cross hedging and forward contract pricing of electricity we consider the problem of an electric power marketer offering a fixed price forward contract to provide electricity that it purchases from a potentially volatile and unpredictable fledgling spot energy market one option for the risk averse marketer who wants to hedge against the spot price volatility is to engage in cross hedging to reduce the contract s profit variance and to determine the forward contract price as a risk adjusted price the sum of a baseline price and a risk premium we show how the marketer can estimate the spot price relationship between two wholesale energy markets for the purpose of cross hedging as well as the optimal hedge and the forward contract s baseline price and risk premium

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

life and work of john richard nicholas stone 1913 1991 sir richard stone knighted in 1978 and nobel laureate in economics in 1984 was one of the pioneering architects of national income and social accounts and one of the few economists of his generation to have faced the challenge of economics as a science by combining theory and measurement within a cohesive framework he was awarded the nobel prize in economics for his fundamental contributions to the development of national accounts but made equally significant contributions to the empirical analysis of consumer behaviour his work on the growth project was also instrumental in the development of appropriate econometric methodology for the construction and the analysis of large disaggregated macroeconometric models this paper provides an analysis of stone s many contributions

applied general equilibrium models of taxation and international trade an introduction and survey we wish to acknowledge the help of three referees and of john pencavel on several earlier drafts as well as the assistance of the modelers whose work is referred to in the paper they corrected our lack of understanding of their work and provided many other helpful comments excellent research and bibliographical assistance have been provided by debbie fretz radwan shaban and janet stotsky helpful comments have been made by charles ballard michael boskin lans bovenberg sylvester damus harvey galper glenn harrison gordon lenjosek jack mutti serena ng t n srinivasan charles stuart and eric toder the authors also acknowledgefinancial support from the national bureau of economic research the national science foundation international business machines and the social sciences and humanities research council ottawa canada

a feasible reform for the electricity supply industry in hong kong with the current scheme of control regulation for the hong kong electricity supply industry expiring in 2008 the government has sent out a consultation paper seeking views from the general public on its reform and possible future development this paper investigates the characteristics of the current agreement and the rationale for feasible reform of the hong kong esi it leads to a discussion on a proposed feasible reform using performance based regulation approach modeling and the associated implementation issues related to price capping risk analysis performance indices quality monitoring and governance

liquidity effects and the monetary transmission mechanism several recent papers provide strong empirical support for the view that an expansionary monetary policy disturbance generates a persistent decrease in interest rates and a persistent increase in output and employment existing quantitative general equilibrium models which allow for capital accumulation are inconsistent with this view there does exist a recently developed class of general equilibrium models which can rationalize the contemporaneous response of interest rates output and employment to a money supply shock however a key shortcoming of these models is that they cannot rationalize persistent liquidity effects this paper discusses the basic frictions and mechanisms underlying this new class of models and investigates one avenue for generating persistence we argue that once a simplified version of the model in christiano and eichenbaum 1991 is modified to allow for extremely small costs of adjusting sectoral flow of funds positive money shocks generate long lasting quantitatively significant liquidity effects as well as persistent increases in aggregate economic activity

the british model in britain failing slowly in 1990 britain reorganised its electricity industry to run on competitive lines the british reforms are widely regarded as successful and the model used provides the basis for reforms of electricity industries worldwide the main reason for this perception of success is major reductions in the real price of electricity with no reduction in service quality this paper examines whether the reputation of the british reforms is justified it concludes that the reputation is not justified and that serious fundamental problems are beginning to emerge the central question is have the british reforms resulted in the creation of efficient wholesale and retail markets on this criterion the reforms have failed the wholesale market is dominated by obscure long term contracts privileged access to the market and self dealing within integrated generator retailers leaving the spot markets with minimal liquidity and unreliable prices the failure to develop an efficient wholesale market places the onus on consumers to impose competitive forces on electricity companies by switching regularly small consumers will not do this and they are paying too much for their power for the future there is a serious risk that the electricity industry will become a weakly regulated oligopoly with a veneer of competition

merging electricity and environment politics of hong kong identifying the barriers from the ways that sustainability is defined abstract the present paper presents a study of the electricity policy of hong kong in an environmental political context through a critical review of the policy structure and rationale it identifies the barriers to developing a truly sustainable electricity policy system and is expected to shed light on the forthcoming electricity market reform in the territory the barriers stem from the path dependent institutional set ups that restrict a timely transformation of the roles of the actors and this is coupled with the government s treatment that does not look beyond these structural constraints overly appreciating scientific and economic rationalities than communicative actions the author is of the view that these are intensified by the sharp changes in the local political economy positive signs of change are dampened by the minimal progress in democratic development in the near future and the extension of the power companies monopolist status that will ruin the trust between the stakeholders compounding the guilt of those rigid regulatory constraints

