the optimal level of social security benefits the optimal level of social security benefits depends on balancing the protection that these benefits offer to those who lack the foresight to provide for their own old age against the welfare costs of distorting economic behavior the primary such cost is the distortion in private saving the present paper derives the level of social security benefits that is optimal in three basic cases in the first section the paper derives the optimal level of benefits for an economy in which all individuals do not anticipate retirement at all and therefore do no saving the second and third sections then derive optimal benefits for two different definitions of incomplete myopia

debt maturity without commitment i analyze how lack of commitment afiects the maturity structure of sovereign debt governments balance beneflts of default induced redistribution and costs due to income losses in the wake of a default their choice of short versus longterm debt afiects default and rollover decisions by subsequent policy makers the equilibrium maturity structure is shaped by revenue losses on inframarginal units of debt that re ect the price impact of these decisions the model predicts an interior maturity structure with positive gross positions and a shortening of the maturity structure when debt issuance is high output low or a cross default more likely these predictions are consistent with empirical evidence

electricity trading and negative prices storage vs disposal electricity cannot yet be stored on a large scale but technological advances leading to cheaper and more efficient industrial batteries make grid level storage of electricity surpluses a natural choice because electricity prices can be negative it is unclear how the presence of negative prices might affect the storage policy structure known to be optimal when prices are only nonnegative or even how important it is to consider negative prices when managing an industrial battery for fast storage a storage facility that can both be fully emptied and filled up in one decision period we show analytically that negative prices can substantially alter the optimal storage policy structure e g all else being equal it can be optimal to empty an almost empty storage facility and fill up an almost full one for more typical slow grid level electricity storage we numerically establish that ignoring negative prices could result in a considerable loss of value when negative prices occur more than 5 of the t

pension reform and economic performance under imperfect capital markets we consider an overlapping generations model where heterogeneous agents take decisions on consumption and investment in education under the assumption of imperfect capital markets we study how the introduction of a pay as you go and of a fully funded pension scheme affects output and lifetime opportunities and then analyse the impact of a pension reform the standard neutrality result for fully funded pension schemes does not hold in this framework we establish che conditions under which a fully funded scheme is associated with a higher investment in human capital we show that the transition path may involve poverty traps pension reform is nowadays one of the dominant issues in policy discussion and intervention in developing and transition economies as well as in western countries in eastern europe the process of conversion from centrally planned to decentralised market economies calls for a revision of social security systems problems of financial sustainability and equity towards future generations are the basis for the changes in the existing pension schemes of some western countries the choice of privatising social security undertaken by some developing countries see chile for instance is often referred to as the example to follow it is held that moving from public pay as you go pension schemes which nowadays represent the dominant organisational form for old age security to private fully funded ones would raise savings and eliminate factor market distortions therefore enhancing long term growth and welfare levels although the impact of social security on economic growth is the major concern emerging from policy discussion the limited direct application of economic literature to the analysis of the impact of old age security arrangements on growth shows that economic theory has not developed yet a set of tools suitable for this kind of investigation in this paper we restrict our attention to a particular aspect of this policy issue namely we address the following question what are the effects of a pension reform on lifetime opportunities and output to investigate this issue we first analyse the effects of the introduction of a pay as you go pension scheme and of a fully funded one on income levels and income distribution both in the short and in the long run we then proceed to discuss the impact on the same variables of the transition from a pay as you go pension scheme to

social security privatization a structure for analysis this paper identifies the key economic issues that must be addressed in the debate over a privatized social security system we examine a two pillar plan the first pillar would consist of a demogrant a small indexed pension of the same dollar amount for all retirees who had contributed to the system over a full lifetime of work the second pillar would consist of a fully funded individual defined contribution account financed by payroll taxes held in financial institutions and directed by participants we explore how such a system would affect the risks households face how it would alter the distribution of income and how it might influence household behavior including incentives to work and save and portfolio choices we also examine macroeconomic issues how the transition to a private plan would occur and what the likely effects would be on national saving we conclude that a two pillar system offers several positive features namely a reduction in political risk an increase in household portfolio choice and improved work incentives disadvantages include less redistributiveness and national risk sharing and increased administrative costs this abstract was borrowed from another version of this item

national and international privatisation of pensions abstract the paper analyses the switch from pay as you go to funded pensions pensions privatisation in a world with many small open economies it contrasts go it alone privatisation in one country with world wide privatisation in the go it alone case at least one generation necessarily loses in the world wide case the long run gains are substantially larger and depending on the nature of production technology an intergenerational pareto improvement is possible this generates a potential isolation paradox each country may individually reject privatisation because some people will lose but this need not happen if all privatised simultaneously this problem occurs because the adoption of payg pensions in any one country imposes international externalities on other countries via the impact on world interest rates

