capital income taxation and welfare in a small open economy abstract the paper studies the effects of various capital income tax policies in a small open economy households are infinitely lived and possess endogenous time preferences investment by firms is subject to adjustment costs it is shown that welfare paradoxes may exist in that increases in tax instruments may improve welfare

utility functionals with nonpaternalistic intergenerational altruism the case where altruism extends to many generations abstract the paper considers utility functinals which embody nonpaternalistic intergenerational altruism so that each generation s utility level depends not only on its own consumption but also on other possibly infinitely many generations utility levels two concepts of utility functionals are proposed they are based on the supposition either that people regard dead ancestors utility levels as givens or that in evaluating present and future consumptions people consider how the ancestors would respond if they were alive unique existence of such functionals is proved and some properties analyzed under a condition which basically says that the degrees of altruism are not excessive

optimality and monetary equilibria in stationary overlapping generations models with long lived agents growth versus discounting abstract this paper studies the relationship between the existence and optimality of a monetary steady state and the nonoptimality of nonmonetary steady states we construct a sequence of stationary overlapping generations economies with longer and longer lived generations in which all agents maximize a discounted sum of utilities with a common discount rate under some assumptions the following result is established if the discount rate is greater less than the population growth rate then eventually every nonmonetary steady state is optimal nonoptimal and a monetary steady state does not exist exists and is optimal

optimal growth with many consumers abstract a method is described for constructing all pareto optimal allocations for a dynamic economy with many heterogeneous consumers under certainty in which both the technology and consumer preferences are recursive but preferences need not be additively separable over time optimal perfect foresight competitive equilibrium allocations are obtained through the study of a dynamic program for an economy with one consumption good sufficient conditions are given for the existence of a unique interior stationary distribution of consumption and wealth for a two person exchange economy sufficient conditions are given for the global asymptotic stability of the unique interior stationary point

optimal bidding strategies and modeling of imperfect information among competitive generators the emerging electricity market behaves more like an oligopoly than a perfectly competitive market due to special features such as a limited number of producers large investment size barrier to entry transmission constraints and transmission losses which discourage purchase from distant suppliers this makes it practicable for only a few independent power suppliers to service a given geographic region and in this imperfect market each power supplier can increase its own profit through strategic bidding the profit of each supplier is influenced to varying extents by differences in the degree of imperfection of knowledge of rival suppliers a new framework to build bidding strategies for power suppliers in an electricity market is presented in this paper it is assumed that each supplier bids a linear supply function and that the system is dispatched to minimize customer payments each supplier chooses the coefficients in the linear supply function to maximize benefits subject to expectations about how rival suppliers will bid a stochastic optimization formulation is developed and two methods proposed for describing and solving this problem a numerical example serves to illustrate the essential features of the approach and the results are used to investigate the potential market power

global equilibrium dynamics with stationary recursive preferences abstract we study the global dynamics of capital accumulation for a general two sector model which is not necessarily convex and where preferences of an infinitely lived agent are stationary but not additively separable we obtain monotonicity and convergence results for capital under normality assumptions on preferences and factor intensity assumptions on technology we then derive results on oscillatory dynamics under alternative factor intensity conditions or under the assumption of inferiority of future utilities finally in an exchange model with two agents we show that utilities will be monotonic or oscillatory depending on the normality or inferiority of the preferences

on the solution of revenue and network constrained day ahead market clearing under marginal pricing part ii case studies this paper presents the numerical analysis of the bilevel programming approach for revenue and network constrained market clearing developed in its companion paper the impact of minimum revenue conditions and minimum declared profits on generation and consumption levels as well as on locational marginal prices for energy is examined in detail through three case studies first the results from an illustrative example including minimum revenue conditions are comprehensively analyzed the second case study is based on the ieee reliability test system and considers minimum declared profits in the third case study a modified version of the ieee 118 bus system is tested while accounting for minimum revenue conditions in addition the computational behavior of the proposed approach is illustrated with several case studies including the ieee 300 bus system numerical results show the effectiveness of the proposed approach to handle revenue constraints as well as its superiority over the heuristic currently implemented in the iberian electricity market moreover simulations reveal that unlike previous works in the literature generation revenue constraints can be precisely incorporated in day ahead market clearing while explicitly considering the standard economic dispatch based marginal pricing scheme and without requiring price uplifts

sustainability and the intergenerational distribution of natural resource entitlements abstract the paper describes an olg economy with a single exhaustible resource that has amenity value the steady states of this economy form a continuum implying path dependency we compare three policy scenarios first a zero extraction policy of enforced conservation that avoids environmental degradation possibly at the expense of intertemporal efficiency second a grandfathering policy that endows the present generations with all resources and that ensures efficiency but cannot prevent a persistent decline in lifetime utility from one generation to the next third a trust fund policy where future generations receive claims for the natural resource of the three only the trust fund ensures efficiency and protects welfare of all generations

optimal integrated generation bidding and scheduling with risk management under a deregulated daily power market in the deregulated power industry a generation company genco sells energy and ancillary services primarily through bidding at a daily market developing effective strategies to optimize hourly bid curves for a hydrothermal power system to maximize profits becomes one of the most important tasks of a genco this paper presents a unified framework for optimizing energy and reserve bidding strategies under a deregulated market in view of high volatilities of market clearing prices mcp the hourly mcps and reserve prices are modeled as discrete random variables whose probability mass functions are predicted with a classification based neural network approach the mean variance method is applied to manage bidding risks where a risk penalty term related to mcp and reserve price variances is added to the objective function to avoid buying too much power from the market at high prices a genco may also require covering at least a certain percentage of its own customer load this self scheduling requirement is modeled similar to the system demand in traditional unit commitment problems the formulation is a stochastic mixed integer optimization with a separable structure an optimization based algorithm combining lagrangian relaxation and stochastic dynamic programming is presented to optimize bids for both energy and reserve markets numerical testing based on an 11 unit system in new england market shows that the method can significantly reduce profit variances and thus reduce bidding risks near optimal energy and reserve bid curves are obtained in 4 5 minutes on a 600 hz pentium iii pc efficient for daily use

