multidimensional mechanism design for auctions with externalities abstract in an auction with externalities a buyer s type is multidimensional and specifies the payoff he would get for each of the n 1 possible outcomes the seller keeps the object or buyer i i 1 n gets the object we provide a characterization of multidimensional incentive compatible mechanisms similar to that for one dimensional mechanisms although reservation utilities are endogenous and type dependent the participation constraint is binding for only one critical type a main difficulty in a multidimensional setting is the integrability condition we present a geometric characterization for discontinuous conservative vector fields in auctions where the buyers submit scalar bids and the seller transfers the object to one of the buyers for sure a second price auction maximizes revenue with two buyers this auction remains optimal even if the seller can set a reservation price journal of economic literature classification numbers c7 c72

walrasian equilibrium with gross substitutes in this paper we study the problem of efficient production and allocation of indivisible objects among a set of consumers we assume that the agents preferences depend on the bundle of objects and the quantity of money they consume furthermore we assume that preferences are quasilinear in money and that agents have a large endowment of money with indivisibilities it is well known that many familiar properties of the utility functions fail to ensure existence in their striking analysis of the matching problem kelso and crawford 5 introduce the gross substitutes gs condition which ensures the non emptiness of the core we propose two new conditions and show that with quasilinearity they are equivalent article id jeth 1999 2531 available online at http www idealibrary com on

resource extraction of imperfect substitutes abstract the recent literature about exhaustible resource extraction emphasized the analysis of perfect substitutes backstop but overlooked the important case of imperfect substitutes this paper introduces imperfect substitutes and investigates whether properties which are robust in one commodity case carry over to the case of limited substitution in particular the proposition of strict sequential exploitation of reservoirs of a certain resource from the cheapest to the more costly grades and the validity of declining extraction are investigated for the more general case of imperfect substitutes it will be shown that these properties are not robust against variations in the assumption of the degree of competition of the resource types contained in the difference pools

smuggling and price disparity abstract this paper proposes a model of smuggling consistent with the coexistence of smuggling legal trade and price disparity defined as a domestic price which exceeds is less than the return from legal export import these phenomena have been found to characterize indonesian smuggling a framework is presented in which legal trade is used to cloak smuggling activity with the implication that the greater the volume of legal trade the less the costs of smuggling this model is then used to explain the observation noted above and to show that smuggling may be welfare increasing vis a vis the non smuggling situation and that even if the suppression of smuggling is costless tax revenue maximization may require a positive level of smuggling in addition the model is applied to coffee and rubber exports from indonesia

market structure and resource depletion a contribution to the theory of intertemporal monopolistic competition a the theory of resource extraction in the model we present there exists a produced substitute to the natural resource the primary question with which we are concerned is the interaction of the resource and its substitute the model we present can thus be thought as providing a link between rent and production based price theories one of the general results in the earlier literature on resource extraction is that deposits with lower extraction costs will be exploited first the analysis

equilibrium valuation of natural resources the purpose of this paper is to provide a theoretical investigation of equilibrium spot and futures price behavior in a nonrenewable commodity market the underlying commodity is nonrenewable in the sense that the reserve level of the commodity is expected to decline over time in the absence of successful discoveries of additional reserves i wish to understand how the nonrenewable nature of the commodity influences the intertemporal extraction of the commodity equilibrium spot price behavior and the prices of derivative assets traded on the nonrenewable commodity there is considerable disagreement among economists whether resources are exhaustible in the sense of resource constraints becoming binding on our society in the foreseeable future some economists have argued that natural resources are being depleted at

a microeconometric test of the theory of exhaustible resources abstract this paper generalizes extant developments of the economic theory of exhaustible resource production derives and extends a halvorsen and smith 1991 quarterly journal of economics 106 123 140 type test of the theory and applies the test to a sample of natural gas resources to facilitate our empirical test we extend the model developed in chermak and patrick 1995 journal of environmental economics and management 28 174 189 to explicitly account for the fact that the extracted resource gross product must be processed to obtain the final saleable product duality theory is used to derive econometric models with which the theory is statistically tested using panel data from 29 natural gas wells shadow prices of the resource stock through time which are generally unobservable but necessary for the test are estimated via the indirect cost function contrary to the extant literature we find inter alia that i at any point in time ceteris paribus the in situ resource price a decreases with gross production and b increases with final production and ii we cannot reject the theory of exhaustible resources i e producer behavior is consistent with the theory

on r d timing under uncertainty abstract in this paper we analyze the problem of endogenous r d timing when technological breakthrough and innovation are random events in a dynamic framework which involves the substitution of an exhaustible resource oil for instance by an alternative technology the backstop that provides an everlasting source of energy under fairly general assumptions we characterize the pattern of exploitation of both energy sources and study the effect of uncertain technological breakthrough on the r d timing decision on resource prices and on the pattern of resource use in comparison to the certainty case it is shown that uncertainty consideration might delay the undertaking of r d and might lead to a more rapid resource depletion pattern for a considerable range of r d capital costs while the opposite result the conventional wisdom holds only for some other range

monopoly extraction of a nonrenewable resource facing capacity constrained renewable competition abstract this paper studies monopoly extraction of a nonrenewable resource with the presence of a competitively supplied capacity constrained renewable substitute the monopolist staves off the renewable supply when the latter becomes competitive and then lets the resource price jump up

