ipo underpricing and flotation methods in taiwan a stochastic frontier approach adopting stochastic frontier analysis this article studies the pricing model and underpricing phenomenon of the initial public offerings ipos in taiwan and further elucidates the potential impact of offering mechanisms on underpricing the sampling period is from 1996 to 2003 in which 647 ipos are selected empirical results suggest that issuing firms with greater earning potentials less risk or less asymmetric information have lower underpricing furthermore the variables included to explain underpricing are mostly significant especially the proxy variable for flotation method observed mean ipo underpricing is 20 59 in the sample period compared to 17 12 for the subgroup using the auction method this statistically significant difference implies that the introduction of the auction method can help reduce ipo underpricing

robust trading mechanisms we consider the problem of designing a trading institution for a single buyer and seller when their valuation of the good is private information it is shown that posted price mechanisms are essentially the only mechanisms such that each trader has a dominant strategy a posted price mechanism is one where a price is posted in advance and trade occurs if and only if all traders agree to trade

cap and trade a sufficient or necessary condition for emission reduction influenced by the success of emission trading in the us for sulphur dioxide so 2 some economists have argued for an upstream economy wide cap and trade scheme as the primary tool for achieving the required reduction in greenhouse gas ghg emissions this paper addresses that argument and concludes that cap and trade will need to be accompanied by complementary regulatory measures while it is a necessary component in a climate mitigation programme it is unlikely to be sufficient by itself to accomplish the desired emission reductions the paper reviews the evidence on how so 2 emissions were reduced and the extent to which actual emission trading was responsible for the reduction as opposed to other innovations it also identifies differences between the past regulation of so 2 and other air pollutants and the challenges presented by the regulation of ghg emissions what actually happened in the us with so 2 emission trading deviated in several significant respects from what would be predicted based on the conventional theoretical analysis while there was a dramatic reduction in so 2 emissions it occurred because of several factors some of which are unlikely to apply for ghg emissions and others of which argue for an activist regulatory policy by the government as a complement to the functioning of an emissions market for ghgs copyright 2010 oxford university press

equilibrium price dynamics of emission permits this article presents a stochastic equilibrium model for environmental markets that allows us to study the characteristic properties of emission permit prices induced by the design of today s cap and trade systems we characterize emission permits as highly nonlinear contingent claims on economy wide emissions and reveal their hybrid nature between investment and consumption assets our model makes predictions about the dynamics and volatility structure of emission permit prices the forward price curve and the implications for option pricing in this market empirical evidence from existing emissions markets shows that the model explains the stylized facts of emission permit prices and related derivatives

on jumps in common stock prices and their impact on call option pricing the black scholes call option pricing model exhibits systematic empirical biases the merton call option pricing model which explicitly admits jumps in the underlying security return process may potentially eliminate these biases we provide statistical evidence consistent with the existence of lognormally distributed jumps in a majority of the daily returns of a sample of nyse listed common stocks however we find no operationally significant differences between the black scholes and merton model prices of the call options written on the sampled common stocks

frictions in project based supply of permits emissions trading in climate change can entail large overall cost savings and transfers between developed and developing countries however the search for acceptable ji or cdm projects implies a deviation from the perfect market framework used in previous estimations our model combines the search market for projects with a frictionless permit market to quantify the supply side frictions in the co2 market we also decompose the effects of frictions into the effects of search friction bargaining and bilateralism a calibration using previous cost estimates of co2 reductions illustrate changes in cost savings and allocative implications

sulfur allowance trading and the regional clean air incentives market a comparative design analysis of two major cap and trade permit programs this paper investigates in detail the design parameters of the two mostprominent us cap and trade permit program the us epa sulfur allowancetrading program and the south californian regional clean air incentivesmarket reclaim in contrast to expectations the two programs turn out to be rather different in several important design parameter choices common elements emerge primarily in the existence of an ambitious quantifiedenvironmental target mandatory use of stringent emission monitoring methodsand stiff penalties for non compliance coexisting command and controlregulations the creation of a competitive permit market structure andsome distributional concessions in the initial permit allocation generalizing from these common features we find that provisions to assurepolitical acceptance functional interdependencies and overlapping regulation are the most important influences on the design of applied cap and trade permit programs