an equilibrium model of wealth distribution i present an explicitly solved equilibrium model for the distribution of wealth and income in an incomplete markets economy i flrst propose a self insurance model with an inter temporally dependent preference uzawa 1968 lucas and stokey 1984 and obstfeld 1990 i then derive an analytical consumption rule which captures stochastic precautionary saving motive and generates stationary wealth accumulation finally i provide a complete characterization for the equilibrium cross sectional distribution of wealth and income in closed form by developing a recursive formulation for the moments of the distribution of wealth and income using this recursive formulation i show that income persistence and the degree of wealth mean reversion are the main determinants of wealth income correlation and relative dispersions of wealth to income such as skewness and kurtosis ratios between wealth and income

inflation and growth impatience and a qualitative equivalence this paper studies the role of an endogenous time preference on the relationship between inflation and growth in the long run in both the money in utility function miuf and transactions costs tc models we establish a qualitative equivalence between the two models in a setup without a labor leisure tradeoff when the time preference is decreasing or increasing in consumption and real balances both the miuf and tc models are qualitatively equivalent in terms of predicting a negative or positive relationship between inflation and growth in a steady state both a decreasing and an increasing time preference in consumption are consistent with the arguments found within the literature while a decreasing time preference in real balances corroborates with empirical evidence there is no evidence in support of an increasing time preference in real balances

bidding strategies for electricity producers in a competitive electricity marketplace this paper presents a methodology for the development of bidding strategies for electricity producers in a competitive electricity marketplace initially the problem is modeled as a two level optimization problem where at the first level a market participant tries to maximize his expected profit under the constraint that at the second level an independent system operator dispatches power solving an optimal power flow problem that minimizes total system cost it is assumed that each supplier bids a linear supply function and chooses his bidding strategy based on probabilistic estimates of demand and rival behavior monte carlo simulation is used to calculate the expected profit and genetic algorithms are employed to find the optimal strategy subsequently the formulation is expanded to account for different market participants risk profiles it is shown that risk aversion may influence the optimal bidding strategy of an individual

balanced growth consistent recursive utility abstract koopmans s recursive utility has proven useful in a number of dynamic modelling contexts nonetheless recursive utility has not made significant inroads into what one would expect to be a natural haven models of balanced growth whether exogenous or endogenous mainly this is due to the dearth of interesting recursive utilities which are consistent with balanced growth in this paper i provide conditions on the aggregator which guarantee the existence of a recursive utility function which is consistent with balanced growth the result in turn shows how a family of such utility functions may be constructed i also provide a generalization of jones and manuelli s theorem on the existence of optimal endogenous growth

revenue adequate bidding strategies in competitive electricity markets energy trading in a competitive electricity market can be modeled as a two level optimization at the top level a centralized economic dispatch ced uses a priority list method to solve the fundamental problem of reliable market clearing with price discovery the lower level consists of a set of decentralized bidding db subproblems the db model uses a self unit scheduling simulator based on parametric dynamic programming to produce hourly bid curves for the central dispatch coordinator unit operating constraints and costs such as the unit minimum up and minimum down times ramp rates and the unit start up no load and sunk capital costs are internalized in the bid curves through the simulator a special algorithm is presented to solve the revenue adequacy problem for marginal units both ced and db models are based on the revenue maximization in contrast with the cost minimization criteria used in the conventional unit commitment uc the proposed method has been tested in a study case and some interesting results have been demonstrated

a characterization of ramsey equilibrium abstract consider a perfect foresight equilibrium model with a single capital good a borrowing constraint and many infinitely lived households with fixed but different discount factors the steady state capital stock is held by the most patient household quart j econ 95 1980 375 382 econ j 38 1928 543 559 an example shows the total capital can exhibit an equilibrium cycle in contrast to the stability property of the one household case in the example only the most patient household saves and his income deceases in capital we give a condition implying income is increasing in capital and use it to show any equilibrium converges to the steady state

an ordinal optimization based bidding strategy for electric power suppliers in the daily energy market the deregulation and reconstruction of the electric power industry worldwide raises many challenging issues related to the economic and reliable operation of electric power systems traditional unit commitment or hydrothermal scheduling problems have been integrated with generation resource bidding but the development of optimization based bidding strategies is only at a very preliminary stage this paper presents a bidding strategy based on the theory of ordinal optimization that the ordinal comparisons of performance measures are robust with respect to noise and modeling error and the problems become much easier if the optimization goal is softened from asking for the best to good enough solution the basic idea is to use an approximate model that describes the influence of bidding strategies on the market clearing prices mcp a nominal bid curve is obtained by solving optimal power generation for a given set of mcps via lagrangian relaxation then n bids are generated by perturbing the nominal bid curve the ordinal optimization method is applied to isolate a good enough set s that contains some good bids with high probability by performing rough evaluation the best bid is then selected by solving full hydrothermal scheduling or unit commitment problems for each of the bids in s using ordinal optimization approach we are able to obtain a good enough bidding strategy with reasonable computational effort numerical results using historical mcps from the california market and a generation company with 10 units show that the ordinal optimization based method is efficient

strategic bidding for minimum power output in the competitive power market as deregulation of the power industry is becoming a reality there has been an intense interest in the strategic bidding for suppliers to optimize their benefits the benefit gained by a supplier is related not only to its energy price bid curve but also to its submitted operational parameters such as minimum output etc this is especially so when market size is limited because of a limited number of competitors in the market itself or due to the transmission capacity constraints this paper addresses the study of strategic bidding for minimum output in a deregulated environment the impact of minimum output bids on the market result is analyzed a criterion with regard to minimum output bid to assess the outcome of competition among suppliers is derived the method to optimize the benefit from a supplier s viewpoint by adjusting the bids for the minimum output and price is proposed it is shown that an individual supplier can optimize its own benefit by fine tuning its minimum output and price when there are only a few suppliers dominating the market a fairly thorough theoretical analysis of the bidding for minimum output is illustrated with a numerical example