some models for estimating technical and scale inefficiencies in data envelopment analysis in management contexts mathematical programming is usually used to evaluate a collection of possible alternative courses of action en route to selecting one which is best in this capacity mathematical programming serves as a planning aid to management data envelopment analysis reverses this role and employs mathematical programming to obtain ex post facto evaluations of the relative efficiency of management accomplishments however they may have been planned or executed mathematical programming is thereby extended for use as a tool for control and evaluation of past accomplishments as well as a tool to aid in planning future activities the ccr ratio form introduced by charnes cooper and rhodes as part of their data envelopment analysis approach comprehends both technical and scale inefficiencies via the optimal value of the ratio form as obtained directly from the data without requiring a priori specification of weights and or explicit delineation of assumed functional forms of relations between inputs and outputs a separation into technical and scale efficiencies is accomplished by the methods developed in this paper without altering the latter conditions for use of dea directly on observational data technical inefficiencies are identified with failures to achieve best possible output levels and or usage of excessive amounts of inputs methods for identifying and correcting the magnitudes of these inefficiencies as supplied in prior work are illustrated in the present paper a new separate variable is introduced which makes it possible to determine whether operations were conducted in regions of increasing constant or decreasing returns to scale in multiple input and multiple output situations the results are discussed and related not only to classical single output economics but also to more modern versions of economics which are identified with contestable market theories

agriculture s environmental externalities dea evidence for french agriculture the existence of persistent technical inefficiency offers the opportunity for a free lunch not typically implied by the neoclassical theory of the firm when external effects are related to the use of particular inputs reduction of persistent technically inefficient levels of input use represents a means of reducing external impacts an important example is found in agriculture where substantial environmental impacts are generated by particular inputs within this context this paper considers the usefulness of data envelopment analysis dea for estimation of potential input reductions and assessment of potential reductions of environmental impacts of agricultural inputs an application for french cereal production provides estimates that indicate that substantial potential exists for reduction of input use and environmental impacts

integration of price cap and yardstick competition schemes in electrical distribution regulation the disadvantages of traditional rate of return regulation for distribution tariffs have led to he development of new regulatory schemes to stimulate efficiency in the provision of the service under what has been called benchmark regulation the paper assesses the chilean model company regulation that aims at making the private distribution monopoly compete with a reference efficient model company through a yardstick competition approach it compares it with the price cap scheme used in electricity distribution in england and wales it contributes with a proposal to integrate both schemes the proposed hybrid methodology is developed and evaluated capturing the best characteristics of both regulatory schemes mathematical models to relate operational costs with electrical variables are developed

cost benefit analysis of reforming israel s electricity industry abstract in june 2003 the israeli government decided to reform the israeli electricity industry which is currently dominated by israel electric corporation iec a government owned vertically integrated electric utility the first step of the planned reform will be taken in 2006 when iec will be functionally separated into generation transmission local distribution and customer services immediately thereafter will be the second step which by 2012 will result in the deregulation and privatization of the wholesale generation and customer services transmission and distribution t and d services will remain regulated but will be available to all t and d users under mandatory open access this paper summarizes a cost benefit analysis of the government s reform plan relative to a regulated regime the government s plan even if carried out flawlessly may only yield a small net benefit however it entails a large increase in electricity producer profit and government tax receipt at the expense of electricity consumers a less than perfect transition to competition can easily wipe out the potential gain of the government plan market reform experience to date shows that electricity market reform can easily fail and the factors for success do not exist in israel since the outcome of a failing reform can be disastrous it will be imprudent to implement the government s plan in 2006 when the current electricity law expires hence we recommend performance based regulation for the period of 2006 2010 subject to an updated cost benefit analysis possible decentralization privatization and competition may follow

james tobin an appreciation of his contribution to economics jim tobin who died on march 11 2002 at the age of 84 was one of giants of economics of the second half of the twentieth century and the greatest macroeconomist of his generation tobin s influence on macroeconomic theory is so pervasive so much part of our professional acquis that many younger economists often are not even aware that it is his ideas they are elaborating testing criticising refuting or re inventing in this appreciation i consider tobin s scholarly contributions made over a period of more than 50 years tobin received the 1981 nobel memorial prize for his analysis of financial markets and their relations to expenditure decisions employment production and prices i consider his contributions to mean variance portfolio demand and asset pricing theory especially the portfolio separation theorem pitfalls in financial model building portfolio balance and flow of funds models and the credit channel the life cycle model and social security econometric methodology including the tobit estimator and his pioneering work using both time series and cross sectional data to estimate food demand functions economic growth tobin s q the tobin tax the monetary and fiscal policy effectiveness debate first with milton friedman and then with the new classical macroeconomics and real business cycle schools and tobin s approach to methodological questions including microfoundations and aggregation

liquidity effects monetary policy and the business cycle this paper presents a flexible price quantitative general equilibrium model with the property that a positive money supply shock drives the nominal interest rate down and aggregate employment output and the real wage up these implications are broadly consistent with postwar u s data the two key features of the model that are responsible for its properties are 1 money shocks have a heterogeneous impact on agents and 2 ex post inflexibilities in production give rise to a very low short run interest elasticity of money demand in our model the extent of the drop in the interest rate after a positive money supply shock depends on the degree to which production is ex post inflexible given sufficient ex post inflexibility the model conforms well with the view widely held within the u s federal system that the short run interest rate elasticity for total reserves is very close to zero copyright 1995 by ohio state university press