using first price auctions to sell heterogeneous licenses abstract this paper considers three alternative ways to sell heterogeneous licenses via a first price format when there is single unit demand it has been suggested that incorporating a first price element may bolster competition in this case klemperer paul d 2002 what really matters in auction design journal of economic perspectives 16 169 189 in a controlled laboratory setting we compare the performance of the simultaneous first price auction the sequential first price auction and the simultaneous descending auction with that of the simultaneous ascending auction the experiments involve several bidding environments of varying complexity we find that the simultaneous ascending auction achieves the highest levels of efficiency but also has drawbacks i its revenues are low and variable ii per license profits vary and iii the incidence of winner s curse outcomes is high seller s revenues are highest when the licenses are sold in a sequential first price auction in decreasing order of quality

how not to sell nuclear weapons we consider situations where a sale affects the ensuing interaction between potential buyers these situations are modeled by assuming that an agent who does not acquire the object for sale incurs an identity dependent externality we construct a revenue maximizing auction for the seller we observe that 1 outside options and participation constraints are endogenous 2 the seller extracts surplus also from agents who do not obtain the auctioned object 3 the seller is better off by not selling at all while obtaining some payments if externalities are much larger than valuations

policy watch medicare public policies are often made without much recourse to economic reasoning economists are sometimes unaware of what is happening in the world of public affairs as a result both the quality of public decision making and the role that economists play in it are less than optimal this feature contains short articles on topics that are currently on the agendas of policymakers thus illustrating the role of economic analysis in illuminating current debates suggestions for future columns and comments on past ones should be sent to daniel weinberg c o journal of economic perspectives hhes division bureau of the census department of commerce washington d c 20233

managing the quality of a resource with stock and flow controls abstract we consider a class of problems which we call sfq problems in which both stocks and flows can be controlled to promote the quality of a valued resource such as environmental quality or public infrastructure under the optimal policy periodic restoration of the stock of quality complements positive but variable abatement of the flow of damages when deterioration is more rapid or highly variable or when abatement is more expensive relative to restoration the optimal policy relies relatively more on restoration when deterioration is due to private firms or individuals a flow tax equal to the present value of marginal damages provides efficient incentives for abatement this tax rises at first as quality worsens but eventually falls as restoration nears the revenues raised by such a tax approximates the cost of restoration with the two quantities converging as the variance of flows goes to zero we discuss the implications of the sfq model for a range of real world problems in the environmental arena and for the management of public infrastructure but the lessons are general and we briefly discuss how they apply to private stocks of physical and human capital

the management of fragile resources a long term perspective excessive exploitation diminishes the capacity of natural resources to withstand environmental stress increasing their vulnerability to extreme conditions that may trigger abrupt changes the onset of such events depends on the coincidence of random environmental conditions and the resource state determining its resilience examples include species extinction ecosystem collapse disease outburst and climate change induced calamities the policy response to the catastrophic threat is measured in terms of its effect on the long term behavior of the resource state to that end the l methodology developed originally to study autonomous systems is extended to non autonomous problems involving catastrophic threats

when do auctions ensure the welfare maximizing allocation of scarce inputs we determine when an unfettered auction will ensure the welfare maximizing allocation of a scarce input that enhances product quality and may reduce production costs a supplier values the input for this use value and for its foreclosure value because once the input is acquired it is unavailable to rivals an unfettered auction often ensures the welfare maximizing allocation of an input increment however it can fail to do so when the input would increase relatively rapidly the competitive position of a rival with a moderate competitive disadvantage bidder handicapping that ensures auctions generate welfare maximizing input allocations differ from standard handicapping policies

optimal transition to backstop substitutes for nonrenewable resources abstract we analyze the optimal transition from a primary nonrenewable resource to a backstop substitute for a class of problems characterized by the property that the backstop cost decreases continuously as learning from r d efforts accumulates to increase the knowledge base the transition policy consists of the r d process and of the time profiles of the primary and backstop resource supply rates we find that the optimal r d process follows a most rapid approach path mrap the knowledge process associated with r d should approach some endogenously derived target process as rapidly as possible and proceed along it thereafter thus if the initial knowledge level is sufficiently low and the cost structure justifies r d activities the r d efforts should be initiated without delay at the highest affordable rate and slow down later on this pattern contrasts previous findings that typically recommend a single humped r d process with a possible initial delay

differential game models in management science abstract this paper reviews a number of differential games applications to management science and operations research problems published with a few exceptions during the last decade the purpose of the article is to provide the reader with an up to date account of the state of the art within this field after having stated in an introduction the general differential games framework as well as some conceptual problems we proceed to review the models which have been divided into the following functional areas investment consumption and employment production inventories and maintenance marketing advertising pricing and rd bargaining natural resources and pollution the survey concludes with some remarks on applicability solvability and directions for future research

market structure and resource extraction under uncertainty this paper compares the rate of extraction of a natural resource under alternative market structures when there is uncertainty about the date of discovery of a substitute or about the date of discovery of a new deposit the analysis shows that imperfectly competitive market structures are excessively conservationist for any value of the initial stock of the natural resource the price is higher than in competitive equilibrium and therefore higher than the socially optimal level but markets with limited competition may have a higher price than markets with pure monopoly the same monopolist controlling the natural resource and its substitute in particular we find that the highest prices are associated with nash quantity setting duopolists the next highest prices occur in markets in which the monopolist controls the resource but the substitute is competitively produced the pure monopolist sets his price lower than this while the market in which a monopolist controls the substitute but the resource is competitvely owned is still lower