real exchange rates preferences and incomplete markets evidence 1961 2001 many international macroeconomic models link the real exchange rate to a ratio of marginal utilities we examine this link empirically allowing the marginal utility of consumption to depend on government expenditure real money balances or external habit we also consider two environments with incomplete asset markets one with exogenously missing markets but an endogenous discount rate that anchors the distribution of wealth and one with endogenous market segmentation although none of these satisfies theoretical and over identifying restrictions for every country utility with external habit persistence provides the best match with real exchange rates for oecd countries between 1961 and 2001 jel classification f41 taux de change reels preferences et marches incomplets resultats 1961 2001 plusieurs modeles macroeconomiques internationaux lient le taux de change reel a un ratio des utilites marginales on examine ce lien empiriquement en permettant a l utilite marginale de la consommation de dependre des depenses du gouvernement des encaisses monetaires reelles ou des habitudes donnees on considere aussi deux environnements avec des marches incomplets pour les actifs l un avec des marches exogenes manquants mais un taux d escompte endogene qui ancre bien la repartition des revenus et l autre avec des marches segmentes endogenes bien que ni l un ni l autre ne satisfasse les imperatifs theoriques et les restrictions sur identifiees pour chaque pays l utilite avec les persistances d habitudes externes engendre l ajustement le meilleur avec les taux de change reels des pays de l ocde entre 1961 et 2001

data revisions are not well behaved we document the empirical properties of revisions to major macroeconomic variables in the united states our findings suggest that they do not satisfy simple desirable statistical properties in particular we find that these revisions do not have a zero mean which indicates that the initial announcements by statistical agencies are biased we also find that the revisions are quite large compared to the original variables and they are predictable using the information set at the time of the initial announcement which means that the initial announcements of statistical agencies are not rational forecasts

the existence of ramsey equilibrium the authors demonstrate existence of a perfect foresight equilibrium under borrowing constraints in a one sector model with infinitely lived heterogeneous agents the class of admissible preferences includes but is not limited to recursive preferences existence is proven using a t 2ctonnement argument under appropriate conditions on preferences and technology a new measure of discounting the norm of marginal impatience is used to determine which technologies are admissible depending on the norm of marginal impatience the admissible technology may either allow for permanent growth or have a maximum sustainable stock copyright 1991 by the econometric society

energy delivery capacity and generation scheduling in the deregulated electric power market the generation schedules obtained in traditional hydrothermal scheduling or unit commitment programs are in hourly generation levels in the new deregulated power market the power transactions are processed in terms of hourly energy delivery failing to fulfil scheduled energy delivery may result in a penalty to the power producers this paper shows that although ramp rate constraints are satisfied in hydrothermal scheduling taking a generation level schedule as an energy delivery schedule may not be realizable based on the maximum principle in optimal control theory the energy delivery capacity across the scheduling horizon is established as a set of recursive equations with given ramp rate constraints a sufficient and necessary condition is obtained to check if an energy delivery schedule is realizable based on this condition two cases where ramp rate constraints are both satisfied are analyzed and an unrealizable energy delivery schedule is observed

the dynamics of efficient asset trading with heterogeneous beliefs this paper analyzes the dynamic properties of portfolios that sustain dynamically complete markets equilibrium when agents have heterogeneous priors we argue that the conventional wisdom that belief heterogeneity generates continuous trade and significant fluctuations in individual portfolios may be correct but it needs some qualifications we consider an infinite horizon stochastic endowment economy populated by many bayesian agents with heterogeneous priors over the stochastic process of the states of nature our approach hinges on studying the portfolios that decentralize pareto optimal allocations since these allocations are typically history dependent we propose a methodology to provide a complete recursive characterization when agents believe that the process of states of nature is i i d but disagree about the probability of the states we show that even though heterogeneous priors within that class can indeed generate genuine changes in the portfolios of any dynamically complete markets equilibrium these changes vanish with probability one if the true process consists of i i d draws from a common distribution and the support of some agent s prior belief contains the true distribution finally we provide examples in which asset trading does not vanish because either i no agent learns the true conditional probability of the states or ii some agent does not know the true process generating the data is i i d

redistributive taxation in a small open economy this paper studies the effects of redistributing the tax burden across households on the current account the set up is a dynamic small open economy with infinitely lived households that have perfect foresight it is shown that the different speeds at which households adjust consumption levels to their long run values may cause nonmonotonic transient paths

zero time preference with discounting abstract for the uzawa class of utility functionals t 1 v c t e i t c i we investigate the case of v ct a 1 e ct the case has a zero rate of time preference and the functional attains a maximum in finite horizon problems of economic growth the curvature of the production function is crucial in determining the nature of the solution to problems in economic growth with the above optimand

a simple dynamic general equilibrium model abstract we analyse a single sector economy with h 1 infinitely lived agents that operate in a continuous time framework utility functions are recursive but not additive both efficient and perfect foresight competitive equilibrium allocations are considered the existence and stability of such allocations are investigated locally i e in a neighbourhood of steady state allocations the model is shown to be useful for explaining the distribution of wealth and consumption across agents and for analysing the way in which wealth redistribution can affect the dynamics of aggregate economic variables

changing tastes and effective consistency in a single commodity setting with changing tastes an individual s consumption plan can be obtained using naive or sophisticated choice we provide two sufficient conditions for when the solutions are unique and agree and the common plan is representable by a non changing tastes utility because the solution is not revised over time the plan and associated preferences are referred to as being effectively consistent afriat style revealed preference tests are derived the assumption of effective consistency can mitigate the problems of vulnerability to dutch books non existence of a competitive equilibrium and the aggregation of heterogeneous agents with changing tastes abstract from author