economic versus environmental improvement potentials of danish pig farms this article demonstrates how economic and environmental improvement potentials of danish pig farms can be estimated using data envelopment analysis dea to avoid some of the problems associated with the definition of undesirable outputs environmental variables are included as nutrients applied with manure and nutrients removed with the crops these environmental variables are combined with a series of economic variables including the costs of fertilizer furthermore subvector efficiency and a two step analysis are used in order to consider economic and environmental technical efficiency separately the empirical results show considerable improvement potentials especially on the environmental variables sensitivity studies validate that these results are robust to possible uncertainties in the measurement of the environmental variables

price flexibility and output stability an old keynesian view in this symposium i shall play the role in which i was cast the unreconstructed old keynesian considering the alternatives i do not mind being billed as a keynesian an old keynesian at that but old keynesians come in several varieties and i speak for no one but myself nor do i defend the literal text of the general theory several generations of economists have criticized amended and elaborated that seminal work i shall argue for the validity of the major propositions that distinguish keynesian macroeconomics from old or new classical macroeconomics

technical efficiency and impact of environmental regulations in farrow to finish swine production in taiwan this article demonstrates how technical efficiency and the impact of environmental regulations of taiwanese farrow to finish swine production can be estimated in the presence of undesirable outputs the issue of measuring technical efficiencies while considering undesirable outputs has been addressed by past studies but the proper method of including undesirable outputs has always been a subject of debate this article develops a data envelopment analysis dea based model that includes undesirable outputs the technologies of desirable output production and undesirable output control are considered simultaneously this allows one to transform undesirable output into desirable output whereby a traditional shephard distance function can be used to measure technical efficiencies an approach to measuring the impacts due to environmental regulations is then derived empirical results show that larger farms are more technically efficient than small sized farms but no clear conclusions can be reached for the measures of regulatory impact among farms with different sizes on average the sample farms incurred an opportunity cost due to environmental regulations equivalent to 9 8 of market value opportunity costs rise with efficiency

on the welfare macroeconomics of government financial policy is welfare as indicated by per capita private and collective consumption lower in longrun steady states with higher inflation rates on the one hand inflation diverts resources from production to economizing of cash holdings on the other those same economies create extra room for capital in the portfolios of finite horizon savers and seignorage from inflationary money creation permits tax reductions favorable to accumulation of wealth and capital it is shown that the optimal inflation may be positive therefore contrary to feldstein sacrifices of current output and employment may not be justified by the disinflation they bring about

nominal wage rigidity and the rate of inflation using the accurate and extensive data available in the uk new earnings survey this paper investigates the extent to which nominal wages are downwardly rigid and whether such rigidity interferes with necessary real wage adjustments when inflation is low despite the substantial numbers of individuals whose nominal wages fall from one year to the next we find that if long run inflation is one percent higher the number of individuals with negative real pay growth increases by around 1 4 percent this is controlling for the median and dispersion of the real wage change distribution

commodity price stabilization in imperfect or cartelized markets most studies of commodity price stabilization assume that all agents behave competitively however many commodities suitable for stockpiling are produced by countries with a significant share of the world market and commodity agreements themselves often result in cartelization of the market the paper explores the consequences of market power for the choice of storage rule and the degree of price stabilization it finds that with linear demand dominant producers choose more stable prices than under perfect competition and price stability increases with their market share with constant elastic demand the competitive degree of price stabilization is achieved

why are prices sticky preliminary results from an interview study this paper reports preliminary results from a large research project on business pricing which is currently underway the idea is to use interviews with actual price setters to assess the validity of a dozen theories of price stickiness the rather unorthodox for economists methodology is defended the research design is described briefly and a few results based on the first 72 interviews out of a projected 200 are presented this sample suggests that the median firm changes its price annually and that price adjustments typically lag 3 4 months behind shocks to demand or cost this abstract was borrowed from another version of this item

an intertemporal general equilibrium model of asset prices this paper develops a continuous time general equilibrium model of a simple but complete economy and uses it to examine the behavior of asset prices in this model asset prices and their stochastic properties are determined endogenously one principal result is a partial differential equation which asset prices must satisfy the solution of this equation gives the equilibrium price of any asset in terms of the underlying real variables in the economy in this paper we develop a general equilibrium asset pricing model for use in applied research an important feature of the model is its integration of real and financial markets among other things the model endogenously determines the stochastic process followed by the equilibrium price of any financial asset and shows how this process depends on the underlying real variables the model is fully consistent with rational expectations and maximizing behavior on the part of all agents our framework is general enough to include many of the fundamental forces affecting asset markets yet it is tractable enough to be specialized easily to produce specific testable results furthermore the model can be extended in a number of straightforward ways consequently it is well suited to a wide variety of applications for example in a companion paper cox ingersoll and ross 7 we use the model to develop a theory of the term structure of interest rates many studies have been concerned with various aspects of asset pricing under uncertainty the most relevant to our work are the important papers on intertemporal asset pricing by merton 19 and lucas 16 working in a continuous time framework merton derives a relationship among the equilibrium expected rates of return on assets he shows that when investment opportunities are changing randomly over time this relationship will include effects which have no analogue in a static one period model lucas considers an economy with homogeneous individuals and a single consumption good which is produced by a number of processes the random output of these processes is exogenously determined and perishable assets are defined as claims to all or a part of the output of a process and the equilibrium determines the asset prices our theory draws on some elements of both of these papers like merton we formulate our model in continuous time and make full use of the analytical tractability that this affords the economic structure of our model is somewhat similar to that of lucas however we include both endogenous production and

