in energy intensive sectors a case study on china s iron and steel industry abstract outdated capacity and substantial potential for energy conservation are the two main features of energy intensive sectors in developing countries such countries also seek to implement market based options to further control domestic carbon emissions as well as to promote the withdrawal of outdated capacity and upgrade production level this paper presents a quantitative assessment of the emission trading scheme ets for china s iron and steel industry the diverse array of normal and outdated capacities was modeled in a two country three good partial equilibrium model simulation results show that the abatement potential can be underestimated if the energy saving effects that result from emission abatement are not considered in the scenario analysis we demonstrated that the free allocation of allowances can cause a competitiveness distortion among domestic normal and outdated capacities given the government s intention to promote outdated capacity withdrawal and production level upgrading an output based allocation approach is strongly suggested for china s iron and steel sector

david vs goliath an analysis of asymmetric mixed strategy games and experimental evidence mixed strategies are widely used to model strategic situations in diverse fields such as economics marketing political science and biology however some of the implications of asymmetric mixed strategy solutions are counterintuitive we develop a stylized model of patent race to examine some of these implications in our model two firms compete to develop a product and obtain a patent however one firm values the patent more because of its market advantages such as brand reputation and distribution network contrary to some intuition we find that the firm that values the patent less is likely to invest more aggressively in developing the product and will also win the patent more often we argue that the reason for these counterintuitive results is inherent in the very concept of mixed strategy solution in a laboratory test we examine whether subjects behavior conforms to the equilibrium predictions we find that the aggregate behavior of our subjects is consistent with the game theoretic predictions with the help of the experience weighted attraction ewa learning model proposed by camerer and ho 1999 we show that adaptive learning can account for the investment behavior of our subjects we find that the ewa learning model tracks the investment decisions of our subjects well whether we hold out trials or an entire group of subjects

a model of carbon price interactions with macroeconomic and energy dynamics abstract this paper develops a model of carbon pricing by considering two fundamental drivers of european union allowances economic activity and energy prices on the one hand economic activity is proxied by aggregated industrial production in the eu 27 as it provides the best performance in a preliminary forecasting exercise vs other indicators on the other hand brent natural gas and coal prices are selected as being the main carbon price drivers as highlighted by previous literature the interactions between the macroeconomic and energy spheres are captured in a markov switching var model with two states that is able to reproduce the boom bust business cycle hamilton 1989 first industrial production is found to impact positively negatively the carbon market during periods of economic expansion recession thereby confirming the existence of a link between the macroeconomy and the price of carbon second the brent price is confirmed to be the leader in price formation among energy markets bachmeier and griffin 2006 as it impacts other variables through the structure of the markov switching model taken together these results uncover new interactions between the recently created eu emissions market and the pre existing macroeconomic energy environment

multi period pricing in the presence of competition and social influence abstract this paper examines single and dynamic pricing policies of two competing firms over two periods in the presence of social influence assuming two firms adopt the same pricing policy we find that under either pricing policy firm profits always decrease with the degree of social influence firms prefer dynamic pricing policy when social influence is either relatively weak or sufficiently strong for firms under dynamic pricing policy to set zero prices in the first period otherwise single pricing policy is more preferable the conclusions are similar when the market size varies over periods except that dynamic pricing policy is always more profitable if the market size in period 2 is sufficiently large we have further compared the two pricing policies with posted pricing policy the results show that dynamic pricing policy dominates when social influence is relatively weak while posted pricing policy dominates when social influence is sufficiently strong because of the synergy between social influence and the reference price effect finally when each firm freely chooses either single or dynamic pricing policy we find that if the degree of social influence is relatively small two asymmetric equilibria exist where two firms adopt different pricing policies if the degree of social influence is very large however the unique equilibrium is both firms adopting dynamic pricing policy these findings provide important implications for firms to make more informed pricing decisions in an increasingly competitive environment with strong social influence