impatience and long run growth abstract this contribution is concerned with the possibility of a perpetual growth path at increasing rates in a nonconvex optimal growth model with endogenous discounting sufficient conditions for the existence of this path can be established when the economy is populated by agents whose impatience does not increase too much along the course of a consumption path in the opposite case the dynamical system is asymptotically described by a steady state however this steady state position need not be uniquely defined saddlepoint equilibria and locally oscillating unstable equilibria may alternate in spite of increasingly impatient agents along the growth process it remains optimal for a government to subsidize the competitive economy under a razor edge assumption on impatience a growing planning solution may coexist with a stationary competitive solution

path dependence in a ramsey model with resource amenities and limited regeneration this paper studies a ramsey optimal control economy with one consumer good extended to include several non renewable resources with amenity value the steady state equilibria of this economy are shown to form a continuum selection of the steady state to which the economy converges depends on the initial resource stocks hence unlike the usual ramsey models our model exhibits path dependency and postponement in the introduction of resource e ciency policies has long term e ects if the resource is renewable with a limited regeneration function the continuum becomes a turnpike that is optimal paths move along it towards the unique steady state the results also hold when there are several consumers 2003 elsevier b v all rights reserved

decreasing and increasing marginal impatience and the terms of trade in an interdependent world economy abstract using a two good two country model we examine macroeconomic adjustment by allowing for decreasing and increasing marginal impatience dmi and imi in the reference case where both countries have imi a negative output shock in one country lowers the interest rate and both countries welfare levels in steady state whereas when either one country has dmi the negative income shock raises the interest rate thereby benefiting the imi country and harming the dmi one in steady state in a country either with imi or dmi the harberger laursen metzler effect takes place if negative welfare supporting effects dominate positive income compensating effects

generation flexibility in ramp rates strategic behavior and lessons for electricity market design abstract a ramp rate usually defines the speed at which an electric power producer can decrease or increase its production in limited time the availability of fast ramping generators significantly affects the economic dispatch especially in the systems with high penetration of intermittent energy sources e g wind power since the fluctuations in supply are common and sometimes unpredictable one of the regulatory practices of how to impel generators to provide their true ramp rates is to separate the stages of submitting the bids on ramp rate and production in this paper we distinguish two types of market structures one stage when electric power producers are deciding their production and ramp rate at the same time or two stage when generators decide their ramp rate first and choose their production levels at the second stage we employ one stage and two stage equilibrium models respectively to represent these market setups and use a conjectured price response parameter ranging from perfect competition to the cournot oligopoly to investigate the effect of the market competition structure on the strategic decisions of the generators we compare these two market setups in a symmetric duopoly case with two time periods and prove that in the two stage market setup the level of ramp rate is independent of the strategic behavior in the spot market and generally lower than the one offered in the one stage setup we also show that the ramp rate levels in one and two stage models coincide at the cournot oligopoly we extend the model to asymmetry several load periods portfolio bidding and uncertainty and show that withholding the ramp rate still occurs in both models our findings prove that market regulators cannot rely on only separating the decision stages as an effective measure to mitigate market power and in certain cases it may lead to an adverse effect

the global stability of efficient intertemporal allocations this paper describes a continuous time model of an economy with finitely many infinitely lived consumers and a finite number of capital goods two objectives are achieved first recursive nonadditive utility functionals are formulated and analyzed second these preference functionals are applied to analyze the nature of efficient allocations in a dynamic economy two classes of global turnpike propositions are proven which provide the basis for a model of the long run distribution of wealth these propositions also provide new perspective regarding existing stability literature based on additive utilities copyright 1987 by the econometric society

marshallian recursive preferences and growth abstract although alfred marshall adhered to the classical doctrine of impatience he thought that the act of saving might itself confer utility we model this by making the discount factor a function of savings in addition to providing an intuitive rationale for increasing marginal impatience marshallian time preference has interesting implications for macroeconomics marshallian preferences lower interest rates by stimulating savings paradoxically it is possible for a tax cut to lower interest rates in a marshallian economy in a growth model with marshallian consumers a permanent increase in government expenditures causes super crowding out of consumption and reduces the steady state capital stock

elastic capital supply and the effects of fiscal policy i introduction perfectly elastic or perfectly inelastic supply or demand curves have much to recommend them equilibrium analysis which would otherwise be fraught with ambiguity yields forth sharp predictions when one assumes either demand or supply are either perfectly elastic or inelastic nonetheless this is not the way we typically teach equilibrium analysis nor in most circumstances perform it neoclassical macroeconomics is an exception to this rule specifically capital accumulation models in which a representative agent maximizes the standard additively separable fixed discount factor utility function to which class most equilibrium business cycle models based on the neoclassical growth model belong imply a long run supply curve for capital which is perfectly elastic at the agent s fixed rate of time preference this property of what we will refer to as the standard model is and has been well known and well criticized even by users of the standard model 1 but the question of exactly where and when this assumption ceases to be innocuous i e for what sorts of experiments it is or isn t a harmless simplification has been given surprisingly short shrift 2 in this paper we explore the implications for the equilibrium analysis of the effects of changes in government purchases of relaxing this assumption in particular we explore the implications of replacing the fixed discount factor beta in the standard utility specification summation of beta sup t u c sub t l sub t where t 0 to infinity where c sub t and l sub t denote consumption and leisure at date t with an endogenous discount factor beta c sub t l sub t in this way discounting of future utility is allowed to depend on the agent s enjoyment of current consumption and leisure the lifetime utility function that results from this modification is of the sort first formulated by uzawa 1968 and epstein and hynes 1983 the latter of these in particular demonstrated through a series of examples the extent to which models with endogenous discount factors can differ substantially from their fixed discount factor counterparts while these earlier papers were primarily concerned with developing theoretical results our analysis will be primarily quantitative the possibility that the rate of time preference varies across individuals and over time or equivalently that the rate at which the future is discounted responds to the current and previous decisions of individuals is more than a theoretical curiosum to start with there is a substantial body of evidence that rates of time preference differ across individuals people are not equally patient much of this evidence is summarized in table 1 of becker and mulligan 1997 at the aggregate level they point to the fact that rich countries have grown slightly faster than poor countries over the past 30 years as suggesting that the residents of rich countries may have lower rates of time preference than residents of poor countries differences between the united states and japan in the age consumption profile are also consistent with differences in the rate of time preference between the united states and japan and the fact that income is associated with consumption growth suggests that the rich may be more patient than the poor detailed micro evidence on differences in rates of time preference across households is also presented by lawrance 1991 she finds that the rates of time preference of poor consumers are three to five percentage points higher than those of rich consumers using panel data for the united states from the psid ogaki and atkeson 1997 estimate a model in which time preference is allowed to vary across rich and poor households using household level panel data from india furthermore there is evidence that rates of time preference vary not just across individuals at a point in time but also over time