electricity prices large scale renewable integration and policy implications abstract this paper investigates the effects of intermittent solar and wind power generation on electricity price formation in germany we use daily data from 2010 to 2015 a period with profound modifications in the german electricity market the most notable being the rapid integration of photovoltaic and wind power sources as well as the phasing out of nuclear energy in the context of a garch in mean model we show that both solar and wind power granger cause electricity prices that solar power generation reduces the volatility of electricity prices by scaling down the use of peak load power plants and that wind power generation increases the volatility of electricity prices by challenging electricity market flexibility

the stuttering energy transition in germany wind energy policy and feed in tariff lock in this article aims to examine whether the formulation of specific low carbon policy such as the feed in tariff for wind energy in germany can partly be a barrier to a comprehensive energy transition energiewende despite their short and medium term success these policies could create a long term lock in if they are formulated in a way that leads to a stagnation of systems innovation the research finds that while the share of wind energy has increased rapidly over time the feed in tariff and other low carbon policies and incentives have not been sufficient to achieve a socio technical regime transition in germany yet we suggest that the german feed in tariff has incorporated wind energy a niche innovation and wind energy actors pathway newcomers into a slightly modified socio technical regime that is rather similar to the earlier fossil fuel dominant socio technical regime

how much redistribution is possible through commodity taxes abstract this paper aims to quantify the redistribution which can be attained as the outcome of indirect taxation this question is of crucial relevance to many countries which are constrained to depend primarily on indirect taxes i assess the maximum possible redistribution by imposing the most redistributive indirect taxation the public budget is balanced and the real income gain to the worst off is taken as the metric of redistribution ceilings on this metric are first obtained within a general set up and then in a number of specific models the resulting redistribution is found to be meager as this is the outcome of the most redistributive taxation redistribution from any real world indirect taxation will be even smaller

social contracts as assets a possible solution to the time consistency problem this paper presents a new solution to the time consistency problem that appears capable of enforcing ex ante policy in a variety of settings in which other enforcement mechanisms do not work the solution involves formulating a social contract institution or agreement that specifies the optimal ex ante policy the social contract is effectively sold by succesive old generations to successive young generations who pay for the social contract through the payment of taxes both old and young generations have an economic incentive to fulfill the social contract for the old generation breaking the social contract makes the social contract valueless and the generation suffers a capital loss by not being able to sell it for the young generation the economic advantage of purchasing the existing social contract exceeds its price as well as the economic gain from setting up the a new social contract

a method for estimating security of electricity supply from intermittent sources scenarios for germany until 20301 abstract in this paper we develop a methodology for deriving a consistent measure for supply adequacy in the power generation sector we especially consider the secured generation capacity of intermittent renewable energy sources such as wind availability of conventional power plants is estimated through stochastic convolution of unscheduled non usabilities we employ our methodology to measure supply security in germany until 2030 a detailed market analysis of power plants that are currently being built or planned provides support to our analysis for the short term for the long term we rely on a large scale dispatch and investment model of the european power sector to account for the embedding of the german electricity sector in the european market we analyze two scenarios one with prolongation of nuclear power plants and one with a nuclear phase out our results show that even though intermittent renewables only provide very limited secured generation capacity security of electricity supply in germany can be assured until 2015 in the long term the need for backup capacity for renewable energy sources increases as well as the need for electricity imports

the missing piece in policy analysis social security reform this lecture discusses the economic losses that result from an unfunded social security retirement system and the potential gain from shifting to a funded system the social security payroll tax distorts labor supply and the form in which compensation is paid although each individual s benefits are linked to that individual s previous payroll tax payments the low equilibrium rate of return inherent in an unfunded system implies a net payroll tax that causes distortions the resulting deadweight loss is 1 of each year s gdp in perpetuity an amount equal to 20 of payroll tax revenue and a 50 increase in deadweight loss of the personal income tax also there is the loss of investment income resulting from forcing employees to accept the low implicit return of an unfunded program rather than the much higher return paid on private saving or in a funded social security program the present value of the annual losses from using an unfunded system exceeds the benefit to those who received windfall transfers when the program began and when it expanded shifting to a funded program cannot reverse the crowding out of capital that has already occurred recognizing the existing unfunded obligation only makes that piece of the national debt explicit but shifting to a funded program limits crowding out of capital formation to the amount that already occurred future increases in annual saving that result from economic growth are able to earn the higher rate of return on real capital the present value of these gains is equivalent to a perpetuity of more than 2 of gdp a year the combi nation of improved labor market incentives and higher real return on saving has a net present value gain of more than 15 trillion an amount equivalent to three percent of each future year s gdp forever this abstract was borrowed from another version of this item