menu costs and the neutrality of money a model of endogenous price adjustment under money growth is presented firms follow s s pricing policies and price revisions are imperfectly synchronized in the aggregate price stickiness disappears and money is neutral the connection between firm price adjustment and relative price variability in the presence of monetary growth is also investigated the results contrast with those obtained in models with exogenous fixed timing of price adjustment

rules of thumb for social learning this paper studies agents who consider the experiences of their neighbors in deciding which of two technologies to use we analyze two learning environments one in which the same technology is optimal for all players and another in which each technology is better for some of them in both environments players use exogenously specified rules of thumb that ignore historical data but may incorporate a tendency to use the more popular technology in some cases these naive rules can lead to fairly efficient decisions in the long run but adjustment can be slow when a superior technology is first introduced

undesirable outputs in efficiency valuations abstract efficiency measurement is usually based on the assumption that inputs have to be minimized and outputs have to be maximized in a growing number of applications however undesirable outputs are incorporated into the production model which have to be minimized in this paper various approaches for treating such outputs in the framework of data envelopment analysis dea are discussed and the resulting efficient frontiers are compared new radial measures are introduced which assume that any change of the output level will involve both undesirable and desirable outputs

modeling undesirable factors in efficiency evaluation abstract data envelopment analysis dea measures the relative efficiency of decision making units dmus with multiple performance factors which are grouped into outputs and inputs once the efficient frontier is determined inefficient dmus can improve their performance to reach the efficient frontier by either increasing their current output levels or decreasing their current input levels however both desirable good and undesirable bad factors may be present for example if inefficiency exists in production processes where final products are manufactured with a production of wastes and pollutants the outputs of wastes and pollutants are undesirable and should be reduced to improve the performance using the classification invariance property we show that the standard dea model can be used to improve the performance via increasing the desirable outputs and decreasing the undesirable outputs the method can also be applied to situations when some inputs need to be increased to improve the performance the linearity and convexity of dea are preserved through our proposal

inflation and unemployment the world economy today is vastly different from the 1930s when seymour harris the chairman of this meeting infected me with his boundless enthusiasm for economics and his steadfast confidence in its capacity for good works economics is very different too both the science and its subject have changed and for the better since world war ii but there are some notable constants unemployment and inflation still preoccupy and perplex economists statesmen journalists housewives and everyone else the connection between them is the principal domestic economic burden of presidents and prime ministers and the major area of controversy and ignorance in macroeconomics i have chosen to review economic thought on this topic on this occasion partly because of its inevitable timeliness partly because of a personal interest reaching back to my first published work in 1941

multilateral productivity comparisons when some outputs are undesirable a nonparametric approach multilateral productivity comparisons of firms producing multiple outputs some of which are undesirable are obtained by making two modifications to the standard farrell approach to efficiency measurement the restriction that production technology satisfy strong disposability of outputs is relaxed to allow for the fact that undesirable outputs may be freely disposable and the efficiency measures are modified to allow for an asymmetric treatment of desirable and undesirable outputs performance measures that satisfy these requirements are calculated as solutions to programming problems the methodology is applied to a sample of mills producing paper and pollutants

liquidity loanable funds and real activity abstract this paper develops a general equilibrium model of two traditional explanations of the monetary black box linking money and real activity the liquidity effect and the loanable funds effect these effects are modeled with a monetary production economy in which central bank injections of cash are funnelled into the economy through the credit market since only borrowers have direct access to the newly injected cash monetary injections cause nominal interest rates to fall if firms are borrowers then monetary injections also increase current and future real activity

electricity regulation and electricity market reforms in china the electricity industry of china has been in a process of reforms since the 1980s this paper gives a review on the three main stages of reforms in china so as to trace out key features of various reform measures including those for power investment financing the separation between government and power enterprises and the division between power generation firms and power grids the findings suggest that further regulatory change in china s electricity market reform is necessary when integration of the electricity markets and increased competition are paving the way ahead for a market oriented structure prospective electricity regulation in the form of a strong legal system and effective institutions that protect market competition and promote appropriate incentives for efficiency are suggested in the paper

convergence of least squares learning in environments with hidden state variables and private information we study the convergence of recursive least squares learning schemes in economic environments in which there is private information the presence of private information leads to the presence of hidden state variables from the viewpoint of particular agents by applying theorems of ljung we extend some of our earlier results to characterize conditions under which a system governed by leastsquares learning will eventually converge to a rational expectations equilibrium we apply insights from the learning results to formulate and compute the equilibrium of a version of townsend s model