the effect of temporal risk aversion on optimal consumption the equity premium and the equilibrium interest rate this paper demonstrates that temporal risk aversion makes smoothing consumption over time less attractive while the usual risk aversion makes it more attractive as temporal risk aversion increases the equilibrium interest rate decreases and the equity premium increases this paper also shows a striking and novel result that an increase in time impatience can lead to either a decrease or an increase in the interest rate depending on the nature of the nonseparability

weakly nonseparable preferences and distortionary taxes in a small open economy this paper examines the dynamic effects of distortionary taxes in a small open economy the employed utility function implies both endogenous rates of time preference and a tractable form of weak nonseparability between consumption and leisure weak nonseparability induces novel long run welfare and wealth effects of taxes and generates very different current account movements endogenous rates of time preference facilitate the examination of a tax on international borrowing and lending copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

optimal growth with decreasing marginal impatience abstract this paper analyses the long run dynamics of a continuous time infinite horizon optimal growth model with identical households where the households rate of time preference is endogenously determined however unlike the existing literature we assume that households have decreasing marginal impatience i e the instantaneous discount rate is negatively related to the current consumption with this assumption we analyse the stability and uniqueness of the long run equilibrium we show that contrary to the general belief a negative relationship between the instantaneous discount rate and the household s current consumption does not necessarily result in instability of the dynamic system however even a stable system may be characterized by multiple equilibria so that the initial condition becomes important in determining the long run behaviour of the economy we derive a set of sufficient conditions for stability and uniqueness in this context

temporary and permanent government spending in a small open economy abstract this paper studies a dynamic optimizing small open economy model that emphasizes the supply side responses of labor and capital to changes in fiscal policy the model used generates results that are consistent with a number of empirical regularities in small open economies furthermore temporary fiscal shocks are shown to have permanent positive effects on output and negative effects on consumption and welfare the strength of these effects are shown to depend on intertemporal elasticities of substitution and the persistence of policies

on ramsey s conjecture efficient allocations in the neoclassical growth model with private information abstract in his seminal paper of 1928 ramsey conjectured that if agents discounted the future differently in the long run all agents except the most patient would live at the subsistence level the validity of this conjecture was investigated in different environments in particular it has been confirmed in the neoclassical growth model with dynamically complete markets this paper studies this conjecture in a version of this model that includes private information and heterogeneous agents a version of bayesian implementation is introduced and a recursive formulation of the original allocation problem is established efficient allocations are renegotiation proof and the expected utility of any agent cannot go to zero with positive probability if the economy does not collapse if the economy collapses all agents will get zero consumption forever thus including any degree of private information in the neoclassical growth model will deny ramsey s conjecture if efficient allocations are considered

finite lifetimes and growth abstract in this paper we study the long run growth property of overlapping generations models it is shown that in one sector models with convex technologies the asymptotic growth rate must be zero this results because the young do not have sufficient income to purchase a large capital stock thus a policy of income redistribution to the young can generate growth even if financed by income taxation additionaly it is shown that two sector models and one sector models with nonconvex technologies are consistent with growth

country size aggregate fluctuations and international risk sharing country size measured by either population or gross domestic product gdp is shown to be negatively related to the variances of aggregate output consumption and in vestment and positively related to the contemporaneous correlations of consumption and investment with output in a sample of fifty six countries these results however hold pri marily for the high income countries of the sample a subsample consisting of the twenty countries with the lowest per capita gdp exhibits a significant negative relationship only between investment volatility and country size these empirical regularities are shown to be consistent with the implications of international risk sharing among countries of asymmetric sizes in an international real business cycle model shocks in relatively large countries con stitute world wide risk to a greater extent than do similar shocks in smaller countries thus foreign shocks have a greater impact on small countries causing their aggregates to fluc tuate more and their consumption and investment to be less highly correlated with domestic output

dynamic stability in a two country model of optimal growth and international trade abstract despite an extensive literature on dynamic stability in optimal growth models of closed economies analogous work on internationally trading economies is scarce focusing only on the special case of a small open economy to address this scarcity the present paper establishes saddle path stability of equilibrium in an infinite horizon continuous time model of two large countries that grow optimally and trade freely the model has three products including a non traded capital good and an exogenously fixed rate of growth we also discuss briefly the dynamic stability implications of modifying the model to have only two goods or an endogenous growth rate