deregulation endogenous expectations and the evolution of industry structure this analysis of deregulation as a government directed switch of regime from monopoly to competition treats the incumbent producer as a monopolist who anticipates that deregulation will occur at some future date and result in the deployment of substitutes producing a competitive environment the results suggest that the ceiling for the rise in world gas prices will fall capping any domestic price rise the model indicates that any drop in world prices will be moderated by an incumbent producer e g opec who uses market variables like price to improve his forecast of competitive entry when the incumbent recognizes that higher monopoly prices raise the probability of entry the resulting monopoly path of prices will lie closer to the postulated path of initial competitive prices resulting in a less substantial drop in price when the switch of regime actually occurs 27 references

raising rivals cost in multi unit auctions abstract the objective many telecom regulators want to achieve when they decide to auction spectrum is that acquiring firms pay a market price based on the opportunity cost principle the simultaneous ascending auction may fail in this respect as it provides bidders with an opportunity to engage in strategic demand reduction this paper asks whether the combinatorial clock auction cca fares better in this respect we show that the answer to this question depends on the objectives bidders have if bidders have only the slightest preference to raise rivals cost they will use the opportunities the cca provides them to engage in strategic demand expansion this is even the case when the clock phase ends with excess demand

the costs of uncoordinated regulation patents encourage firms to undertake research and development by protecting innovator revenues from competition controls on pollution of the environment are intended to close the gap between the private and social costs of natural resource use this paper examines the incentives that are created by the interaction of these two separate pieces of regulation a model is developed that shows how an incumbent patent holding firm can take advantage of environmental regulation to exclude rivals from her market

extraction of a resource with a substitute for some of its uses important resources e g oil may be used for several purposes there may exist good substitutes for such a resource in some of its uses but no substitute in other uses the price and extraction paths for the resource are analysed for several market structures some of these paths differ substantially from the corresponding paths for the case of no substitute and for the case of a substitute for all the resource s uses in particular a jump in the resource price may occur l extraction d une ressource quand il existe un substitut pour certains des usages qu on peut en faire certaines ressources importantes comme 1 huile par exemple peuvent etre utilisees a plusieurs fins dans certains cas il se peut qu il existe des substituts pour certains usages qu on peut en faire alors que dans d autres cas il n existe pas de substituts l auteur examine la tarification et les diverse strategies d extraction dans des structure de marches differentes certaines de ces strategies d extraction different substantiellement de celles qui auraient ete utilisees soit dans le cas oiu aucun substitut n existe soit dans le cas ou substitut existe pour tous les usages qu on peut faire de la ressource en particulier on peut observer un saut dans le prix de la ressource

double limit pricing abstract we study oil extraction by a monopolist who faces demand from a climate aware and a climate ignorant region a renewable perfect substitute for oil is available at constant unit cost the climate aware region uses a carbon tax and a renewables subsidy as policy instruments due to heterogeneity in climate policies between regions the oil price path possibly contains two limit pricing phases we specify conditions under which a tightening of climate policies results in lower initial carbon emissions a renewables subsidy and a carbon tax effectively force the monopolist to sell more oil to the climate ignorant region during the stage when demand from the climate aware region has already vanished we calibrate the model and numerically investigate climate damage and welfare effects of the policies of the climate aware region we find that both the carbon tax and a renewables subsidy lower climate damage even though cumulative emissions are fixed

uncertainty in tax reform the case of an extractive firm abstract since as early as adam smith warnings have been issued concerning the possible harmful effects of uncertainty in tax policy this paper attempts to examine the consequences for an extractive monopolist of i perceived future changes in the probability of tax reform and ii perceived future changes in the firm s expected profitability under the new tax structure the results of this analysis suggest that even the threat of future tax changes can have a significant and lasting impact on the present behavior of extractive firms and the markets in which they operate this arises precisely from the firm s attempt to shift the expected burden or gain in an intertemporally optimal manner moreover while the paper focuses on tax policy the model is amenable to interpretation in the case of potential nationalization or in the case of any regulatory scheme that might modify the firm s future profit function as an example of the latter it has recently been suggested that an atmospheric users charge be levied on the carbon content of fuels as they leave the mine or wellhead the potential impact on extractive firms of this proposed tax on coal oil and gas designed to raise revenues to help reduce emissions as well as the u s budget deficit could be examined with the help of a similar model finally the impact on opec of uncertainty surrounding events in the middle east could similarly be modeled

directly unproductive profit seeking dup activities this paper propses directly unproductive profit seeking dup activities as a general concept that embraces a wide range of recently analyzed economic activities including the subset of rent seeking activities considered by krueger it then proceeds to provide a synthesis and generalization of the welfare theoretic analysis of such activities by developing a fourfold categorization of cases depending on the levels of distortions before and after the dup activity thus a unification and overview of the subject are achieved

competition for scarce resources we model a downstream industry where firms compete to buy capacity in an upstream market which allocates capacity efficiently although downstream firms have symmetric production technologies we show that industry structure is symmetric only if capacity is sufficiently scarce otherwise it is asymmetric with one large fat capacity hoarding firm and a fringe of smaller lean capacity constrained firms as demand varies the industry switches between symmetric and asymmetric phases generating predictions for firm size and costs across the business cycle surprisingly increasing available capacity can cause a reduction in output and consumer surplus by resulting in such a switch