designing efficient markets for carbon offsets with distributional constraints abstract this paper presents an assessment of the relative efficacy of three key instruments baselines trade ratios and limits which are under policy discussion in the design of carbon offset programs we rank the instruments by their implications for total emissions economic efficiency and efficiency gain relative to a distributional transfer from capped to uncapped sectors we find that the baseline is the best instrument for maximizing welfare as it directly reduces the share of offsets that are non additional and that second best policies do not sacrifice much welfare relative to the standard first best policy prescription

further results on permit markets with market power and cheating abstract this paper examines a market for pollution permits in which one firm has market power and one or more firms is noncompliant i show that the firm with market power may choose to hold more permits than it needs effectively retiring permits from the market i also show that some noncompliance may be socially desirable because it can mitigate the distortion caused by market power similarly some degree of market power may be socially desirable because it can in turn mitigate the distortion caused by noncompliance

reconsidering the initial allocation of itqs the search for a pareto safe allocation between fishing and processing sectors advancement of rights based fishing is stymied by industry and congressional concern over distributional issues arising out of traditional itq design this paper examines the existence and policy feasibility of two alternative initial allocations intended to leave the two principal industry participants the fishers and processors no worse off while maximizing efficiency market structure is shown to be a critical consideration not only to avoid unintended wealth redistribution but also to achieve efficiency

preplay communication participation restrictions and efficiency in initial public offerings the extent to which the observed procedures for selling new issues are efficient is studied we show that a posted price mechanism in conjunction with nonbinding preplay communication and participation restrictions leads to an allocation of the security and payment that maximizes the seller s expected revenue given the informational constraints imposed by the optimizing incentives of the potential buyers article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

planes ships and taxes charging for international aviation and maritime emissions international aviation and maritime transport account for a significant and growing share of global carbon emissions yet they are not only excluded from the kyoto agreement and all current carbon pricing schemes but do not even pay fuel excises of the type standard for other transport activities moreover each sector benefits from preferential tax treatment failure to charge vat on international aviation and the application of tonnage tax regimes rather than the normal corporate tax in maritime this paper considers the design of fuel charges in these sectors to address these distortions and quantifies their impact on emissions revenue and welfare showing amongst other things that the gain from offsetting the pre existing tax distortions may be as significant as those from reducing emissions it shows too how compensation schemes can be designed to protect the poorest countries a key ingredient in the politics of the issue given the practical need for wide applicability of such charges the real challenge is to amass the degree of international cooperation required especially strong for maritime failure of which to some degree explains their current under taxation and unsurprisingly to decide who gets the money technically these charges should if anything be rather easy to implement michael keen ian parry and jon strand

costs of a ceiling on kyoto flexibility this paper examines the potential costs of a ceiling on the use of flexibility mechanisms in the kyoto protocol using poles a partial equilibrium model of the world energy system the results suggest that if emission trading were restricted to annex i countries halving the traded volume would increase costs by 11 billion year if emission trading were to operate at a global level reducing the trade to half the perfect market volume would increase annual costs by 12 billion year global carbon emissions might however be 1 lower the sensitivity of the results is discussed c 2000 elsevier science ltd all rights reserved

markets for tradeable emission and ambient permits a dynamic approach this paper discusses trade mechanisms in pollutionpermit markets proofs are given that sequential bilateral trade in tradeable emissions permitsconverges to a market equilibrium with minimal totalcosts of pollution control if ambient or depositionpermits are traded the convergence of bilateraltransactions occurs only in the case of a singlereceptor for multiple receptors the proof ofconvergence for tradeable emissions and ambientpermits is given for two trade mechanisms sequential multilateral trade and a walrasian auction