on the solution of revenue and network constrained day ahead market clearing under marginal pricing part i an exact bilevel programming approach the first of this two paper series addresses a practical day ahead auction model where generation revenue constraints are explicitly incorporated in the problem formulation as routinely done in several national electricity markets across europe the revenue constrained market clearing procedure includes the effect of the transmission network inter temporal constraints associated with generation scheduling demand side bidding and marginal pricing this auction design is an instance of price based market clearing which features two major complicating factors first locational marginal prices become decision variables of the optimization process in addition producer revenues are formulated as bilinear and highly nonconvex products of power outputs and market clearing prices the resulting problem is formulated as a mixed integer nonlinear bilevel program with bilinear terms for which available solution techniques rely on heuristics approximations or modeling simplifications this paper presents a novel and exact methodology whereby the original problem is recast as an equivalent single level mixed integer linear program as a consequence finite convergence to optimality is guaranteed and the use of standard commercial software is allowed the proposed transformation is based on duality theory of linear programming karush kuhn tucker optimality conditions and integer algebra results in the second part of this two paper series numerical results from several case studies illustrate the effective performance of the proposed solution approach

externalities and nonlinear discounting indeterminacy abstract this paper studies a one sector model with externalities and nonlinear discounting loosely if the bellman equation for a standard model is written as v k max u v k then the bellman equation for our model is written as v k max u b v k for some concave function b our model assumes that period utility u is linear in consumption and leisure and the production function exhibits increasing social returns and nonincreasing private returns we establish the existence of a steady state under fairly general conditions and give a necessary and sufficient condition for local indeterminacy we show that regardless of the degrees of increasing returns and externalities there exists a discount function b such that indeterminacy arises we also show that in a certain sense as the degree of increasing returns converges to zero the variability of discounting the second derivative of b required to generate indeterminacy also converges to zero numerical examples are provided the main results are also extended to a one sector model with fixed labor supply

the effects of ageing and an environmental trust fund in an overlapping generations model on carbon emission reductions most currently employed integrated assessment models for climate change are of a dynastic nature they employ the ramsey rule linking the interest rate economic growth and the rate of pure time preference this paper argues that although a dynastic framework might be convenient for economic analysis it is restrictive and can be misleading overlapping generations models which do not employ the ramsey rule are more flexible and may give results different from those derived from dynastic models with the integrated assessment model alice 2 0 it is shown how various assumptions on demographic change and public institutions can affect the interest rate thereby influencing the efficient greenhouse gas emission reductions it is concluded that dynastic integrated assessment models are in many respects inappropriate for providing policy makers with quantitative figures about the costs of carbon dioxide emissions and their desirable reduction levels 2001 elsevier science b v all rights reserved

optimal risk sharing with effort and project choice we consider first best risk sharing problems in which the agent can control both the drift effort choice and the volatility of the underlying process project selection in a model of delegated portfolio management it is optimal to compensate the manager with an option type payoff where the functional form of the option is obtained as a solution to an ordinary differential equation in the general case the optimal contract is a fixed point of a functional that connects the agent s and the principal s maximization problems we apply martingale duality methods familiar from optimal consumption investment problems

time preference and capital asset pricing models abstract results of the theory of individual optimal consumption investment choice under uncertainty are extended to a class of intertemporally dependent preferences for consumption streams these results are then used to show that with intertemporally dependent preferences which are more realistic than the separable time additive preference structure merton s 1973 multi beta intertemporal capital asset pricing model is still valid but it can no longer be collapsed to breeden s 1979 single consumption beta model

a theory of time preference grant a taylor this article proposes that people generally prefer present consumption to future consumption because their expected utility from consumption eventually falls as their mental and physical abilities eventually decline with age moreover contrary to the ubiquitous intertemporal formulation with a constant rate of time preference and contrary to three recent theories of time preference that predict decreasing discounting as people age this article asserts that discounting increases over the life cycle this hypothesis is supported by data from the panel study of income dynamics as well as evidence from numerous previous studies jel d91 1 introduction despite the almost universal assumption of time preference in models of intertemporal choice an adequate explanation of why people discount the future has not been provided 1 olsen and bailey 1981 make a convincing case for positive time preference by contradiction i e without time preference models of intertemporal choice do not yield predictions consistent with observed behavior but they do not explain why individuals would rationally discount the future 2 three recent studies have attempted to provide the explanation rogers 1994 argues that societies that discount the future at a rate of about 2 will be the long run survivors in an evolutionary fitness situation 3 posner 1995 argues that discounting occurs because individuals have multiple selves that is people are weighting their present consumption far more heavily than their future consumption because the present self and the future self are in some meaningful sense separate persons 92 becker and mulligan 1997 argue that discounting occurs because of a rational defective recognition of future utilities 730 but as will be shown these three theories are inconsistent with empirical evidence on consumption over the life cycle in at least one important aspect this article constructs and empirically supports a new theory of time preference the hypothesis is that people do not have an intrinsic preference for present consumption relative to future consumption instead the instantaneous utility function also known as the felicity function is expected to vary with age just as people s physical and mental abilities vary with age in other words the ability to enjoy consumption eventually deteriorates over the life cycle along with other abilities this life cycle view of the expected utility function causes people to rationally devalue consumption in periods of low expected felicity that is discount future consumption perhaps this is what is meant by the cliche don t wait until you are too old to enjoy it moreover this causes individuals implicit discount rates to vary systematically with age 4 in fact this provides the testable implication of the theory the standard specification of intertemporal preferences holds the discount rate constant over th e life cycle 5 to be more precise in the early stage of the life cycle the capacity to enjoy consumption may be expected to rise hence a young individual s discount rate may be negative figure 1 illustrates this possibility with a hypothetical adult life cycle marginal felicity function for a given level of consumption u sub c c a c denotes consumption and a denotes age and its corresponding discount rate function rho a the vast majority of wealth is held by older people that is those in the declining stage of their abilities thus the preference for present consumption over future consumption appears to hold in the aggregate this view of intertemporal preferences may at first seem inconsistent with practically all dynamic analyses which are based on the notion of stationary utility on further consideration however the hypothesis is quite consistent with modern consumer theory since becker 1965 it has been widely accepted that households derive utility from commodities that are produced with market goods combined with household time and skills i