scarcity growth and r d abstract the limits to economic growth due to resource scarcity can be alleviated only by the development of backstop substitutes this paper combines resource based economic growth with r d to reduce the cost of backstop technologies characterizing the entire dynamics of optimal growth and r d processes we find that an economy s growth prospects depend on its type as determined by its production technology and learning ability and by its knowledge capital endowment a wide variety of growth patterns emerges ranging from cases in which an economy that without r d eventually stagnates converges to a steady state is diverted by r d onto a path of sustained growth to cases in which r d is not warranted resource scarcity is shown to encourage r d due to the increased reliance on the backstop technology

rent seeking from a property rights perspective james buchanan 15 15 has suggested that rent seeking analysis can readily be incorporated within the property rights approach and as with public choice the theory of rent seeking can be interpreted as an appropriate extension yet no one has really explored rent seeking or revenue premium tariff or directly unproductive profit seeking from a property rights perspective buchanan 14 15 16 17 clearly indicated that property rights assignments actually underlie the rent seeking process and others have also recognized this 4 20 23 28 but there are further insights into the workings of the political economy which can be derived for instance lobbying activities with nonpecuniary goals clearly fit into the rent seeking framework when viewed through the property rights paradigm this contrasts strikingly with the perception of rent seeking held by some writers 9 10 11 12 13 furthermore a property rights approach to rent seeking provides predictions of a spiraling process of government growth since successful rent seeking by one interest group generally requires expansion of bureaucratic powers while at the same time creating incentives for the formation of additional rent seeking interest groups legislative responses to these new groups requires further expansion of the bureaucracy and creates incentives for more rent seeking so the growth process continues in this paper a brief summary of the conclusions of the rent seeking literature will be presented followed by an explanation of how the same conclusions have been deduced using the property rights paradigm various extensions of the rent seeking concept such as those alluded to above are then obtained by emphasizing a property rights approach following this the terms used to describe rent seeking e g directly unproductive profit seeking etc will be discussed to determine which if any is the most appropriate characterization of the phenomenon

deregulation as a switch of regime price effects using a modified hotelling rule abstract concern over rising energy prices has led to support for government intervention to regulate the price of domestic non renewable energy resources however us policy makers appear to be looking more towards competition rather than regulation to decide who will provide energy resources and how these will be priced this paper models possible dynamic price effects occasioned by the removal of a regulatory constraint the analysis focuses on a government decision to eliminate binding price ceilings on a non renewable energy substitute when the incumbent resource is monopolistically controlled using deregulation of natural gas as an illustration under certain conditions it is shown that one will get continuity of marginal revenue and a fall in the world price following decontrol the expiration of a patent or a decision to grant mineral rights on federal land in general however the model suggests that both marginal revenue and prices will be discontinuous and that the discontinuity is likely to result in a fall in price

optimal combination of pollution prevention and abatement policies the case of agricultural drainage the adoption of pollution prevention and abatement practices is examined in the context of a model of exhaustible resource use with a backstop technology for the sake of concreteness the paper focuses on the problem of water logging caused by the subsurface accumulation of agricultural drainwater in modelling this problem a region s underground capacity to store drainwater is considered an exhaustible resource while the installation of subsurface drainage is viewed as the corresponding backstop technology or abatement practice the exhaustible resource is typically over exploited due to common access problems which forces a suboptimally fast adoption of the abatement practice conservationist irrigation technologies such as drip and sprinkler systems tend to reduce drainwater generation and their adoption could increase social welfare by delaying the abatement stage public policies are suggested to increase the adoption of such conservationist technologies data from california is used to illustrate the results and to demonstrate the efficacy of the model for policy purposes while the setting used for the analysis in this paper is quite specific i e water logging the same general modelling ideas may be applied to many other problems of environmental degradation

an efficient ascending bid auction for multiple objects when bidders exhibit multi unit demands standard auction methods generally yield inefficient outcomes this article proposes a new ascending bid auction for homogeneous goods such as treasury bills or telecommunications spectrum the auctioneer announces a price and bidders respond with quantities items are awarded at the current price whenever they are clinched and the price is incremented until the market clears with private values this dynamic auction yields the same outcome as the sealed bid vickrey auction but has advantages of simplicity and privacy preservation with interdependent values this auction may retain efficiency whereas the vickrey auction suffers from a generalized winner s curse

an economic perspective on auctions the recent spectrum auctions in europe have shown that serious problems can wise in auctions where multiple complementary objects are being sold such as blocks of radio spectrum that will subsequently be used by the wining bidders to compete against each other in downstream markets other important instances of such situations include take off and landing slots at airports and rights for electricity and gas transmission t i first review some of the theory describing multi object auctions i i next outline the importance of strategic effects arising in auctions that are followed by competition between the bidders and the tension arising between various goals such as efficiency and revenue maximization although more flexible auction formats can have virtues particularly in taking into account complementarities they can also be manipulated by bidders to build market power to the detriment of consumers we next apply these insights to the recent european umts licence auctions finally we draw the main conclusions and policy implications

models of resource markets and the explanation of resource price behaviour abstract much of the recent theoretical work in resource economics has been aimed at relaxing the stringent simplifying assumptions of the basic hotelling model in an attempt to better explain observed resource price behaviour this paper surveys the characteristics of exhaustible resource markets that are likely to be important for the development of successful positive models in particular we discuss exploration and its relationship to production and market price the effects of various forms of uncertainty on price behaviour and for some resources the treatment of durability finally we address the question of whether producer behaviour can properly be viewed as that of dynamic optimization this paper should be seen as an attempt to stimulate discussion over research directions and priorities in resource economics