eu emission allowances and the stock market evidence from the electricity industry this paper constitutes to our best knowledge the first econometric analysis on stock market effects of the eu emission trading scheme eu ets our results suggest that eu emission allowance eua price developments matter to the stock performance of electricity firms eua price changes and stock returns of the most important european electricity corporations are shown to be positively related this effect does not work asymmetrically so that stock markets do not seem to react differently to eua appreciations in comparison to depreciations the carbon market effect is shown to be both time and country specific it is particularly strong for the period of eua market shock in early 2006 and differs with respect to the countries where the electricity corporations analysed are headquartered stock market reactions to eua volatility could not be shown

modeling and forecasting the volatility of carbon dioxide emission allowance prices a review and comparison of modern volatility models abstract the launch of the markets for carbon dioxide emission allowances was guided by the aim to use the supposedly efficient price formation mechanism of an organized exchange to optimally allocate a certain quantity of emissions among potential polluters while this introduction of a centralized trading arrangement should have helped to achieve required emission reductions with a minimum of economic losses from the viewpoint of market participants it has raised concerns about appropriate risk management provisions to cope with the fluctuations of time varying allowance prices the present review provides an overview over state of the art models for price volatility expanding the scope from relatively simple garch type models to models with long term dependence and regime switches including the relatively recent class of so called multifractal models we provide a comparative application of these models to carbon dioxide emission allowance prices from the european union emission trading scheme and evaluate their performance with up to date model comparison tests based on out of sample forecasts of future volatility and value at risk

capital stock management during a recession that freezes credit markets abstract this paper considers the problem of how to price a conspicuous product while maintaining liquidity during a recession which both reduces demand and freezes credit markets reducing price would help maintain cash flow but low prices can erode brand image and hence long term sales the paper extends earlier work of the same authors by explicitly deriving a firm s optimal cash management behavior taking into account that a too low cash level results in bankruptcy there are different sets of initial conditions for which qualitatively different solution trajectories are optimal we distinguish mild and severe recessions with mild recessions bankruptcy can be avoided for sure when the brand image is large enough in case the recession is of intermediate strength it can be optimal to throttle forward then back how aggressively one spends down cash reserves with the associated state constraint alternately being non binding binding non binding then binding in such a way that the firm ceases operation

competition effects of mergers an event study of the german electricity market abstract this paper investigates the competition effects of the entry of vattenfall into the german electricity market while the competition authorities supported the entry by approving vattenfall s acquisition of three regional utilities other market participants raised concerns over the emergence of an upcoming oligopoly in the german market for power generation we contrast the efficiency hypothesis postulating pro competitive effects of mergers with the market power hypothesis postulating anti competitive effects for the analysis of the two opposing hypotheses we use an event study approach to the stock prices of vattenfall s competitors in the german market while we find no empirical evidence for increased market power in the german electricity market due to vattenfall s mergers there is some indication for efficiency increases we therefore cannot oppose the view of the competition authorities predicting an overall positive effect for consumers as a result of vattenfall s entry into the german electricity market

international market integration for natural gas a cointegration analysis of prices in europe north america and japan this paper investigates the degree of integration of natural gas markets in europe north america and japan in the time period between the early 1990s and 2004 the relationship between international gas market prices and their relation to the oil price are explored through principal components analysis and johansen likelihood based cointegration procedure both of them show a high level of natural gas market integration within europe between the european and japanese markets as well as within the north american market at the same time the obtained results suggest that the european respectively japanese and the north american markets were not integrated

first evidence of asymmetric cost pass through of eu emissions allowances examining wholesale electricity prices in germany abstract we test the hypothesis that rising prices of emission allowances have a stronger impact on wholesale electricity prices than falling prices asymmetric cost pass through using an autoregressive distributed lag model we confirm this hypothesis for the german market