capital accumulation and the current account in a two country model abstract this paper examines the joint determination of international debt and capital accumulation in a two country model national rates of time preference are endogenous adjusting along an optimal path to come into equality with one another in the steady state the characteristics of short run current account dynamics are crucially linked to world capital accumulation and to a country s long run net external asset position steady state creditor countries tend to have current account surpluses during episodes of world output growth and vice versa for debtor countries this gives rise to possible non monotonic adjustment in the current account and consumption

nonmonetary steady states in stationary overlapping generations models with long lived agents and discounting multiplicity optimality and consumption smoothing abstract we construct a sequence of pure exchange stationary olg economies in which generations have longer and longer life spans and all agents maximize a discounted sum of utilities with a fixed positive and common discount rate period utility functions and endowment patterns are subject to mild restrictions and within generation heterogeneity is permitted we show that i every sequence of equilibrium interest rates converges to the discount rate ii eventually every non monetary steady state is optimal and a monetary steady state will never exist and iii for any agent consumption at any fixed age converges to permanent income evaluated using the utility discount rate

intertemporal dependence impatience and dynamics abstract this paper develops simple geometric methods for analyzing consumer behavior under recursive but intertemporally dependent tastes since the preferences studied need not be time additive they allow the marginal utility of consumption on a given date to vary with consumption on other dates intertemporal dependence is induced by the presence of a variable individual rate of time preference the optimal consumption responses to transitory and anticipated changes in incomes and interest rates are easily derived and are similar in many respects to the responses implied by the standard constant time preference model intuitive explanations of the first order conditions describing optimal paths are provided

the dynamics of optimal wealth distributions with recursive utility abstract in an economy with two agents having recursive preferences an optimal wealth distribution is shown to be stable if and only if a perturbation results in the adversely affected agent becoming more patient than the positively affected one this implies a weaker stability condition than traditionally used in the literature

survival and long run dynamics with heterogeneous beliefs under recursive preferences i analytically characterize the long run behavior of an economy with two types of agents who differ in their beliefs and are endowed with homothetic recursive preferences agents with more incorrec

consumer payment minimization in power pool auctions this paper presents a new methodology within the framework of centralized optimization for calculating optimal generation schedules that minimize energy payments by power pool consumers this paper addresses issues related to market structure and the operation of power pools such as bid evaluation generator no load and start up cost recovery generator unit operating constraints and market clearing price determination unlike conventional unit commitment algorithms that minimize total energy production costs the method presented here minimizes payments by power pool consumers a payment minimization objective leads to a different unit commitment and dispatch solution and lower market clearing prices additionally optimal allocation of generator no load and start up costs over the scheduling period is integrated in the bid evaluation process leading to a further reduction in consumer payments

currency and credit are equivalent mechanisms i study a pure exchange economy with many agents whose marginal utility of consumption is stochastically heterogeneous and independent of wealth with realized marginal utility of wealth private information i show that currency and credit are equivalent to a contract that is efficient when the privacy of information is viewed as a constraint and that the cash in advance constraint is an expression of an incentive constraint

the study of the impacts of potential coalitions on bidding strategies of gencos the paper studies the impacts of potential coalitions on bidding strategies of gencos in a pool based power market the generator under consideration can form any potential coalition with other generators subgroups are then formed and each of these subgroups consists of some members which coordinate their bidding strategies to achieve a common goal noncooperative gaming applies among all the subgroups while cooperative gaming applies among the members in each subgroup by implementation of bids sensitivities the paper presents an algorithm for the members in each coalition subgroup to obtain optimal bids which essentially is based on interior point optimal power flow ipopf model a priority list produced after optimal bids are found for all the potential combinations of coalition is used by the generator under consideration to bargain with members on the list the algorithm and model are tested by the ieee 30 bus system and numerical results are presented

adjustment costs in investment time preferences and the current account abstract this paper studies the effects of supply and demand shocks on the optimal investment and savings decisions of economic agents in a small open economy the two building blocks of the setup are adjustment costs in investment and a recursive time preference structure it is shown that the model can mimic certain stylized facts

exercise of market power on ramp rate in wind integrated power systems with an increasing penetration of wind power there is likely to be an increasing need for fast ramping generating units these generators ensure that no load is lost if supply drops due to the uncertainties in wind power generation however it is observed in practice that in a presence of network constraints fast ramping generating units are prone to act strategically and exercise market power by withholding their ramp rates in this paper we model this gaming behavior on ramp rates we assume a market operator who collects bids in form of marginal costs quantities and ramp rates he runs a ramp constrained economic dispatch given the generators bids forecasted demand and contingencies following the game theoretic concepts we set up a multi level optimization problem the lower level problem is the ramp constrained economic dispatch and the higher level represents the profit maximization problems solved by strategic generators the whole problem is formulated as an equilibrium problem with equilibrium constraints epec the outcome of the epec problem is a set of nash equilibria to tackle the multiple nash equilibria problem the concept of the extremal nash equilibria is defined and formulated we model the concept of extremal nash equilibria as a single stage mixed integer linear programming problem milp and demonstrate the application of this mathematical framework on an illustrative case and on a more realistic case study with tractable results

balanced growth consistent recursive utility and heterogeneous agents abstract the replacement of time additive separability with recursive utility greatly expands the opportunity to incorporate heterogenous agents within ramsey optimal growth models dolmas has demonstrated that there exists a class of aggregator functions that are consistent with balanced growth paths this paper demonstrates that the restrictions imposed on the aggregator functions and on preferences to ensure the existence of steady state balanced growth will also imply that capital allocations are indeterminate