impact of renewables on electricity markets do support schemes matter abstract rising renewable shares influence electricity markets in several ways among others average market prices are reduced and price volatility increases therefore the missing money problem in energy only electricity markets is more likely to occur in systems with high renewable shares nevertheless renewables are supported in many countries due to their expected benefits the kind of support instrument can however influence the degree to which renewables influence the market while fixed feed in tariffs lead to higher market impacts more market oriented support schemes such as market premiums quota systems and capacity based payments decrease the extent to which markets are affected this paper analyzes the market impacts of different support schemes for this purpose a new module is added to an existing bottom up simulation model of the electricity market in addition different degrees of flexibility in the electricity system are considered a case study for germany is used to derive policy recommendations regarding the choice of support scheme

increasing returns and externalities in uk manufacturing myth or reality i apply the method of caballero and lyons to industry level data for uk manufacturing i find evidence for a positive external effect arising from the expansion of manufacturing as a whole but expansion at the sectoral level was found not to generate external effects nor was any evidence found for increasing returns which are internal to the industry here returns appear to be constant i argue that external effects at the level of aggregate manufacturing cannot be explained away as due to measurement error or cyclical effects however alternative explanations such as economy wide shocks cannot be totally excluded

pricing of reserves valuing system reserve capacity against spot prices in electricity markets this paper models the interdependencies between markets for secondary reserve capacity and spot electricity to derive the pricing of reserves under equilibrium conditions starting with the indifference condition between offering in both markets the reservation price is derived from the opportunity cost consideration and the unit commitment conditions in a fundamental interrelated market framework the reserve market examined compares widely to the german market for secondary reserves but the general approach may also be used to investigate other reserve markets the approach explores and formalizes the influence of reserve capacity on the spot market supply function a numerical solution procedure is provided to this non trivial case of market interaction the model is used to estimate the expected reservation price development over the last years in germany

the politics of intergenerational redistribution this paper studies the political economic equilibrium of a two period model with overlapping generations in each period the policy is chosen under majority rule by the generations currently alive the paper identifies a politically viable set of values for public debt any amount of debt within this set is fully repaid in equilibrium even without commitments by issuing debt within this set the first generation redistributes revenue in its favor and away from the second generation the paper characterizes the determinants of the equilibrium intergenerational redistribution and identifies a difference between debt and social security as instruments of redistribution

welfare effects of unfunded pension systems when labor supply is endogenous abstract a mandatory unfunded pension system can lead to welfare losses if the contributions are levied in such a way that the labor supply decision of the individuals is distorted this is shown in an overlapping generations model for a closed economy furthermore it is shown that under certain conditions a gradual abolition of unfuded pensions using lump sum contributions in the transition phase can lead to an intergenerational pareto improvement thus the paper extends a result recently derived by homburg for a small open economy to the closed economy case

explaining saving investment correlations national saving and investment rates are highly positively correlated in virtually all countries this is puzzling as it apparently implies a low degree of international capital mobility this paper shows that the observed positive correlation between national saving and investment rates arises naturally within a quantitatively restricted equilibrium model with perfect mobility of financial and physical capital the model is consistent with the fact that saving investment correlations are larger for larger countries but are still substantial for small countries further the model is consistent with the finding that current account deficits tend to be associated with investment booms copyright 1993 by american economic association

budget deficits and redistributive politics this paper proposes a new view of the forces in the political process that cause governments to accumulate debt the analysis builds on a model of redistributive politics that contrary to median voter models does not restrict the set of policies that politicians can propose i show that deficits occur even in an environment where voters and periods are homogeneous this is an environment where previous political theories of debt would predict budget balance in the model deficits are a way for candidates to better target promises to voters and are therefore used as tools of redistributive politics the main contribution of the analysis is to show that the same forces that push candidates to redistribute resources across voters to pursue political advantage are forces that generate budget deficits most countries have sizeable national debts indeed thinking of governments as debtors seems so customary that it feels awkward to talk about a national credit this suggests that there are systematic forces pushing governments to regularly borrow to cover the excess of spending over receipts at the same time a significant amount of government spending consists of transfers to special interest groups that are hard to justify on efficiency or equity grounds this paper presents a political economic model that suggests that these two phenomena are connected debt is at least in part caused by the fact that in order to get elected candidates need to appeal to groups of voters with promises of transfers debt allows candidates a finer control over the promises they make to these groups

a political theory of government debt and deficits in a neo ricardian framework in the presence of different abilities and therefore different bequests some individuals are bequest constrained even in a neo ricardian world such individuals vote for taxes on future generations through the issuance of bonds thereby increasing their current consumption this produces some crowding out of capital reduces wage rates and increases the interest rate as a consequence even unconstrained individuals are no longer indifferent to the size of government debt the paper derives conditions that are conducive to larger debt and deficits when each of the living generations determines current taxes social security benefits and the national debt by majority rule copyright 1989 by american economic association