the dynamic linkage effect between energy and emissions allowances price for regional emissions trading scheme pilots in china abstract china s emissions trading scheme cets pilots are emerging and fragmented markets these emissions allowances markets may exhibit a different fundamental price process from the european union s eu and the united states us emissions trading scheme ets the dynamic linkage effects between energy and emissions allowances prices are investigated for regional ets pilots in china using cointegration techniques the empirical results confirm that in the long run coal oil and natural gas prices are the main determinant factors of regional emissions allowances prices except for the second phase beijing ets pilots however their long run cointegration relationships in the beijing and shanghai pilots are not exactly in line with the guangdong and hubei pilots in the short run the changes in oil and natural gas prices in the second phase beijing ets pilot the natural gas prices in the shanghai ets pilot and the coal prices in the hubei ets pilot are found to have significant effects on regional emissions allowances prices in china finally regional energy pricing inefficiency regional emissions trading market overreaction and their inefficient fundaments may provide major obstacles in reducing the effectiveness of the fossil energy price pass through to emissions allowances prices in regional ets pilots

emissions trading and investment decisions in the power sector a case study in finland abstract organizations which consider investment in or divestment of power production licences capacity within the european community are exposed to the impacts of the european union emission allowance trading scheme eu ets in this paper the consequences of the eu ets on investment decisions are explored in a country specific setting in finland first we review the general mechanisms through which the eu ets influences size timing and cashflows of an investment next we discuss the projected changes in finnish power producers investment environment and examine the financial impacts due to the eu ets on a case investment decision a hypothetical condensing power plant 250 mwe the standard discounted cash flow dcf analysis is extended to take into account the value of two real options the option to wait and the option to alter operating scale in a quantitative investment appraisal the impact of emissions trading not only depends on the expected level of allowance prices but also on their volatility and correlation with electricity and fuel prices the case study shows that the uncertainty regarding the allocation of emission allowances is critical in a quantitative investment appraisal of fossil fuel fired power plants

reevaluating the first and the second dividends of environmental tax reforms abstract there is increasing global interest in market based climate change policies following the last elections in the united states in this context an exxon mobil chief executive came out in favour of a carbon tax this paper is concerned with the welfare analysis of environmental tax reforms etr and takes up the claims for the need of an unambiguous and operative definition of the double dividend both for empirical purposes and political advisement in this paper we contest the usual definition of the second dividend and its assimilation to an efficiency dividend we propose alternative definitions by suggesting a different splitting of the total welfare variation between the first and the second dividend in order to isolate the efficiency effects of the etr the new definitions become clearly understandable and easy for economic and policy interpretation concepts like weak and strong double dividend turn out to be unnecessary finally we analyze etr for the us economy to illustrate the advantages of the proposed definitions for policy implementation

statistical tests of contingent claims asset pricing models abstract a new methodology for statistically testing contingent claims asset pricing models based on asymptotic statistical theory is proposed it is introduced in the context of the black scholes option pricing model for which some illustrative estimation inference and simulation results are also presented the proposed methodology is then extended to arbitrary contingent claims by first considering the estimation problem for general ito processes and then deriving the asymptotic distribution of a general contingent claim which depends upon such ito processes

international emissions trading under the kyoto protocol credit trading abstract the kyoto protocol allows emissions trading between countries the protocol does however not specify how such trade is to take place so far two options have been discussed in the literature government trading and permit trading this paper discusses a third option credit trading credit trading is based on abatement projects but differs from joint implementation in that it does not require direct foreign investment furthermore credit trading can be implemented both domestically and internationally the main advantages of credit trading are that it excludes trading in hot air while it still makes trade between private entities possible however the environmental effectiveness is doubtful especially when it is based on relative targets the paper shows that several interest groups prefer credit trading based on relative targets to permit trading also governments may have reasons to prefer credit trading to permit trading hence the political acceptability of credit trading is larger than that of permit trading making it more likely that credit trading will be allowed than permit trading