habit formation adjustment costs and international transmission of fiscal policy abstract the paper studies the effects of fiscal policy in an integrated world economy the setup is one with habit forming endogenous rates of time preference and adjustment costs in investment most of the predictions of the model are in line with the recent empirical literature on fiscal policy for instance in response to a balanced fiscal expansion we obtain positive long run output multipliers long run increases in employment short and medium run increases in wages and decreases in investment our results suggest that short run government spending multipliers are smaller than tax multipliers most importantly we show that the model can generate positive short and medium run consumption responses to a positive fiscal shock this is relevant as negative consumption responses are considered to be one of the main challenges facing neo classical models of fiscal policy

equilibrium existence in an overlapping generations model with altruistic preferences abstract we prove the existence of a competitive equilibrium in an overlapping generations model with altruistic preferences and nonnegative bequests in equilibrium some sequences of agents of successive generations may be continually linked by positive bequests and act as infinitely lived agents other sequences of agents may not be so linked and therefore behave as sequences of finite lived agents thus this paper adds to the literature on competitive equilibrium in dynamic models by endogenising the mix of finite and infinitely lived agents we also discuss optimality and provide some examples which exhibit interesting equilibria

modeling competition in transmission expansion a transmission network plays a key role in allowing access to the most efficient generators to all consumers in most cases the new transmission projects are defined by a system operator which focuses on improving the bulk system s reliability and reducing short term operating problems because electricity market participants are prevented from investing in transmission facilities that may benefit them transmission expansion may not have been sufficient to stimulate competition within the market in this paper the authors show formally through a mathematical formulation based on the lagrangian relaxation technique that the investment on transmission capacity can be a profitable activity and therefore the introduction of competition in the transmission expansion could be possible such a competitive expansion of transmission capacity would allow the participants to improve the efficiency of the electricity market

impatience and equilibrium indeterminacy abstract this paper extends the neoclassical one sector optimal growth model by postulating that individual agents time preference impatience depends on the economy wide average consumption and average income which are social factors taken as external by individual agents the paper shows that with the socially determined individual time preference local equilibrium indeterminacy can arise moreover local indeterminacy can also be associated with global indeterminacy in many cases the results hold in models with bounded and unbounded growth

price taker bidding strategy under price uncertainty this paper provides a framework to obtain the optimal bidding strategy of a price taker producer an appropriate forecasting tool is used to estimate the probability density functions of next day hourly market clearing prices this probabilistic information is used to formulate a self scheduling profit maximization problem that is solved taking advantage of its particular structure the solution of this problem allows deriving a simple yet informed bidding rule results from a realistic case study are discussed in detail

a new game theoretic framework for maintenance strategy analysis in this paper a new approach to maintenance scheduling of generating units msu in competitive electricity markets is presented the main contribution of this study can be focused on modeling a game theoretic framework for the msu problem to analyze strategic behaviors of generating companies gencos the msu problem is formulated as a dynamic noncooperative game with complete information the player corresponds to the profit maximizing individual genco and the payoff of each player is defined as the profit from the energy auction market the optimal strategy profile is defined by the nash equilibrium of the game numerical results for two genco systems are used to demonstrate the basic ideas of the proposed scheme and large scale ieee reliability test systems are also considered to show the applicability of the proposed framework the results obtained indicate that maintenance schedule can be one of the crucial strategic behaviors whereby genco maximizes their profit in a competitive market environment

the dynamics of efficient intertemporal allocations with many agents recursive preferences and production abstract the local dynamics of efficient allocations are studied for heterogeneous agent economies with production where preferences are recursive but not time separable in the case of a one sector neoclassical technology it is shown that optimal trajectories locally converge to a unique steady state provided that every agent s utility satisfies normality and increasing marginal impatience conditions in the two sector case with the above restrictions on preferences it is shown that oscillations can result only if the consumption goods sector is sufficiently capital intensive

a dynamic new keynesian life cycle model societal aging demographics and monetary policy in this paper we first construct a dynamic new keynesian model that incorporates life cycle behavior a la gertler 1999 in order to study whether structural shocks to the economy have asymmetric effects on heterogeneous agents namely workers and retirees we also examine whether considerations of life cycle and demographic structure alter the dynamic properties of the monetary business cycle model specifically the degree of amplification in impulse responses according to our simulation results shocks indeed have asymmetric impacts on different households and the demographic structure does alter the size of responses against shocks by changing the degree of the trade off between substitution and income effects

on impatience economic growth and the environmental kuznets curve a dynamic analysis of resource management the paper presents a dynamic analysis of natural resource management and investigates some key factors that affect optimal management and resource conservation using a recursive specification of time preferences we show how endogenous discounting and impatience can affect the motivation for both capital investments and environmental preservation we examine the relationships between economic growth and environmental quality endogenous discounting provides new insights in the economic dynamics underlying the environmental kuznets curve by treating growth as endogenous we examine how externalities and economic growth interact with each other we investigate how economic development can contribute to an increased demand for environmental preservation as an important new result we also show how poverty can contribute to environmental degradation

recursive preferences and balanced growth abstract we study a class of utility functions that are defined recursively by an aggregator w x y where u t w c t u t 1 in single agent economies it is known that a sufficient condition for the existence of a balanced growth path is that utility should be homogenous of degree in the context of a multi agent economy we show that this restriction implies that either a balanced growth equilibrium fails to exist or all agents have the same constant discount factor we suggest a generalization of recursive preferences wherein the intertemporal utility function is time dependent within this class we establish that there may exist a balanced growth equilibrium even if agents are different

application of actor critic learning algorithm for optimal bidding problem of a genco the optimal bidding for generation companies genco in the deregulated power market is an involved task the problem is formulated in the framework of the markov decision process mdp a discrete stochastic optimization method when the time span considered is 24 hours the temporal difference method becomes attractive for application the cumulative profit over the span is the objective function to be optimized the temporal difference technique and actor critic learning algorithm is employed an optimal strategy is devised to maximize the profit a market clearing system is included in the formulation simulation cases of three seven and ten participants are considered and the results obtained are discussed