optimal consumption and the timing of the resolution of uncertainty abstract as is well known consumers want to accumulate precautionary savings in the face of income risks when their marginal utility is convex prudence in this paper we explore the effect of the timing of the resolution of income uncertainty on savings an agent faces uncertainty about his income at date t 2 what is the effect of being informed that the uncertainty will be resolved at date t 1 on the consumption at date t we show that the effect is positive if and only if marginal utility is convex prudence when either the risk free rate is equal to the rate of pure preference for the present or when the utility function is hara the intuition is that an early resolution of uncertainty allows for time diversifying the risk it therefore plays a role similar to a reduction of the income risk whose effect on savings is negative under prudence

the transition to nondepletable energy social planning and market models of capacity expansion as depletable energy becomes increasingly scarce and expensive energy markets will turn to a multitude of nondepletable sources of energy the rate at which this transition occurs will depend on the quantities of fuels available production costs government policies and the choices of major producers in this paper we analyze the transition to nondepletable fuels first in the context of a social planning model then using a stackelberg model to represent the dynamic game between owners of depletable and nondepletable fuels we show that the pace of capacity expansion in the nondepletable sector has a strong influence on socially optimal energy prices and production rates with the stackelberg model we characterize the strategy a market dominating producer of depletable energy will use against the nondepletable sector numerical implementations of this model allow us to compare the socially optimal and market determined outcomes our results show how a dominant depletable energy producer can manipulate the nondepletable sector by pricing at the marginal cost of backstop output during an early phase of resource depletion

resale markets and the assignment of property rights the consumption of an indivisible good causes identity dependent externalities to non consumers we analyse resale markets where the current owner designs the trading procedure but cannot commit to future actions we ask the following questions 1 doer the identity of the initial owner matter for the determination of the final consumer 2 is the outcome always efficient the major conclusion of our paper is that the irrelevance of the initial structure of property rights arises in resale processes even if there are transaction costs that hinder efficiency this result complements the coasian view where the irrelevance of the assignment of property rights is a consequence of efficiency

a martingale characterization of the price of a nonrenewable resource with decisions involving uncertainty abstract this paper presents a general model of nonrenewable resource consumption and exploration decisions involving uncertainty about the time of occurrence of an event such as exhaustion stock discovery or a substitute development the resulting price process is characterized in terms of necessary and sufficient conditions under which the price is expected to rise at a rate equal to greater than or less than the discount rate the general model is illustrated and the price process and the optimal decisions are characterized by examining the three types of uncertainty indicated above

invention and innovation under alternative market structures the case of natural resources this paper examines the interactions between market structure and resource allocation over time when there is endogenous technical progress the structures considered are a planned economy pure monopoly and competition with patent rights in an efficient allocation the date of invention coincides with the date of innovation the date at which technology is used this is also true with a pure monopoly but monopoly retards technical progress relative to the efficient level competition for patents rights to a new technology results in excessively rapid technical progress if the resource endowment of the economy is sufficiently large also competition may lead to sleeping patents where invention strictly precedes the date of innovation

patent licensing to bertrand competitors abstract a cost reducing process innovation protected by a patent is sold to one of several firms engaged in price competition incomplete information about production costs yields an auction model with both private and common value components our main result is that standard auction mechanisms lead to inefficient allocations this sharply contrasts with the result obtained under complete information the inefficiency result extends to patent race frameworks which resemble all pay auctions an auction where the lowest bidder gets the patent is shown to have several equilibria one of which is efficient

cooperative lobbying and endogenous trade policy this paper considers trade policies in a small open economy in which two influential interest groups lobby the government since competitive lobbying leads to excessive rent seeking expenditures the lobbies have an incentive to cooperate the outcome of cooperative lobbying is characterized in terms of lobbying and bargaining power of the two groups two important results are derived first if the power of competing interest groups is balanced then cooperation leads to free trade second if it is unbalanced cooperation may on the contrary increase protection

are renewable energy policies climate friendly the role of capacity constraints and market power abstract this paper studies the impacts of renewable energy support policies on energy prices fossil fuel supply and thus carbon emissions from fossil fuels such supports are climate friendly if the renewables are already competitive against fossil fuels but if the renewables are not yet competitive the climate change impacts are often ambiguous and are sensitive to capacity constraints of renewables production and to the fossil fuel market structure if the renewables do not have capacity constraints then the subsidies are subject to the green paradox under perfect competition but might be climate friendly under monopoly supports for capacity constrained renewables under perfect competition lead to more current fossil fuel supply but delay fossil fuel exhaustion time and these effects are reversed under monopoly our results highlight the importance of considering the long term effects on fossil fuel supply as well as capacity constraints and market power in designing renewable energy policies and evaluating their carbon footprints

immiserizing growth and endogenous protection abstract this paper focuses on immiserizing growth in the two senses of bhagwati 1958 and johnson 1967 and how both the likelihood that either may occur and their extent can be affected by the presence of endogenous protection i e quota and other forms of protection for which the ad valorem equivalent level of protection is endogeneously determined we use a general equilibrium model of the philippines due to clarete 1984 to compute counterfactual equilibria involving changes in domestic policies terms of trade and resource endowments immiserizing growth in the sense of bhagwati is less likely because the terms of trade fall required to offset the growth of resources has to be significantly larger if no distortions are in the model immiserizing growth in the sense of johnson tends to be more likely if endogeneous protection is present as unbalanced growth occurs focused on the factor intensive in the protected sector resources are drawn out of the export sector and export earnings decline and if the level of protection is endogenously determined the welfare costs of protection increase