jump risks and the intertemporal capital asset pricing model the specification of the stochastic process for stock prices is an important assumption underlying most equilibrium and option pricing models in modern finance this is particularly true of the continuous time capital asset pricing models where it is assumed that asset prices follow diffusion processes with continuous sample paths see merton 1973a breeden 1979 grossman and shiller 1982 the extent to which the implications of these models generalize to discontinuous sample paths is an unanswered question in theoretical finance however the answer to this question is of more than just theoretical interest since accumulated empirical evidence appears to be inconsistent with the continuous sample path assumption see rosenberg 1972 oldfield rogalski and jarrow 1977 rosenfeld 1982 one purpose of this paper is to provide some answers to this question we do this by extending merton s 1973a intertemporal asset pricing model in the special case of a constant investment opportunity set to include discontinuous sample paths for asset prices the constant investment opportunity set assumption is imposed because we are interested in obtaining sufficient conditions under which an instantaneous capital asset pricing model capm results the extension of our model to a stochastic opportunity set is discussed briefly in the text this paper investigates an economy where stock prices follow a jump diffusion process the first part of the analysis derives a sufficient condition under which an instantaneous capm will characterize equilibrium expected returns the sufficient condition is that the jump component of a stock s return must be unsystematic and diversifiable in the market portfolio the second part of the paper is an empirical investigation of the satisfaction of this condition the evidence is seen to be inconsistent with the satisfaction of this hypothesis that is the market portfolio appears to contain a jump component

will markets direct investments under the kyoto protocol lessons from the activities implemented jointly pilots under the kyoto protocol countries can meet treaty obligations by investing in projects that reduce or sequester greenhouse gases elsewhere prior to ratification treaty participants agreed to launch country based pilot projects referred to collectively as activities implemented jointly aij to test novel aspects of the project related provisions relying on a ten year history of projects we investigate the determinants of aij investment our findings suggest that review agency preferences related to national political objectives and possibly deeper cultural ties influenced project selection and limited the number of aij projects bilateral ties also appear to have affected investment decisions directly possibly because of related transaction costs the results suggest an investment process different from the assumptions that underlie well known estimates of cost savings related to the protocol s flexibility mechanisms we conclude that if approaches developed under the aij programs to approve projects are retained the scale of investment under kyoto s flexibility provisions and their cost savings will be less than what is generally anticipated and the pattern of investment less driven by abatement costs

fees and the efficiency of tradable permit systems an experimental approach the paper presents the results of an economic experiment in which the effects of fees on allocative efficiency of tradable utilization permits e g pollution permits are explored laboratory subjects university students play the roles of firms whose generic product requires a specific input or permits scarcity is exogenously introduced by a fixed supply of tradable production permits three treatments are compared no fee imposed n a fixed tax per permit t and partial retraction of permits and subsequent redistribution by auction a treatments t and a represent two different ways of imposing fees which are designed to be revenue equivalent our results indicate that after controlling for deviation of permit prices from a prediction based on fundamentals fees have an impact on distribution of permits interestingly a fixed tax enhances efficiency compared to the case of no fees while retraction and reallocation by auction tends to reduce efficiency apparently subjects decision making is affected by the imposition of fees but how and to what extent depends on the method used

estimating the price of tradable permits for greenhouse gas emissions in 2008 12 abstract many attempts have been made recently to predict the prices of tradable permits for greenhouse gas ghg emissions in the first commitment period of the kyoto protocol 2008 12 in this paper we attempt to refine these price estimates based on i the results of economic models and identification of factors which influence prices but are not fully reflected in the models ii lessons from price forecasting experience in the us sulfur dioxide market and iii current price data from the nascent international market for ghg permits we expect ghg permit prices to be at the lower end of the broad spectrum of existing predictions this implies among other things that resource transfers to developing countries associated with emissions trading will be relatively low nevertheless even a modest price will have a significant influence on the decisions of consumers and investors in energy markets around the world

the market for tradable ghg permits under the kyoto protocol a survey of model studies abstract this paper gathers results from 25 models of the market for tradable greenhouse gas ghg emission permits under the kyoto protocol due to diverging projections of emissions growth and different modeling approaches the model results differ substantially the average market volume is approximately 17 and 33 billion usd under global trading and annex b trading respectively including non carbon ghg lowers compliance costs and permit prices in the absence of the us permit demand roughly equals hot air from the former soviet union these countries can increase their revenues from selling permits by restricting supply which raises the permit price