designing sales contests does the prize structure matter abstract sales contests are short term incentives that managers use to raise sales effort the extant marketing theory predicts that the optimal prize structure should have two characteristics 1 the number of prizewinners should be greater than one and 2 prize values should be unique and rank ordered however this theory has not been empirically examined this article presents two empirical studies that examine whether the prize structure of a sales contest affects sales performance in each study the authors investigate the incremental effects of introducing multiple prizewinners and unique rank ordered prizes into a sales contest the first study consists of two laboratory experiments in which participants make decisions that closely reflect the decision trade offs in the theoretical model of sales contests the second study consists of two field economic experiments in which trained salespeople sell fundraising sponsorships to companies the results across the experiments are remarkably consist

equilibrium play in large group market entry games coordination behavior is studied experimentally in a class of noncooperative market entry games featuring symmetric players complete information zero entry costs and several randomly presented values of the market capacity once the market capacity becomes publicly known each player must decide privately whether to enter the market and receive a payoff which increases linearly in the difference between the market capacity and the number of entrants or stay out payoffs for staying out are either positive giving rise to the domain of gains or negative giving rise to the domain of losses the major findings are substantial individual differences that do not diminish with practice aggregate behavior that is organized extremely well in both the domains of gains and losses by the nash equilibrium solution and variations in the population action strategies with repeated play of the stage game that are accounted for by a variant of an adaptive learning model due to roth and erev 1995

electricity wholesale market prices in europe convergence abstract this paper tests the hypothesis that the ongoing restructuring process in the european electricity sector has led to a common european market for electricity based on a principal component analysis pca of wholesale electricity prices in 2002 2006 we reject the assumption of full market integration for several pairs of countries the weaker hypothesis of bilateral convergence is accepted based on unit root tests kpss and adf and a convergence test based on filtered pairwise price relations this indicates that the efforts to develop a single european market for electricity were so far only partially successful we show that the daily auction prices of scarce cross border transmission capacities are insufficient to explain the persistence of international price differentials empirically our findings confirm the insufficiency of explicit capacity auctions as stated in the theoretical literature

the role of regulatory uncertainty in certificate markets a case study of the swedish norwegian market abstract price volatility in green certificate markets reflects uncertainty over future prices representing a major source of risk for renewable energy generators price risk is considered the principal deficiency of this market based policy since it causes investors to require higher returns moreover investors are exposed to regulatory risk namely the risk that a change in the regulation will materially impact the certificate price regulatory uncertainty is reflected in market volatility exacerbating certificate price risk using an econometric approach we investigate the role of regulatory changes on price volatility in the swedish certificate market the results of our analysis indicate that regulatory changes strongly affect certificate markets resulting in periods of higher volatility moreover we analyze whether certificate price volatility has changed after creating a joint swedish norwegian market results indicate that the ambivalence surrounding the creation of this bigger market led to a period of increased price volatility between 2010 and 2011 overall this article brings a better understanding of the role of regulatory uncertainty on certificate markets and gives evidence for its negative impact in terms of increased price volatility

conspicuous consumption snobbism and conformism abstract we develop a model in which consumers purchase a conspicuous good in order to signal high income and thereby achieve greater social status in equilibrium the signalling value of conspicuous consumption depends in an identifiable way on the number of consumers and consumer behaviour is characterized by either snobbism or conformism the market demand curve for the conspicuous good may exhibit a positive slope if consumers are conformist we derive some unconventional policy implications concerning the taxation of luxuries and the voluntary provision of public goods

selling to conspicuous consumers pricing production and sourcing decisions consumers often purchase goods that are hard to find to conspicuously display their exclusivity and social status firms that produce such conspicuously consumed goods such as designer apparel fashion goods jewelry etc often face challenges in making optimal pricing and production decisions such firms are confronted with precipitous trade off between high sales volume and high margins because of the highly uncertain market demand strategic consumer behavior and the display of conspicuous consumption in this paper we propose a model that addresses pricing and production decisions for a firm using the rational expectations framework we show that in equilibrium firms may offer high availability of goods despite the presence of conspicuous consumption we show that scarcity strategies are harder to adopt as demand variability increases and we provide conditions under which scarcity strategies could be successfully adopted to improve profits finally to credibly commit to scarcity strategy we show that firms can adopt sourcing strategies such as sourcing from an expensive production location supplier or using expensive raw materials this paper was accepted by preyas desai and pradeep chintagunta marketing