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

did technology shocks cause the 1990 91 recession real business cycle theory has been used to determine the statistical properties of aggregate fluctuations induced by technology shocks the finding is that technology shocks have been an important contributor to fluctuations in the u s economy for example finn e kydland and prescott 1991 estimate that if the only impulses were technology shocks the u s economy would have been 70 percent as volatile as it has been over the postwar period in this paper we employ the theory to answer the question did technology shocks cause the 1990 1991 recession answering this question requires the determination of the effects of technology shocks on the path of the economy the procedure that we use to make this determination is as follows first we construct a model economy and calibrate it so that its steady state matches actual 1987 values data for other years are used to determine the realizations of the shocks and the nature of the stochastic processes generating these shocks given these stochastic processes the equilibrium decision rules for our calibrated economy are computed we then construct the path for the economy implied by the model for the period 1984 1 1992 3 we set 1984 1 model values of the state variables equal to actual 1984 1 values and use the decision rules and the realized shocks to construct this path finally we examine whether the model economy experiences a recession in 1991 as did the u s economy business cycles are variations in output per adult that are in large part accounted for by variation in the per adult time allocated to market production figure 1 plots the time path of the per adult labor input during the 1983 1 1989 1 period there was a remarkable 12 percent increase in the labor input per adult beginning in 1990 2 there has been a decline of nearly 6 percent in this per adult labor input an unusual feature of the recovery subsequent to the 1990 1991 recession is that this labor input variable has continued to decline well into the recovery this unusual behavior leads to a related question did technology shocks cause the slow recovery we found it necessary to modify the standard real business cycle model in four ways in order to answer the posed question first given the enormous changes in the relative prices of durables as depicted in figure 2 we could not treat technology change as being neutral with respect to different types of final goods following john b long and charles plosser 1983 and jeremy greenwood et al 1992 we consider multiple production sectors with technology change differing across sectors second we assume that there is a technology employed within the household sector that produces a consumption flow from the stock of consumer durables third we consider land to be a factor of production in addition to labor and capital our fourth modification is to introduce population growth

econometric estimation of technical and environmental efficiency an application to dutch dairy farms in this article we estimate the technical and environmental efficiency of a panel of dutch dairy farms nitrogen surplus arising from the application of excessive amounts of manure and chemical fertilizer is treated as an environmentally detrimental input a stochastic translog production frontier is specified to estimate the output oriented technical efficiency environmental efficiency is estimated as the input oriented technical efficiency of a single input the nitrogen surplus of each farm the mean output oriented technical efficiency is rather high 0 894 but the mean input oriented environmental efficiency is only 0 441 intensive dairy farms are both technically and environmentally more efficient than extensive farms

estimating demand elasticities under rationing eliminating rationing in the united kingdom following the second world war was a concern for policy makers because of potentially large fluctuations in post war prices and the impact on unrationed goods this study shows that in using virtual prices elasticities can be estimated from a free demand system consistent with observed consumer choices substitution estimates without accounting for rationing are misleading in contrast using virtual prices and estimating a free market system yield results similar to those of the pre war period results show that food rationing affected expenditure across unrationed goods rationing on other services had little effect on expenditure across unrationed goods

adaptive learning and the transition to fiat money this article explores some implications of adaptive learning for monetary evolution using a search theoretic framework that allows for media of exchange network effects adaptive learning precludes any voluntary transition to a fiat standard from a non monetary state of nature and can account for the historically observed tendency for fiat monetary standards to emerge only following the prior appearance of commodity money and the widespread employment of redeemable banknotes adaptive learning can also account for governments frequent resort to coercive measures to force a switch to fiat money and for their ability to affect such a switch even when doing so is not pareto optimal exchange media fall into the general category of products for which the utility that a user of the good derives from use of the good increases with the number of other agents using the good katz and shapiro 1985 p 424 there are two reasons for these positive network effects 1 indirect the more agents who employ a particular medium of exchange the more likely it is that prices will be quoted in terms of that medium of exchange i e that the medium of exchange will also serve as the economy s principle medium of account the costs of exchange are less for a medium of exchange that trades at par this indirect external effect is analogous to one encountered in computer hardware the more purchasers of a particular kind of hardware the more likely manufacturers of software are to supply compatible products 2 direct the more persons who use a particular exchange medium the better its quality or performance this direct network effect is analogous to one encountered in communications technologies such as telephones the analogy is especially close for fiat money which is useless to an isolated individual this article examines some ways in which media of exchange network effects influence the evolution of monetary standards and especially their role in determining both when and how a transition may occur from barter or commodity money to fiat money the approach taken here emphasises the role of adaptive learning where agents select exchange strategies that reflect static expectations concerning other agents preferred strategies although the exchange game agents play generally has multiple nash equilibria including one in which all agents accept fiat money adaptive learning precludes a spontaneous transition from barter to a fiat monetary standard even where a fiat standard would be welfare enhancing yet such learning does not rule out the spontaneous evolution of a commodity money standard or the eventual substitution of redeemable banknotes for commodity money readers familiar with the literature on network effects will recognise this