auctions or grandfathering the political economy of tradable emission permits despite the prevalence of grandfathered permits we still observe that a hybrid policy in which a fraction of initial emission permits is distributed through auctions is adopted in some cases we also observe that some polluting industries support auctioned permits and that most environmental groups support grandfathered permits this paper attempts to explain these phenomena from the perspective of political economy and investigates the conditions under which grandfathering auctions or a hybrid instrument will be the equilibrium policy by constructing a two stage lobbying game in which the type of policy instrument auction grandfathering or a hybrid instrument is determined in the first stage and then the number of permits is decided in the second stage we highlight the strategic interaction of the lobbying activities between the two stages in explaining the behavior of the lobbying groups

transaction costs and environmental policy design abstract this article synthesizes the growing empirical literature on transaction costs to identify pragmatic design recommendations for environmental and natural resource policies the new institutional economics literature recognizes that appropriate policy choice and design will be a function of the specific characteristics of the problem the physical and institutional determinants of both transaction costs and abatement costs should be considered in the policy design process due to potential interactions between them analysts also need to incorporate the extent to which the technologies institutional environment governance structures or policy designs can be changed some factors can only be adjusted to or designed around while others can be designed differently this framework highlights the importance of property rights since transaction costs will be incurred to obtain or retain property rights and since the rights assignment may affect both the magnitudes and distribution of costs another implication is that education and extension programs or use of behavioral economics concepts to affect choices can be cost effective in some circumstances policy design should take advantage of economies of scale and foster technical change appropriate sequencing of policy instruments may decrease transaction costs particularly if there is potential for technical change

the effect of carbon tax on farm income evidence from a canadian province british columbia bc introduced north america s first carbon tax in 2008 an analysis of the impact of the bc carbon tax is of interest to various stakeholders in the jurisdiction where the tax was implemented other canadian provinces and other countries contemplating a carbon tax policy are looking for insights on how to optimize potential positive and negative consequences given that government agri environmental policies often emphasize farm level support and environmental performance there is interest in understanding the farm level impacts of the carbon tax the effect of the bc carbon tax on farm income and related production cost variables is investigated panel data from 2000 to 2015 are analyzed using both tabular and econometric approaches of the difference in difference method the results indicate that the carbon tax is associated with a decline in net farm income to receipts ratios ranging between 8 and 12 cents per dollar of farm receipts the analysis for costs to receipts ratios suggest that the carbon tax is directly related to higher commercial feed costs farm labour costs interest costs and depreciation costs results of the regression analysis indicate that all the carbon tax effects are highly statistically significant these findings can inform policy discussions about carbon tax effects on farmers

consignment auctions of free emissions allowances abstract while the initial distribution of emissions allowances is usually thought to be independent of the emissions outcome free allocation can affect the efficiency and fairness of allowance trading inefficiency may result from thin allowance markets poor price discovery and regulatory or organizational complexities that hinder the recognition of opportunity costs concerns about fairness may result from intransparency in the process of transferring substantial allowance value we explore the role of consignment auctions in mitigating these concerns these revenue neutral auctions return the financial value of allowances to their original holders while revealing prices and directing allowances to their highest valued use they also can be used to support a minimum price when allowances are freely distributed which may facilitate program linkage consignment auctions have minimal administrative costs and do not necessarily involve government experience indicates that they can play an important role especially in new markets

bookbuilding how informative is the order book we examine the institutional bids submitted under the bookbuilding procedure for a sample of international equity issues we find that information in bids which include a limit price especially those of large and frequent bidders affects the issue price oversubscription has a smaller but significant effect for ipos public information affects the issue price to the extent that it is reflected in the bids oversubscription and demand elasticity are positively correlated with the first day aftermarket return and demand elasticity is negatively correlated with aftermarket volatility our results support the view that bookbuilding is designed to extract information from investors

on jump processes in the foreign exchange and stock markets exchange rates exhibit systematic discontinuities even after allowingfor conditional heteroskedasticity in the diffusion process the results are much more significant in theforeign exchange market than in the stock market which suggests differences in the structure of these markets finally this jump component is shown to explain some of the empirically observed mispricings in the currency options market the objective of this article is to analyze and compare the empirical distribution of returns in the stock market and in the foreign exchange market there are a number of reasons why a better understanding of the stochastic processes driving prices in these markets would be useful many financial models rely heavily on the assumption of a particular stochastic process while relatively little attention is paid to the empirical fit of the postulated distribution as a result models like option pricing models are applied indiscriminately to various markets such as the stock market and the foreign exchange market when the underlying processes may be fundamentally different the foreign exchange market for instance is characterized by active exchange rate man