lobbying dup activities and welfare a response to tullock professor tullock 1981 in trying to understand the results in my 1981 paper on lobbying and welfare has raised issues that require further clarification and analysis for brevity s sake i shall concentrate here on the essentials leaving minor remarks of tullock s aside 1 the specific case of lobbying which i addressed originally was tariffseeking by pr otectionist lobbies so that the tariff would be endogenous i then showed that one could not argue in this instance that an exogenouslyspecified tariff at x was necessarily welfare superior to an endogenous tariff at x0 all other forms of lobbying were excluded of course 2 tullock argues that this result obtains because he and krueger 1974 think whereas i do not that tariff rcvcnucs can be wasted as it happens krueger 1974 made no such assumption she explicitly compared in her analysis of the specific cast of premium seeking for import quotas aircad in place quotas with such premium seeking with tariffs that had no corresponding revenue seeking or for that matter any waste resulting from the government directly expending the tariff revenue bhagwati and srinivasan 1980 were the first to introduce the revenue seeking concept and to argue that it was wholly inappropriate for krueger to compare tariffs and quotas on the assumption that the latter gave rise to fill premium seeking whereas the former gave rise to zero revenue seeking

bid preference in license auctions affirmative action can achieve economic efficiency abstract if allocative externalities are present among bidders such as when they interact subsequent to the auction their valuations for the item may differ from their contributions to the social welfare this paper shows that bid preference in auctions given to those bidders who can contribute more to the social welfare relative to their valuations is an effective measure to achieve efficiency that is social welfare maximization this paper therefore provides a rationale in terms of efficiency for the practice of granting affirmative action bid preferences to minorities or other designated groups this insight may be applicable to the broader issue of affirmative action programs in general as well

preemptive patenting and the persistence of monopoly this article takes a different tack and inquires whether institutions such as the patent system create opportunities for firms with monopoly power to maintain their monopoly power the results apply to other situations such as brand identification spatial location and capacity expansion which share the characteristic that early or preemptive actions may lower the returns to potential competitors

auctioning the digital dividend a model for spectrum auctions abstract we model a spectrum auction where firms purchase units to participate in a constrained multi product downstream market we use dynamic programming techniques to numerically solve for the optimal bidding strategy in a clock auction firms value constraining competitor market power so incumbents often bid aggressively to shut out entrants we find that high cost firms may hold up the market so the auction may be inefficient and generate zero revenue an auction may be optimal for a regulator maximising total surplus a regulator maximising auction revenue sets reserve prices high enough to restrict spectra sold effectively behaving as a monopolist

the design of an efficient private industry government sponsored auctions for production rights e g license auctions privatizations etc shape the industry structure are there mechanisms that induce an efficient industry structure at least when there are no positive costs to public funds the answer is no whenever firms have private information about both fixed and marginal costs our analysis also suggests that the second best industry may either be more competitive or more monopolistic than the first best one these insights are in sharp contrast with the ones obtained for models where firms have one dimensional private information thus requiring more delicate policy recommendations jel d43 d45 d82 l1

renewable resource management with a backstop substitute and nonautonomous prices abstract policies for managing a renewable resource in the presence of a backstop substitute are analyzed conditions for renewable and backstop resources to be relevant are discussed the extinction issue the role of myopic decision rules and the optimality of singular arc policies are examined with nonautonomous prices

monopolistic resource extraction and limit pricing the market penetration of competitively produced synfuels this paper analyzes the market penetration of a competitively produced synfuel e g solar energy in a market that is initially dominated by a resource extracting monopoly the availability of the renewable substitute depends not only on the price cost ratio but also on the installed capacities which reflect historical investments as a consequence the resource monopoly faces a discontinuous residual demand schedule the dynamic interactions between the resource cartel and the synfuel industry are modelled as a differential game the open loop nash equilibrium is applied to this game it will be shown that the commodity price will exceed the production costs of the backstop and that the transition from the periods of resource dependence to the backstop technology will be gradual

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

sustainable management of fossil fuels a dynamic stochastic optimization approach with jump diffusion abstract this paper deals with a relevant aspect of energy modeling i e fossil fuels management the issue is faced by using purely operational research techniques which are suitable in this context in particular a dynamic stochastic optimization model is developed to optimally determine use and stock of resources to be employed in consumption and investments in a wide economic sense human and physical capital r d etc it is assumed that a sustainability criterion drives the optimality rules i e decisions are also grounded on the well being of future generations the policymaker maximizes an aggregated intergenerational expected utility under the dilemma of present consumption conservation of natural resources for the future in reference to standard environmental economic theory jump diffusion dynamics for the stock of natural resources and infinite time horizon are assumed extensive numerical experiments complete the analysis and contribute to determine fossil fuels management policies showing that long term investments make the difference for the well being of present and future generations