veblen effects in a theory of conspicuous consumption the authors examine conditions under which veblen effects arise from the desire to achieve social status by signaling wealth through conspicuous consumption while veblen effects cannot ordinarily arise when preferences satisfy a single crossing property they may emerge when this property fails in that case budget brands are priced at marginal cost while luxury brands though not intrinsically superior are sold at higher prices to consumers seeking to advertise wealth luxury brands earn strictly positive profits under conditions that would with standard formulations of preferences yield marginal cost pricing the authors explore factors that induce veblen effects and they investigate policy implications copyright 1996 by american economic association

systems competition and network effects this paper discusses firm behavior market performance and the public and private institutions that arise in systems markets i e markets where consumers use compatible components together to generate benefits in such markets which include communications networks and hardware software networks popular products are inherently more valuable these network effects can drive corporate strategies and are critical in understanding innovation in many high technology markets the discussion here emphasizes the dynamics of consumer adoption decisions in the presence of network effects competition between incompatible systems and how suppliers choose which components are compatible and which are not

environmental policy when pollutive consumption is sensitive to advertising norms versus status a theoretical model is developed to analyse optimal environmental policy when consumer preferences are endogenous it captures that pollutive consumption is sensitive to consumption by others and commercial advertising this is conceptualized through a consumption norm an increase in this norm means that consumers will become dissatisfied with a given consumption level and try to raise it which will cause an increase in pollution the model is particularly relevant for the study of conspicuous consumption which generally is subject to concentrated advertising efforts while it generates considerable pollution the model can accommodate the cases of an externality created by advertising being positive or negative we also show that using different functional specifications for the norm function one can address either conformity or status seeking we derive optimal rules for a pollution tax a subsidy or tax on advertising and information provision by the government the results not only contribute to more realism in environmental policy theory but also extend public policy with new instruments

getting ahead of the joneses when equality increases conspicuous consumption among bottom tier consumers it is widely believed that increasing the equality of material possessions or income in a social group should lead people at the bottom of the distribution to consume less and save more however this prediction and its causal mechanism have never been studied experimentally five studies show that greater equality increases the satisfaction of those in the lowest tier of the distribution because it reduces the possession gap between what they have and what others have however greater equality also increases the position gains derived from status enhancing consumption since it allows low tier consumers to get ahead of the higher proportion of consumers clustered in the middle tiers as a result greater equality reduces consumption when consumers focus on the narrower possession gap but it increases consumption when they focus on the greater position gains i e when consumption is conspicuous social competition goals are primed and the environment is competitive

emerging carbon constraints for corporate risk management abstract while discussions about global sustainability challenges abound the financial risks that they incur albeit important have received less attention we suggest that corporate risk assessments should include sustainability related aspects especially with relation to the natural environment and encompass the flux of critical materials within a company s value chain such a comprehensive risk assessment takes into account input as well as output related factors with this paper we focus on the flux of carbon and define carbon constraints that emerge due to the disposition of fossil fuels in the input dimension and due to direct and indirect climate change effects in the output dimension we review the literature regarding the financial consequences of carbon constraints on the macroeconomic sector and company level we conclude that a financial consequences seem to be asymmetrically distributed between and within sectors b the individual risk exposure of companies depends on the intensity of and dependency on carbon based materials and energy and c financial markets have only started to incorporate these aspects in their valuations this paper ends with recommendations on how to incorporate our results in an integrated carbon risk management framework