sequestration offsets versus direct emission reductions consideration of environmental co effects abstract atmospheric greenhouse gas accumulation and consequential temperature increase can be remedied by emission reductions or agricultural carbon sequestration both options have direct and external environmental effects this paper examines the magnitudes of existing estimates of corresponding external co effects and how they could affect optimal combination of emission reductions and agricultural carbon sequestration we discuss whether government intervention in the form of taxation subsidization is justified for internalizing the externalities considering their relative magnitudes implementation costs and potential benefits that could be derived from such intervention we conclude that the existing estimates of external benefits from sequestration and emission reduction do not provide enough support for allocating resources to alter the market mix of carbon sequestration and direct emission reduction strategies

designing carbon markets part ii carbon markets in space this paper analyses the design of carbon markets in time i e intertemporally it is part of a twin set of papers that ask starting from first principles what an optimal global carbon market would look like by around 2030 our focus is on firm level cap and trade systems although much of what we say would also apply to government level trading and carbon offset schemes we examine the first principles of temporal design that would help to maximise flexibility and to minimise costs including banking and borrowing and other mechanisms to provide greater carbon price predictability and credibility over time

leading economic indicators new approaches and forecasting records preface 1 editors introduction part i new concepts and methods 2 toward a theory of leading indicators frank de leeuw 3 a time series framework for the study of leading indicators salih n neftci 4 a probability model of the coincident economic indicators james h stock and mark w watson 5 an international application of neftci s probability approach for signalling growth recessions and recoveries using turning point indicators michael p niemira 6 on predicting the stage of the business cycle roy h webb 7 bayesian methods for forecasting turning points in economic time series sensitivity of forecasts to asymmetry of loss structures arnold zellner and chansik hong 8 new developments in leading economic indicators geoffrey h moore part ii forecasting records and methods of evaluation 9 forecasting cyclical turning points the record in the past three recessions stephen k mcnees 10 turning point predictions errors and forecasting procedures hermon o stekler 11 forecasting peaks and troughs in the business cycle on the choice and use of appropriate leading indicator series stephen j silver 12 using a consensus of leading economic indicators to find right ball park for real gnp forecasts edward f renshaw 13 some australian experience with leading economic indicators allan p layton 14 turning point prediction with the composite leading index an exante analysis francis x diebold and glenn d rudebusch 15 forecasting recessions under the gramm rudman hollings law victor zarnowitz and geoffrey h moore 16 leading indicators of inflation howard l roth part iii new economic indicators 17 commodity prices as a leading indicator of inflation james m boughton and william h branson 18 a leading indicator of inflation based on interest rates susmita dasgupta and kajal lahiri 19 using composite leading indicators of consumption to forecast sales and to signal turning points in stock market michael p niemira 20 economic indicators for australia s service sector ernst a boehm 21 purchasing management survey data their value as leading indicator philip a klein and geoffrey h moore 22 an agenda for inventories input to leading composite index feliks tamm index

using contests to allocate pollution rights in this paper we advocate a new initial allocation mechanism for a tradable pollution permit market we outline a permit allocation contest pac that distributes permits to firms based on their rank relative to other firms this ranking is achieved by ordering firms based on an observable external action where the external action is an activity or characteristic of the firm that is independent of their choice of emissions in the tradable permit market we argue that this mechanism has a number of benefits over auctioning and grandfathering using this mechanism efficiently distributes permits allows for the attainment of a secondary policy objective and has the potential to be more politically appealing than existing alternatives