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

economic curtailment of intermittent renewable energy sources abstract in a power system featuring a large share of intermittent renewables and inflexible thermal generators efficiency gains could be achieved by curtailing the production of renewables however as renewables feature very low variable production costs over curtailment can be costly in this article we use a stylised analytical model to assess this trade off we show that while curtailing renewables when their variability is high and the system flexibility is low can reduce generation costs the different stakeholders will not necessarily benefit from such measures as a consequence leaving this decision to generators will lead to a sub optimal level of curtailment either incentives to provide accurate res availability forecasts or alternatively centralised forecasting should be put into place to solve the resulting problem of asymmetry of information

social security national policies with international implications social security policies within individual countries are determined independently by national governments but the resulting outcome is inefficient compared with what would result from the international co ordination of policies this is because national social security policies produce international externalities via their effects on world interest rates an illustrative example suggests that the gains from co ordination are potentially significant virtually all countries operate social security or redistributive policies each chooses policies independently and to my knowledge no one either in a policymaking context or in the large literature on international policy co ordination has suggested that such decisions would benefit from international coordination 1 however a simple argument suggests that independent national social security policies are inefficient more specifically in the long run national governments make policy decisions which are too egalitarian this holds provided that social security lowers national saving in this case each national government faces a trade off between income redistribution and national saving and can be assumed to locate at the nationally optimal point on this trade off taking as given the world interest rate the latter is clearly not independent of the combined effect of all countries policies however if all countries expand social security the resulting fall in world saving will raise the world interest rate with adverse consequences for each national economy each country rationally ignores its own small contribution to the global outcome if this international externality were internalised by co ordination countries would relocate on the trade off between income redistribution and national saving demonstrating the existence of an externality says nothing about its quantitative significance i address this with an example which focuses on pay as you go payg retirement pensions in an economy with a mixture of forward looking and myopic individuals the pensions prevent destitution among retired myopes and thus effectively redistribute life time welfare but they also lower saving because of payg financing for all parameter values considered international co ordination of pensions policy decisions generates welfare gains which are larger for many parameter values substantially larger than recent estimates of the welfare gains from either the entire elimination of all cyclical fluctuations or the reduction of inflation and nominal interest rates from suboptimally high to optimal levels hence the issues addressed in the paper are quantitatively significant when judged against other frequently advocated i am grateful to two anonymous referees for helpful comments on earlier versions they are not responsible for the present version

scheduling and pricing for expected ramp capability in real time power markets higher variable renewable generation penetrations are occurring throughout the world on different power systems these resources increase the variability and uncertainty on the system which must be accommodated by an increase in the flexibility of the system resources in order to maintain reliability many scheduling strategies have been discussed and introduced to ensure that this flexibility is available at multiple timescales to meet variability that is the expected changes in system conditions two recent strategies have been introduced time coupled multi period market clearing models and the incorporation of ramp capability constraints to appropriately evaluate these methods it is important to assess both efficiency and reliability but it is also important to assess the incentive structure to ensure that resources asked to perform in different ways have the proper incentives to follow these directions which is a step often ignored in simulation studies we find that there are advantages and disadvantages to both approaches we also find that look ahead horizon length in multi period market models can impact incentives this paper proposes scheduling and pricing methods that ensure expected ramps are met reliably efficiently and with associated prices based on true marginal costs that incentivize resources to do as directed by the market case studies show improvements of the new method

on generation integrated energy storage generation integrated energy storage gies systems store energy at some point along the transformation between the primary energy form and electricity instances exist already in natural hydro power biomass generation wave power and concentrated solar power gies systems have been proposed for wind nuclear power and they arise naturally in photocatalysis systems that are in development gies systems can compare very favourably in both performance and total cost against equivalent non integrated systems comprising both generation and storage despite this they have not hitherto been recognised as a discrete class of systems consequently policy decisions affecting development or demonstration projects and policy approaches concerning low carbon generation are not fully informed this paper highlights that policy structures exist militating against the development and introduction of gies systems probably to the detriment of overall system good

privatizing social security at home and abroad a century has passed since otto von bismarck instituted the first social security system in germany since then government provision of retirement income has spread around the globe alleviating poverty among the elderly providing life span insurance via old age annuities overcoming the samaritan s dilemma by forcing everyone to save and in many countries extending coverage to include old age health insurance but for all the good it has done social security is severely limiting world saving investment and growth it threatens to bankrupt the young and future generations of some of the world s leading nations see jagadeesh gokhale et al 1996 it is the chain letter pay as you go method of financing social security that lies at the heart of the problem taking income from young savers and giving it to old spenders while placating the young with promises of repayment not only reduces national saving but straddles the next generation with the obligation the debt to meet these promises the size of these debts and the burden on the next generation will be much greater for countries with rapidly aging populations would privatization solve social security s problems this paper provides a framework for thinking about this issue