electricity market reform failures uk norway alberta and california an analysis of electricity market reforms already taken place in the uk norway alberta canada and california usa leads to our overall conclusion that the introduction of a competitive generation market of itself has failed to deliver reliable service at low and stable prices the market reform failures are attributed to market power abuse by few dominant sellers especially at times of transmission congestion poor market design that invites strategic bidding by suppliers the lack of customer response to price spikes capacity shortage caused by demand growth not matched by new capacity and thin trading of forward and futures contracts that are critical for price discovery and risk management the paper then explains why an electricity market reform can easily fail to deliver the promised gains of better service at lower and more stable prices the policy implication is that an electric market reform can be extremely risky and may lead to a disastrous outcome thus it is imprudent to implement such a reform in countries with limited sites for newgeneration and no indigenous fuels e g israel and hong kong these countries should therefore consider introducing performance based regulation that can immediately benefit electricity consumers in terms of lower prices more stable prices improved reliability more choices while encouraging the electric sector to pursue efficient operation and investment r 2003 elsevier science ltd all rights reserved

service quality in the electricity industry the role of privatization and managerial behavior abstract this paper analyzes the relationship between privatization and service quality in the electricity industry and tests the hypothesis that managerial behavior is a significant intervening factor the sample includes 31 italian distributors over the period 1998 2004 their quality performance is represented by continuity of supply an aspect of quality that is both contractible and regulated results of the empirical analysis suggest that the transfer of shareholdings to private investors does not lead to quality degradation the results also suggest that managerial dominance translates into a reduction in supply quality this effect is likely to be particularly strong for public sector utilities

comments by professor james tobin professor tobin was invited to reflect upon the experiment in applied econometrics at the workshop convened to discuss the experiment s results he discussed his education in econometrics and the contexts both economic and technical in which his paper of 1950 on the demand for food was written he outlined the concerns facing econometricians of that time to explain some aspects of his approach and compared these to the worries of the econometricians taking part in the experiment 1997 john wiley sons ltd

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

richard stone s contributions to economics richard stone published his first scientific studies in the late 1930s during world war ii he worked on various government assignments his work during this period on national income estimates and more extensive national accounts for england turned out to be of particular importance for future research in economics stone was involved in this work as early as 1940 and carried out pioneering studies in collaboration with j e meade and in contact with j m keynes most of stone s writings are rigorously technical and soberly impersonal however in an article 45 1 on the development and use of national income estimates he added some interesting personal glimpses from this period he also formulated a somewhat more personal creed than is usually found in his works it would seem worthwhile to quote an excerpt anyone who believes in the maintenance of a social economy and the avoidance of the totalitarian direction of all aspects of economic life must be concerned at the present time with the creation of an institutional framework which will permit a social economy with the essential features of free markets free choice of occupations and free choice in the spending of disposable income to function more in accordance with contemporary social ideals in the achievement of this goal and in re drafting the rules of the economic game in such a way that both laissez faire and overall physical control are rejected as a basis for economic organization national income and expenditure studies and their extension to the technique of national budgeting have i believe a great deal to offer stone then went on to discuss how the economy can be made to function more in accordance with contemporary social ideals and referred first and foremost to stabilization of economic activity equalization of income distribution and different forms of intervention in the competitive mechanism

real business cycles a new keynesian perspective the debate over the source and propagation of economic fluctuations rages as fiercely today as it did 50 years ago in the aftermath of keynes s the general theory and in the midst of the great depression today as then there are two schools of thought the classical school emphasizes the optimization of private economic actors the adjustment of relative prices to equate supply and demand and the efficiency of unfettered markets the keynesian school believes that understanding economic fluctuations requires not just studying the intricacies of general equilibrium but also appreciating the possibility of market failure on a grand scale

measuring and decomposing sustainable efficiency in agricultural production a cumulative exergy balance approach environmental efficiency measures constructed using the materials balance principle have two important shortcomings 1 the ambiguity in the treatment of immaterial inputs and the various types of energy and 2 the lack of universally accepted weights for various material inputs these two limitations are primarily caused by the fact that the materials balance condition is strictly regulated by the law of mass energy conservation and that mass energy content cannot be a good physical common unit of various inputs the use of cumulative exergy content overcomes these problems the use of cumulative exergy content allows the inclusion of life cycle assessment hence facilitates the analysis of the cumulative pollution and total affects on natural resources the present study uses cumulative exergy content to construct new efficiency sustainable measures and decomposes them into technical efficiency and cumulative exergy allocative efficiency in agricultural production empirical applications on oecd agriculture yielded a number of important findings 1 oecd has the potential to save 72 3 of cumulative exergy consumption and improvements can be achieved by being more technically efficient and choosing a better combination of inputs 2 the sustainable efficiency varied enormously across countries and 3 the efficiency levels in 2003 was lower than in 1990 copyright 2010 elsevier b v all rights reserved

a further assessment of the hong kong government s proposed post 2008 regulatory regime for local electricity utilities abstract the current regulatory contract between the hong kong government and the two local power suppliers will expire in 2008 to elicit constructive ways to refine this regulatory contract upon its expiration in two years the hong kong government recently issued a public consultation paper an earlier viewpoint by woo horowitz and tishler 2006 warns that if the proposals provided in this consultation paper are fully adopted it will do more harm than benefiting the industry while its concern is valid that viewpoint has not suggested specific improvements of the existing arrangement and how incumbent firms incentives to invest will not be harmed under the new arrangement hence this viewpoint contributes to hong kong electricity policy debate by filling this gap with the hope of aiding the regulator to better regulate the market in the years after the current contract s expiration