transaction costs of tradable white certificate schemes the energy efficiency commitment as case study this paper analyses the nature and scale of transaction costs tcs borne by obliged parties under a tradable white certificate twc scheme taking the first phase of the energy efficiency commitment eecl in great britain as a case study several sources of tcs were considered such as search for information persuasion of customers negotiation with business partners and measurement and verification activities information was obtained through interviews and a questionnaire distributed to obliged parties results show that the most significant sources of tcs were related to search for information persuading customers and negotiating with managing agents contractors to implement energy efficiency measures perceived high tcs related to contract negotiation and liability risks slightly reduced the low trading level the scale of tcs was estimated to be around 10 and 30 of total investments costs for the lighting and insulation segments respectively the results indicate that despite the presence and scale of tcs the eecl scheme generated energy savings that yielded net societal benefits estimated financial benefits range from 0 6 to 6 p kwh for insulation and lighting savings respectively when avoided external costs due to electricity savings are included estimated economic benefits range from 3 to 8 p kwh several lessons from the eecl can be drawn for twc schemes among others it is found that informative policy instruments to raise awareness among end users are critical if a twc scheme is to deliver cost effective energy savings in all the nature and scale of tcs under twc schemes will differ because of a number of endogenous and exogenous determinants c 2007 elsevier ltd all rights reserved less

matching users rights to available groundwater abstract the amount of available groundwater in a catchment changes quickly and the amount of water that users can take sustainably depends on where and when it is taken however rights to water tend to be fixed and obtaining rights to water incurs high transaction costs as a result water catchments are over allocated worldwide in this paper i show how a catchment manager could match users rights to the available water in near real time despite uncertain future inflows while making effective use of all available hydrological data the solution uses the framework of a smart market a smart market is a periodic auction cleared with the help of an optimization model in addition to market clearing this model allows a convenient means to adjust initial rights and the auction revenue reflects the available water relative to users rights when the auction is revenue neutral the catchment may be viewed as allocated perfectly i suggest several ways in which a catchment manager can find this revenue neutral allocation assuming the manager has authority to adjust initial rights

transactions costs of expanding nutrient trading to agricultural working lands a virginia case study abstract agricultural nonpoint sources nps figure prominently in the design of many water quality trading programs in concept water quality trading programs can create incentives for agricultural operators to supply low cost pollutant reductions while still keeping land in agricultural production in practice water quality trading programs in the united states have produced few trades involving agricultural nps transactions costs are a critical but poorly understood feature of water quality trading programs the objective of this study is to examine the transactions costs associated with expanding the use of nps credits in a water quality trading program in virginia united states to include credits generated from agricultural working lands best management practices bmps findings indicate that transactions costs for agricultural nps trades in virginia are currently relatively low due to the activity being credited simple land conversion based on best available evidence transactions costs of creating credits using management and structural bmps will be 2 to 16 times more costly on a per project basis than for land conversion credits compliance monitoring protocols are a significant driver of costs for working lands credits our results suggest an important cost risk tradeoff between verification costs and compliance certainty for program designers to consider

the reality of stock market jumps diversification abstract we propose a non parametric procedure for estimating systemic co jumps and independent idiosyncratic jumps for 35 stock markets and study news associated with these jumps as reported in factiva and bloomberg from 1988 to 2014 our results suggest that it is important to distinguish between systemic co jumps and idiosyncratic jumps we find both types of jumps have important implications for home bias investors while idiosyncratic jumps have economically significant impact on portfolio weights for emerging markets our news analysis suggests systemic jumps are typically caused by currency crises sectoral failure liquidity issues and deteriorating economic climate while idiosyncratic jumps are usually caused by political unrest currency instability and large firm effects on small economies in fact many of the idiosyncratic jumps share the same origin although different stock markets experienced the impact differently at different times

industry level emission trading between power producers in the eu in this paper we investigate how restrictions for emission trading to the energy intensive power sector will affect the magnitude and distribution of abatement costs across eu countries vis a vis a comprehensive eu emission trading regime we find that emission trading between european power sectors allows the harvest of a major part of the efficiency gains provided by full trade as compared to strictly domestic action however trade restrictions may create a more unequal distribution of abatement costs across member states than is the case for a comprehensive trade regime the reason for this is that restricted permit trade enhances the secondary terms of trade benefits to eu member countries with low marginal abatement costs at the expense of the other eu member states