how does future income affect current consumption this paper tests a straightforward implication of the basic life cycle model of consumption that current consumption depends on expected lifetime income the paper projects future income for a panel of households and finds that consumption is closely related to projected current income but unrelated to predictable changes in income however future income uncertainty has an important effect consumers facing greater income uncertainty consume less the results are consistent with buffer stock models of consumption like those of deaton 1991 or carroll 1992a 1992b where precautionary motives greatly reduce the willingness of prudent consumers to consume out of uncertain future income

shoe leather costs reconsidered lucas has recently suggested that the shoe leather costs of inflation may amount to as much as 1 of gnp in the united states when moving to the friedman optimum we assess his thesis using empirical evidence for the united kingdom over the period 1870 1994 we find support for lucas proposition that interest rates should be specified in logs as a description of money demand dynamics but not as a steady state characterisation although lucas estimates can be corroborated a semilog interest rate specification implies smaller though still tangible welfare gain estimates for example 0 22 of gnp in perpetuity when moving from 6 to 2 nominal interest rates

the merit order effect a detailed analysis of the price effect of renewable electricity generation on spot market prices in germany the german feed in support of electricity generation from renewable energy sources has led to high growth rates of the supported technologies critics state that the costs for consumers are too high an important aspect to be considered in the discussion is the price effect created by renewable electricity generation this paper seeks to analyse the impact of privileged renewable electricity generation on the electricity market in germany the central aspect to be analysed is the impact of renewable electricity generation on spot market prices the results generated by an agent based simulation platform indicate that the financial volume of the price reduction is considerable in the short run this gives rise to a distributional effect which creates savings for the demand side by reducing generator profits in the case of the year 2006 the volume of the merit order effect exceeds the volume of the net support payments for renewable electricity generation which have to be paid by consumers

sensitivity of optimal commodity tax rates to alternative demand functional forms an econometric case study of india this study investigates on a nine commodity disaggregation of indian budget data nss 28th round the sensitivity of optimal commodity tax rates to alternative demand systems les and rnlps optimality is used here in the very special sense of being conditional on observed expenditure and fixed consumer prices the alternative sets of tax rates agree at low levels of inequality aversion but disagree widely at rawlsian levels les is heavily rejected in favour of its one parameter generalisation rnlps the results suggest that les price elasticities should not be used in optimal tax calculations the optimal tax rates imply only a modest redistribution

current account solvency and the feldstein horioka puzzle in this paper we suggest an alternative explanation of the high cross section association between shares of saving and investment in gdp which feldstein and horioka 1980 interpret as evidence of low capital mobility in oecd countries saving and investment shares appear to be i i we show that a solvency constraint implies that the current balance is stationary and thus that saving and investment cointegrate with a unit coefficient irrespective of the degree of capital mobility it is this long run relation that the fh cross section regression captures econometric results for 23 oecd countries over the 1960 92 period are consistent with this explanation

the effects of annuities bequests and aging in an overlapping generations model of endogenous growth we examine the effects of introducing actuarially fair annuity markets into an overlapping generations model of endogenous growth the complete annuitisation of agents wealth is not in general dynamically optimal the degree of annuitisation that is dynamically optimal depends nonmonotonically on the expected length of retirement and on the pay as you go social security tax rate the government has an incentive to restrict the availability of actuarially fair annuities contracts and can often move the economy from a pay as you go to a fully funded social security system via voluntary contributions to a government sponsored actuarially fair pension today accompanied by reductions in social security taxes tomorrow

risk premia in the german day ahead electricity market revisited the impact of negative prices abstract this paper replicates the study by viehmann 2011 that investigated risk premia in the german day ahead electricity market from october 2005 to september 2008 while estimated sizes of risk premia can be replicated this paper does not reproduce respective standard errors leading to remarkable differences between the reported significance levels an extension with data of preceding years points to further differences with respect to size and statistical significance in addition this paper analyzes the impact of negative prices on risk premia negative electricity prices were introduced in 2008 at the european power exchange epex and in 2013 at the energy exchange austria exaa the results of an econometric analysis suggest that the introduction of negative prices has led to a decrease in risk premia when compared to the period of a positive price regime