the fiscal theory of the price level a critique abstract this paper argues that the fiscal theory of the price level ftpl has feet of clay the source of the problem is a fundamental economic misspecification the ftplconfuses two key building blocks of a model of a market economy budgetconstraints which must be satisfied identically and market clearing or equilibriumconditions the ftpl asssumes that the government s intertemporal budgetconstraint needs to be satisfied only in equilibrium this economic misspecification has far reaching implications for the mathematicalproperties of the equilibria supported by models that impose the structure of theftpl it produces a rash of contradictions and anomalies jel classifications e31 e41 e51 e52 e62 e63 key words fiscal theory of the price level ricardian fiscal financial monetaryprogrammes government budget constraint price level indeterminacy author willem h buiter european bank for reconstruction and development oneexchange square london ec2a 2jn uktel 44 20 73386805fax 44 20 73386110 6111e mail buiterw ebrd comweb page http www nber org wbuiter index htm

why money growth determines inflation in the long run answering the woodford critique woodford 2007 argues that it is not appropriate to regard inflation in the steady state of new keynesian models as determined by steady state money growth woodford instead argues that the intercept term in the monetary authority s interest rate policy rule determines steady state inflation in this paper i offer an alternative interpretation of steady state behavior according to which it is appropriate to regard steady state inflation as determined by steady state money growth the argument relies on traditional interpretations of the central bank s power in the long run and appeals to model properties that are common to textbook and new keynesian analysis according to this argument the only way the central bank can control interest rates in the long run is via affecting inflation and its only means available for determining inflation is by determining the money growth rate

efficiency wage models of unemployment keynesian economists hold it to be self evident that business cycles are characterized by involuntary unemployment but construction of a model of the cycle with involuntary unemployment faces the obvious difficulty of explaining why the labor market does not clear involuntarily unemployed people by definition want to work at less than the going wage rate why don t firms cut wages thereby increasing profits

the superiority of contingent rules over fixed rules in models with rational expectations the paper investigates the robustness of the proposition that in stochastic models contingent or feddback rules dominate fiped or openloop rules four arguments in favour of fixed rules are considere 1 the presence of an incompetent op malevolent policy maker 2 a trade off between flexibility and simplicity or credibility 3 the new classical proposition that only unanticipated stabilization policy has real effects 4 the time inconsistency of optimal plans in non causal models that is models in which the current state of the economy depends on expectations of future states the main conclusion is that the rational expectations revolution represented by arguments 3 and 4 does not affect the potential superiority of time inconsistent closed loop policies over time inconsistent open loop policies the case against conditionality in the design of policy must therefore rest on argument 1 or 2 which predate the new classical macroeconomics

increasing returns and the foundations of unemployment theory current approaches to macroeconomic theory divide roughly into two basic schools of thought one approach typically associated with rational expectations views the economy as basically at or near walrasian market clearing equilibrium in which case it becomes very difficult to explain away convincingly the undeniable persistence at times of involuntary unemployment another approach views the underemployed economy as being in a state of temporary fixed price disequilibrium in which case aside from having to repress suspicions that the essence of effective demand failure might not have to do with prices fixed at wrong values there is a lot of rationalising to be done about why profitable adjustments are so slow this paper argues that something like an internally consistent theory of steady state involuntary unemployment is possible and even plausible the cornerstone of this third approach is increasing returns to scale which blocks unemployed agents from breaking out of a low level equilibrium trap unless there is overall coordination or stimulation a simple model is presented which contains the basic ideas

a critical assessment of the hong kong government s proposed post 2008 regulatory regime for local electricity utilities abstract in december 2005 the hong kong government issued a consultation paper on future development of the electricity markets in hong kong stage ii consultation proposing a post 2008 regulatory regime upon the expiration of the existing regulatory contract between the hong kong government and each of the two local electricity utilities we assess the proposal using the criteria of safe reliable and environmentally friendly service at the lowest rates that will allow the utilities reasonable returns on their investments we caution that if fully adopted the highly risky proposal may lead to less reliable service without the compensating benefits to the environment

a dea approach for estimating the agricultural energy and environmental efficiency of eu countries this study attempts to evaluate the energy and environmental efficiency of the primary sectors of the eu member state countries the evaluation is based on a non radial data envelopment analysis dea model which allows for non proportional adjustments to energy inputs and undesirable outputs and thus it provides different estimations for energy and environmental efficiency scores the 2001 2008 time period was selected for this research one of the most important findings is that countries like germany sweden or austria with strong environmental protection standards appear to be less energy and environmentally efficient compared with countries like denmark belgium spain france or ireland in addition a series of eastern european countries achieve low efficiency scores which can be characterized as expectable due to low technology level being implemented in the primary production process there are also two sub periods for this research the first one 2001 2006 covers the fully coupled with specific cultivations period for subsidy administation and the second 2007 2008 where the new decoupled subsidy scheme was implemented there are significant hints for considerable changes of energy and environmental efficiency after the implementation of the the new cap with the new member states siginificantly differ of both energy and environmental efficiency copmared with the older ones