the welfare consequences of directly unproductive profit seeking dup lobbying activities price versus quantity distortions abstract this paper is a contribution to the growing literature on the theory of what bhagwati 1982 has christened the theory of dup activities these are activities that use up real resources in making profits i e income without producing directly or indirectly a good they result therefore in the contraction of the availability set defined on goods for one generic subset of such dup activities namely distortion triggered lobbying activities the paper establishes asymmetrical propositions on the possibility of such dup lobbying resulting in a paradoxical improvement of welfare

the welfare costs of price controls for cars and color televisions in poland contrasting estimates of rent seeking from recent experience the welfare costs of price controls can vary enormously depending on the method of allocating the goods in shortage and the possible rent seeking costs that may result with full rent dissipation the welfare loss from price controls on polish color televisions in 1989 was about ten times the standard estimates of distortion costs which ignore rent seeking and was more than 100 percent of the value of domestic producers sales the methods of allocating cars however did not result in rent seeking costs the domestic price controls were an unintended implicit subsidy to imports subsidies for cars were estimated at 43 percent and for color televisions at 22 percent

optimal timing of technology adoption abstract in a dynamic programming framework this paper investigates the optimal timing of technology adoption by a competitive firm when technology choice is irreversible and the firm faces a stochastic innovation process with uncertainties about both the speed of the arrival and the degree of improvement of new technologies a numerical example illustrates how the optimal timing decision is affected by changes in parameter values reflecting market conditions the firm s initial technological attributes and the characteristics of the stochastic innovation process some of these effects turn out to be in sharp contrast to common intuition contrasting the optimal decision rule derived here with the rule obtained under the net present value shows that the former implies a slower pace of adoption than implied by the latter the optimal decision rule is generalized for the case of multiple technology switches and it is shown that for all the switching decisions except the last one the optimal rule satisfies the net present value criterion

embargo threats and the management of emergency reserves this paper develops a model of a country that can import oil in normal times but is subject to random trade disruptions to mitigate the effects of these disruptions some of the imported oil is stockpiled there are two kinds of uncertainty involved the date at which an embargo will be imposed is not known in advance and given that an embargo has been imposed the date at which it will end is uncertain optimal behavior is analyzed by means of dynamic programming 13 references

multi item auctions a collection of items is to be distributed among several bidders and each bidder is to receive at most one item assuming that the bidders place some monetary value on each of the items it has been shown that there is a unique vector of equilibrium prices that is optimal in a suitable sense for the bidders in this paper we describe two dynamic auction mechanisms one achieves this equilibrium and the other approximates it to any desired degree of accuracy

generalized reduced form auctions a network flow approach we develop a network flow approach for characterizing interim allocation rules that can be implemented by ex post allocations our method can be used to characterize feasible interim allocations in general multi unit auctions where agents face capacity constraints both ceilings and floors applications include a variety of settings of practical interest ranging from individual and group specific capacity constraints set aside sale partnership dissolution and government license reallocation

bundling decisions by a multiproduct monopolist with incomplete information this paper analyzes bundling decisions of a rnultiproduct monopolist facing uncertain demand the monopolist sells his products using an auction mechanism and the market is analyzed as a game with incomplete information in which the buyers as well as the seller are strategic agents with a small number of buyers a profit maximizing seller will bundle all his output this makes buyers uniformly worse off compared to the case where the same monopolist does not bundle in the sense that any buyer is worse off regardless of his demand for the monopolist s outputs with a larger number of buyers the seller will have a tendency to unbundle his output and high demand buyers are worse off than they would be if the monopolist bundled his output low demand buyers on the other hand are always better off when the monopolist unbundles his output regardless of the number of competing buyers despite the fact that high demand buyers are the typical purchasers of the monopolist s output the net effect of increasing the number of buyers is greater market efficiency since bundling creates market inefficiencies both ex post and ex ante

standard auctions with identity dependent externalities i analyze equilibrium bidding behavior in the open ascending bid auction with identity dependent externalities with reciprocal externalities the allocation is determined by bidders consumption values alone with large nonreciprocal externalities the open auction generates higher expected revenue compared to standard sealed bid auctions the progress of the open auction reveals more information about the identity of the potential winner allowing active bidders greater opportunity to avoid incurring payoff reducing externalities the associated option value to staying active up until a relatively high price translates into higher expected revenue multiple bidders may sequentially quit at the same price and relative to sealed bid auctions bidders experience less ex post regret

on the ideological foundations of environmental policy abstract this paper is an investigation into the philosophies of science inherent in the development of two schools of thought in environmental economics neoclassical and steady state analysis it attempts to gain clearer insight into the direction of inquiry and the policy options of each by contrasting their perspective metaeconomic structures the sets of first principles shaping theoretical development the ontology of steady state analysis while accepting the general principle of rationality differs from neoclassicism by including the ecological interaction of people with nature as an element of spicies being the cosmology of the two schools differs in the steady statists take the laws of thermodynamics and the principle of biospheric assimilation of first principles questions of absolute scarcity take primacy over the neoclassical focus on problems of relative scarcity in policy analysis consequently steady state theorists view the environment problem in its global dimensions over a longer time continuum the result is that steady state policy prescriptions are not necessarily market bound and may transcend the intstitutional arrangements common in western capitalist societies