the effect of wind and solar power forecasts on day ahead and intraday electricity prices in germany abstract this study analyzes the effects of wind and solar power generation forecasts on electricity prices converse to the existing empirical literature in this area we apply a panel data analysis to control for endogeneity due to unobserved heterogeneity we use a dataset with 24 daily observations of day ahead and intraday prices from 2010 to 2016 and we apply a fixed effects regression under consideration of robust driscoll kraay standard errors a noteworthy element of the regression model is the simulation based design of a variable indicating the power generation technology that is price determining at a certain point in time in this context we differentiate between the fuel types coal gas and others to model the nonlinear price behavior for a varying demand for 2016 we find price dampening effects of both wind and solar power of approximately 0 6 mwh per additional gwh of feed in along with the rapidly increasing shares of wind and solar power of the total power generation during the last years their price dampening effect has declined since 2013 due to a drop in fuel prices another finding is that a reduction in forecasting errors on the power generation from wind and solar and smoothing of the cyclical demand would lead to a decreased price volatility

econometric analysis of 15 minute intraday electricity prices abstract the trading activity in the german intraday electricity market has increased significantly over the last years this is partially due to an increasing share of renewable energy wind and photovoltaic which requires power generators to balance out the forecasting errors in their production we investigate the bidding behaviour in the intraday market by looking at both last prices and continuous bidding in the context of a reduced form econometric analysis a unique data set of 15 minute intraday prices and intraday updated forecasts of wind and photovoltaic has been employed price bids are explained by prior information on renewables forecasts and demand supply market specific exogenous variables we show that intraday prices adjust asymmetrically to both forecasting errors in renewables and to the volume of trades dependent on the threshold variable demand quote which reflects the expected demand covered by the planned traditional capacity in the day ahead market the location of the threshold can be used by market participants to adjust their bids accordingly given the latest updates in the wind and photovoltaic forecasting errors and the forecasts of the control area balances

different approaches for dealing with social security he u s social security system is a government pension program financed by worker payroll taxes as workers pay in their payroll taxes they accumulate credits toward benefits in the language of pensions this is a defined benefit plan at any point in time one can project tax inflows and benefit outflows based on various economic and demographic assumptions and determine the long run actuarial soundness of the system or to put it another way determine whether the present set of tax and benefit schedules will be consistent in the long term every year such forecasts are made by the social security and medicare trustees now three cabinet officers the commissioner of social security and two outside members social security and medicare boards of trustees 1995 every four years a quadrennial advisory council is appointed to review these forecasts and to comment on relevant policy issues in the past many of these councils have had important impacts on social security policy for example the 1983 greenspan commission proposed a number of measures that saved the system from imminent financial difficulty and the 1975 council recommended changing procedures that had until then led to overindexation of social security for inflation another advisory council was formed in 1994 and i was asked to chair it it also included three members from business three from unions and six others from the private pension industry the self employment sector and independent

the effect of distributive goals on the time inconsistency of optimal taxes abstract in the context of a two period n consumer model of optimal wage and interest taxation this paper asks whether the government s distributive goals can inhibit its incentives to renege on its announced policies inconsistent interest tax increases may be moderated by distributed goals if they create an unacceptable utility distribution in the economy this result is developed for a general case its implications for welfare and savings are illustrated with numerical examples

wind power integration and power system flexibility an empirical analysis of extreme events in germany under the new negative price regime abstract in this article the flexibility of the german power market with respect to the integration of an increasing share of electricity from renewable energy sources was analysed flexibility limiting system components which cause negative prices are explained and illustrated for the german market the decision of the european energy exchange in leipzig to allow negative price bids is then explained the empirical data illustrate the flexibility of conventional generating capacities in germany from october 2008 to december 2009 of the 86 h of negative spot prices 19 h were significantly negative with prices of at least 100 mwh these extreme hours were analysed in greater detail by the examination of different system components thereby load wind power infeed and conventional generation by fuel type were observed as well as the market for negative tertiary reserve as indicators for market tightness although the market situations were found to be severe under the current conditions it could have been much worse in order to enable the market to clear at all times policy recommendations are provided and long run implications of an increasing res e share on the conventional generation capacity are discussed the article concludes with an outlook on additional power system flexibility options

aging pension reform and capital flows a multi country simulation model we present a quantitative analysis of the effects of population aging and pension reform on international capital markets first demographic change alters the time path of aggregate savings within each country second this process may be amplified when a pension reform shifts old age provision towards more pre funding third while the patterns of population aging are similar in most countries timing and initial conditions differ substantially hence to the extent that capital is internationally mobile population aging will induce capital flows between countries all three effects influence the rate of return to capital and interact with the demand for capital in production and with labor supply in order to quantify these effects we develop a computational general equilibrium model we feed this multi country overlapping generations model with detailed long term demographic projections for seven world regions our simulations indicate that capital flows from fast aging regions to the rest of the world will initially be substantial but that trends are reversed when households decumulate savings we also conclude that closed economy models of pension reform miss quantitatively important effects of international capital mobility this version 25 august 2004