electricity tariffs in hong kong what went wrong and what can we do about it the hong kong economy has undergone radical changes over the past two decades and as a result profoundly affected the electricity supply industry the level of excess capacity maintained by the two vertically integrated utilities and the tariffs they charged are both one of the highest among all developed countries and they are the adverse results of the scheme of control regulation what happened in the local electricity market has drawn much criticism among researchers and consumer groups and major reform of the entire market is being suggested this paper outlines the structure of the electricity supply industry and its regulatory arrangement in hong kong and discusses the problems and inefficiencies caused by the specific type of regulation without compromising efficiency a number of policy alternatives are proposed with a view to rectify the current problems

performance based regulation of the electricity supply industry in hong kong an empirical efficiency analysis approach this paper presents an empirical efficiency analysis approach to analyze the efficiency and performance of utilities and its effects on prices under the price cap performance based regulation pbr model a data envelopment analysis dea like frontier based method is used to compute the total factor productivity with the malmquist productivity index results of case studies support the use of the approach to account for the relation of the x factor and the pbr model on the two power utilities in hong kong s electricity supply industry

the optimal cash balance proposition maurice allais priority maurice allais well deserved nobel prize fortuitously brought to our attention an injustice inadvertently done him to which we were unknowing accessories for years the literature has ascribed to us the parentage of the transactions cost model of optimal cash balances with its notorious square rootformula derivedfrom inventory theory recently we found that its essence is contained in allais 1947 economie et interet pp 238 41 as jacob viner used to say no matter to what source the origin of an economic proposition is ascribed someone is sure to come up with an earlier one in any event here is a translation of the pertinent passages allais describes the model in footnotes 11 and 12 to the following text pp 238 41

understanding real business cycles he 1 960s were a time of great optimism for macroeconomists many economists viewed the business cycle as dead the keynesian model was the reigning paradigm and it provided all the necessary instructions for manipulating the levers of monetary and fiscal policy to control aggregate demand inflation occurred if aggregate demand was stimulated excessively and unemployment arose if demand was insufficient the only dilemma faced by policymakers was determining the most desirable location along this inflation unemployment tradeoff or phillips curve the remaining intellectual challenge was to establish coherent microeconomic foundations for the aggregate behavioral relations posited by the keynesian framework but this was broadly regarded as a detail that should not deter policymakers in their efforts to stabilize the economy the return of the business cycle in the 1970s after almost a decade of economic expansion and the accompanying high rates of inflation came as a rude awakening for many economists it became increasingly apparent that the basic keynesian framework was not the appropriate vehicle for understanding what happens during a business cycle nor did it seem capable of providing the empirically correct answers to questions involving changes in the economic environment or changes in monetary or fiscal policy the view that keynesian economics was an empirical success even if it lacked sound theoretical foundations could no longer be taken seriously the essential flaw in the keynesian interpretation of macroeconomic phenomenon was the absence of a consistent foundation based on the choice theoretic framework of microeconomics two important papers one by milton friedman 1968 and the other by robert lucas 1976 forcefully demonstrated examples of

rational choice the contrast between economics and psychology rational choice the published record of a conference on economics and psychology frames the issues as a contest between economic theory and the falsifying evidence from psychology according to a third perspective that of experimental economics most standard theory provides a correct first approximation in predicting motivated behavior in laboratory experimental markets but the theory is incomplete particularly in articulating convergence processes in time and in ignoring decision cost this view has roots in the work of herbert simon and sidney siegel but it is not plainly represented in contemporary research in economic pyschology

sustaining china s electricity market development abstract china s 12th five year plan addresses new challenges and sets new goals in the country s power sector the structure of power generation development is to be optimised to properly balance coal transportation and power transmission the controversy over the direction of grid transmission and distribution is also to be reconciled the plan puts forward specific requirements for energy conservation developing clean energy optimising the production of coal fired electricity rationalising the allocation of peak power developing distributed energy and constructing a strong smart grid it also strongly advocates renewable and other forms of clean energy resources considering all the above goals and requirements it is necessary for china to adjust its blueprint for electricity market development by fine tuning the original market oriented reform momentum this paper aims to design a policy framework for this and discusses how china should develop policies and strategies to meet these requirements and achieve these goals examples of compatible international experiences illustrate how china can secure a sustainable energy future

justifying the incorporation of the materials balance principle into frontier based eco efficiency models frontier based models are an alternative to traditional eco efficiency ratio indicators this paper considers two different types environmentally adjusted production efficiency models and frontier eco efficiency models and tries to find justification for incorporating the materials balance principle mbp in them similar importance is attached to the economic and environmental outcomes of a production process like economic outcomes can be derived from inputs and outputs and respective prices some cases allow for deriving environmental outcomes from the production function with the mbp after an overview of attempts to incorporate environmental issues in production efficiency models and some reflections why mbp has been neglected in environmental economics and production efficiency analysis the paper gives basic principles to incorporate the mbp in conventional production efficiency methods and shows how this adjustment leads to a more diversified diagnosis of eco efficiency finally potentialities and bottlenecks are discussed exploiting the mbp in production efficiency and eco efficiency analysis will facilitate more pro active eco efficiency research