opec and world oil security abstract on the margin the effectiveness of policy to enhance the stability of world oil market oil conditions greatly depends on which countries supply what economists would call the marginal barrels that is the barrels whose production responds to changes in demand if the countries dominating the production of the marginal barrels are relatively unstable policies to reduce world oil consumption or boost oil production from stable suppliers will provide the additional benefit of reducing the contribution of unstable producers to the world oil market if the countries dominating the marginal barrel are relatively stable however policies to reduce world oil consumption or boost oil production from stable suppliers will be less effective in promoting oil market stability typically we think of the highest cost producers as supplying the marginal barrel of oil but our assessment finds it quite likely that opec dominates production of the marginal barrel of world oil moreover opec members have been among the more unstable producers on a historical basis hence reducing world oil consumption and promoting oil production in stable non opec countries will enhance world oil security policies to promote stability in opec countries also would enhance world oil security

energy transition under irreversibility a two sector approach in this paper we analyze the optimal energy transition of a two sector economy energy and final goods with exhaustible oil reserves a renewable source of energy and a pollution threat the latter corresponds to a pollution threshold above which a part of the capital is lost following flooding for instance we show that the optimal energy transition path may correspond to a corner regime in which the economy starts using both resources then crosses the pollution threshold and therefore loses a part of its capital at the end the sole adoption of the renewable energy is optimal only in the long run this result is in line with the asymptotic energy transition arguments stating that the transition to clean energy may happen only in the long run we also show that economy reduces the use of energy resource as long as the productivity of capital and energy services is high therefore public policies should promote investments in energy innovation that targets productive sector home appliances and buildings and helps to save both money and energy we extend the present model to allow for additional investment in energy saving technologies our main results show that this additional investment favours the energy transition in the sense that it increases the time within which the economy may experience the catastrophe and the welfare of the society for policy implications economic instruments such as taxes on dirty energy subsidies on clean energy or incentives for energy saving technologies need to be implemented in order to promote the energy transition this is particularly important for developing countries that mostly rely on polluting energy resources and are the most vulnerable to climate change but those economic instruments should be carefully designed in line with the asymptotic energy transition result

information and exhaustible resources a bayesian analysis abstract we develop a continuous time bayesian model of investment in information about an exhaustible resource because of the way that information affects expectations the deterministic hotelling rule turns out to be more appropriate as a description of how resource owners forecast the value of their stocks than as a predictor of observed changes in the resource price a flow of information generates both unanticipated changes in expectations which cause the mean rate of change in the resource price to deviate systematically from the deterministic hotelling rule and reductions in uncertainty which do not affect the hotelling prediction

joint production of substitutable exhaustible resources or is flaring gas rational this paper studies the optimal extraction of finite resources which are substitutes and the joint output from a monopolist s production facilities the investigation is motivated by the real world example of the production of oil and associated gas additionally the analysis extends the commonly applied paradigm of perfect substitutes for oil and compares it with the more general description of imperfect substitutes thereby it is shown that wasting one of the finite resources e g flaring natural gas could be optimal to support the revenues from the other commodity furthermore the traditional declining sale policies need not hold over the entire planning horizon because it is optimal at least for some time to increase the sales of the byproduct this result has important consequences on the world energy markets since it suggests that pegging the price of natural gas to the price for crude oil is suboptimal and hence most likely subject to downward revisions

collusion in auctions with externalities in standard auctions collusion among buyers eliminates bidding competition despite informational asymmetries collusion can however be imperfect when the situation involves externalities among buyers that is when a buyer is worse off if one rival wins the goon rather than if nobody gets it for intermediate values of the externality and under various objective functions the seller finds it optimal to design an auction that leads in equilibrium to a collusive outcome that is ex post inefficient for the group of buyers an ex ante incentive efficient collusion mechanism for the buyers is characterized in this situation

auctions with endogenous valuations the persistence of monopoly revisited it is shown that the standard arguments for a monopoly to persist break down when many units of capacity become available sequentially the reason is that deterring entry at one st age affects the cost of doing so in later stages this force can be so powerful that entry is deterred only at the final stage the persistence of monopoly or its erosion over time depends on the timi ng of arrival of capacity the size of early versus subsequent capacity availability the length of the capacity acquisition stage relative to the life of the industry and the discount factor copyright 1993 by american economic association

license auctions when winning bids are financed through debt we study an auction where two licenses to operate on a new market are sold and winning bidders finance their bids on the debt market higher bids imply higher debts which affects product market competition when debt induces firms to compete more aggressively retail prices are lower than in a model without debt as are auction revenues when debt induces firms to compete less aggressively retail prices are higher than in a model without debt and the effect on auction revenues is ambiguous net firm profits are always higher than in a model without debt due to endogenous credit rationing

innovation and the dynamics of global warming global warming and the carbon cycle are a dynamic system with positive feedbacks fossil fuels are exhaustible resources these two facts mean that innovation in clean energy technology rather than mitigating global warming can lead to a permanently higher temperature path this paper explores the impact of innovation in the simplest model linking the economic theory of exhaustible resources with positive feedback dynamics in the carbon cycle

distortion triggered lobbying and welfare a contribution to the theory of directly unproductive profit seeking activities abstract the paper considers the normative implications of lobbying for non exclusive income generated by an exogenously specified policy intervention such lobbying activities are a subset of what bhagwati has termed directly unproductive profit seeking dup activities it is demonstrated that the welfare effects of lobbying triggered by a policy distortion depend critically on whether the direct impact of the policy constraint is on price or an quantity it is also shown that several standard comparative static welfare analyses of alternative policy distorted states are significantly affected once the policy intervention is assumed to be continuously accompanied by lobbying for the associated non exclusive income