how to deal with negative power price spikes flexible voluntary curtailment agreements for large scale integration of wind for the large scale integration of electricity from renewable energy sources res e the german system seems to reach its limits in 2009 the electricity wholesale market experienced serious negative prices at times of high wind and low demand the feed in system in germany consists of a fixed feed in price a take off obligation and a res priority rule and in practice only very restrictive use of res e curtailment exactly the latter is the problem we argue that the overall performance of the system would improve seriously by lifting the restrictions on the use of voluntary curtailment agreements while retaining the priority rule as such since generators of res e can only improve under this system reform investment conditions improve leading to higher installed res e capacity this in turn implies that reduced wind output due to curtailment can actually be offset by higher wind output in all periods in which there is no problem

economic assessment of concentrated solar power technologies a review abstract this paper surveys economic assessments of concentrated solar power csp technologies and finds two dominant assessment methods a majority of studies reported in the literature are based on the levelized cost of electricity lcoe while a small subset of studies consider time varying meteorological and electricity market conditions several studies argue that lcoe undervalues dynamic flexibility provided by thermal energy storage and does not consider revenue opportunities provided by electricity markets at different time scales as a result some studies find that both lcoe and revenue can in fact be conflicting metrics for certain designs and market conditions this review finds strong variations in lcoe and revenue estimates in the literature as comparisons between csp and other generation technologies e g fossil wind and photovoltaic are dictated by the chosen economic metric it is imperative that policy and investment decisions should carefully consider time varying effects and flexibility finally research directions are proposed to increasing the fidelity of economic assessments and to mitigate discrepancies

precautionary saving and accidental bequests this paper presents a simple general equilibrium model of precautionary saving and accidental bequests this model is used to analyze the implications of individual lifetime uncertainty for aggregate consumption and capital accumulation a precautionary demand for saving arises because an individual consumer does not know in advance the date at which he will die and he wants to avoid low levels of consumption in the event that he lives longer than expected an implication of this precautionary saving is that when death does occur the consumer is generally holding some wealth which is then passed on to his heirs in the form of an accidental bequest even if all consumers have the same ex ante mortality probabilities there will be some intracohort variation in the date of death consequently there will be a nondegenerate distribution of bequests left by consumers in a cohort this nondegenerate distribution of bequests left by one generation induces variation in the distributions of wealth consumption and bequests of subsequent generations the importance of bequests in aggregate saving has been established by laurence kotlikoff and lawrence summers 1981 who reported that 80 percent of u s household wealth is inherited wealth one interpretation of this finding is that the simple life cycle model without bequest motives is an inadequate description of saving behavior in the united states but the model i present demonstrates that accidental bequests by selfish consumers can account for a potentially sizeable fraction of aggregate wealth although some part of bequests especially by the wealthy undoubtedly results from an explicit bequest motive accidental bequests also play a role in the intergenerational transfer of wealth as well as in the intragenerational variation in wealth in order to focus on the role of accidental bequests i purposely exclude a bequest motive from the specification of the utility function the effects of lifetime uncertainty on individual consumption behavior were first examined formally in a seminal paper by menachem yaari 1965 yaari s model provided the basic framework for virtually all subsequent work on uncertain lifetimes including well known papers by nils hakansson 1969 stanley fischer 1973 robert barro and james friedman 1977 david levhari and leonard mirman 1977 and kotlikoff and avia spivak 1981 however all of these papers focused on the consumption decision of an individual and ignored the effect of accidental bequests on the behavior of the recipients of these accidental bequests 2 as will be shown at various points in this paper changes in the economic environment can have effects on aggregate behavior which differ sharply from the effects on individual behavior because of the endogenous adjustment of bequests the effects of department of economics harvard university cambridge ma 02138 this paper is a revised version of bequests and social security with uncertain lifetimes nber working paper no 1372 june 1984 i thank olivier blanchard john burbidge christopher cavanagh robert clower stanley fischer benjamin friedman elhanan helpman mervyn king nobuhiro kiyotaki laurence kotlikoff robert mcdonald james pesando julio rotemberg lawrence summers lars svensson mark watson and jeffrey wolcowitz for valuable conversations and correspondence i also thank the participants in seminars at boston university columbia university cornell university federal reserve board harvard university university of iowa mit university of minnesota university of montreal national bureau of economic research north carolina state university the wharton school and yale university and two anonymous referees for their helpful comments i also thank the national science foundation for financial support 1 in the presence of perfect annuity and life insurance markets there may or may not be bequests depending on the presence or absence of a bequest motive but there would be no accidental bequests 2 kotlikoff and spivak focus on the role of the family in providing an incomplete annuities market but stop short of a full scale overlapping generations model in which the distribution of bequests is determined endogenously

savings investment and international capital flows abstract the high correlation between national savings and domestic investment rateshas been interpreted as evidence that capital is not internationally mobile this paper surveys the theory and evidence on the relationship between savings and investment in a sample of 23 oecd countries a positive correlation between savings and investment rates is found in both the short and long runs however a wide variety of models generate such co movements in savings and investment in response to exogenous disturbances even under conditions of complete financial markets thus the savings investment correlation provides little evidence on the question of international capital mobility

why is capital so immobile internationally possible explanations and implications for capital income taxation the evidence on international capital immobility is extensive including the lack of international portfolio diversification real interest differentials across countries and the high correlation between domestic savings and investment the authors develop a model with asymmetric information between countries that helps rationalize all the above observations and then examine the implications of this model for optimal domestic tax policy without asymmetric information past work showed that small open economies should not impose corporate income taxes with asymmetric information the optimal policy instead involves government subsidies to capital imports some omitted factors that argue against subsidizing capital imports are explored briefly copyright 1996 by american economic association

promoting the market and system integration of renewable energies through premium schemes a case study of the german market premium abstract with the share of renewable energies within the electricity sector rising improving their market and system integration is of increasing importance by offering plant operators a premium on top of the electricity market price premium schemes represent an option to increase the alignment of renewable electricity production with market signals and have been implemented by several eu member states this paper examines the case study of the german market premium scheme adopted in 2012 building on an evaluation of early experiences we discuss whether the market premium contributes to the aims of market and or system integration effectiveness and what potential efficiency gains and additional costs of administering integration are associated with it efficiency while exposing renewables to price risks is not the scheme s purpose it has successfully increased participation in direct marketing however risks of overcompensating producers for marketing and balancing costs are high and the benefits of gradually leading plant operators towards the market are questionable incentives for demand oriented production are established but they seem insufficient particularly in the case of intermittent renewable energy sources to conclude we provide an outlook on alternative designs of premium schemes and discuss whether they seem better suited for addressing the challenges ahead

wind power trading under uncertainty in lmp markets this paper presents a new model for optimal trading of wind power in day ahead da electricity markets under uncertainty in wind power and prices the model considers settlement mechanisms in markets with locational marginal prices lmps where wind power is not necessarily penalized from deviations between da schedule and real time rt dispatch we use kernel density estimation to produce a probabilistic wind power forecast whereas uncertainties in da and rt prices are assumed to be gaussian utility theory and conditional value at risk cvar are used to represent the risk preferences of the wind power producers the model is tested on real world data from a large scale wind farm in the united states optimal da bids are derived under different assumptions for risk preferences and deviation penalty schemes the results show that in the absence of a deviation penalty the optimal bidding strategy is largely driven by price expectations a deviation penalty brings the bid closer to the expected wind power forecast furthermore the results illustrate that the proposed model can effectively control the trade off between risk and return for wind power producers operating in volatile electricity markets

a note on optimal commodity taxation in india abstract optimal commodity tax rates are calculated and their redistributive impact is studied in the indian context using a new piglog demand system introduced in coondoo and majumder 1987 the results are compared with those obtained by ray 1986 on the same data using les and rnlps

interconnections and market integration in the irish single electricity market interconnections can be an effective way to increase competition and improve market integration in concentrated wholesale electricity markets with limited number of participants this paper examines the potential for interconnections and increasing market integration in the irish single electricity market sem we use a time varying kalman filter technique to assess the degree of market integration between sem and other large mature and interconnected wholesale electricity markets in europe including great britain gb the results indicate no market integration between sem and other european markets except for elspot and gb we show that the current state of market integration between sem and gb is just 17 indicating potential to improve market integration via increased interconnector capacity the results indicate that liquidity of wholesale markets might be a crucial factor in the market integration process while our results remain inconclusive in determining whether increased trade of renewables can improve market integration

does international coordination of pension policies boost capital accumulation within an olg framework we study a perfectly balanced pay as you go payg pension scheme in spite of its depressive impact on national saving payg is implemented for operating intergenerational transfers with international capital mobility the national adoption of payg determines a spill over effect through the world capital stock this creates a situation of interdependence among national pension policies that we model as a n countries dynamic game in contrast with previous literature it is shown that in general the international coordination of pension policies does not boost world savings and capital accumulation

redistributive impact of optimal commodity taxes evidence from indian data abstract optimal commodity tax rates are computed for different objective functions and their redistributive impact is studied using indian data the results indicate that while in general one should expect a limited impact on redistribution the redistributive impact at the observed tax rates is much below the potential