double dipping in environmental markets abstract there is an increasing tendency to use markets to induce the provision of environmental services as such markets increase in scope potential market participants might sell multiple environmental services the question we consider here is whether participants in such markets should be allowed to sell credits in more than one market simultaneously some have argued in favor of such double dipping because it would make the provision of environmental services more profitable in practice however most programs do not allow double dipping we show that if the optimal level of pollution abatement is sought then double dipping maximizes societal net benefits however if pollution policies are set in a piecemeal fashion then the caps for each market are unlikely to be optimal and in this second best setting a policy prohibiting double dipping can lead to greater social net benefits we explore conditions under which a single market policy is preferred or equivalently where piecemeal policies are likely to yield particularly inefficient outcomes

the problem of the commons still unsettled after 100 years the problem of the commons is more important to our lives and thus more central to economics than a century ago when katharine coman led off the first issue of the american economic review as the us and other economies have grown the carrying capacity of the planet in regard to natural resources and environmental quality has become a greater concern particularly for commonproperty and open access resources the focus of this article is on some important unsettled problems of the commons within the realm of natural resources there are special challenges associated with renewable resources which are frequently characterized by open access an important example is the degradation of openaccess fisheries critical commons problems are also associated with environmental quality a key contribution of economics has been the development of market based approaches to environmental protection these instruments are key to addressing the ultimate commons problem of the twenty first century global climate change jel q15 q21 q22 q25 q54

designing climate mitigation policy this us paper provides an exhaustive review of critical issues in the design of climate mitigation policy by pulling together key findings and controversies from diverse literatures on mitigation costs damage valuation policy instrument choice technological innovation and international climate policy the authors begin with the broadest issue of how high assessments suggest the near and medium term price on greenhouse gases would need to be both under cost effective stabilization of global climate and under net benefit maximization or pigouvian emissions pricing the remainder of the paper focuses on the appropriate scope of regulation issues in policy instrument choice complementary technology policy and international policy architectures

the emissions trading paradox abstract this article considers the price history of co2 allowances in the eu emission trading scheme since european emissions trading started in 2005 the prices of allowances have varied between less than one and thirty euro per ton of co2 this previously unpredicted volatility and more notably a significant price crash in may 2005 led to the hypothesis that electricity producers might use their market power to influence the prices of allowances besides market power the combination of information asymmetry and price interdependencies between prices of primary goods especially electricity and allowances plays an important role in explaining the emissions trading paradox the model presented will show that banking can lead to such a price crash if market participators act rationally furthermore in such a scenario banking can be profitable for sellers at the cost of buyers

are jumps in stock returns diversifiable evidence and implications for option pricing this paper studies the diversiflability of jumps in stock returns it presents a multivariate time series model of the stochastic process for an index and its component stocks that explicitly admits discrete common jumps maximum likelihood estimation for such a model is developed and applied to the daily major market index and its component stocks for the period 1985 through 1990 the paper finds that poisson distributed jumps observed from both the index and its component stocks constitute nondiversiflable risk implying that the standard assumption in option pricing that these jumps are not priced may be invalid

transaction costs and tradeable permits abstract tradeable permit systems are at the center of current interest and activity in market based reforms of environmental policy because these systems can offer significant advantages over conventional approaches to pollution control unfortunately claims made for their relative cost effectiveness have often been exaggerated transaction costs which may be significant in these markets reduce trading levels and increase abatement costs in some cases equilibrium permit allocations and hence aggregate control costs are sensitive to initial permit distributions providing an efficiency justification for politicians typical focus on initial allocations

incremental and average control costs in a model of water quality trading with discrete abatement units this paper answers three questions related to the discrete nature of pollution abatement i does a source s incremental control cost as defined by the u s environmental protection agency necessarily exceed its average control cost ii is incremental control cost a better approximation of a source s willingness to pay for abatement credits than average control cost and iii exactly how does trading in discrete and continuous abatement markets differ we find that the answer to the first two questions are both no suggesting that the u s environmental protection agency needs to refine its reliance on incremental control cost as the sole measure upon which to assess the financial feasibility of water quality trading in answer to the third question we show that the outcome of bilateral trading in the presence of discrete abatement is determined by comparing the gains from trade associated with the full sequence of possible sunk cost trading scenarios for the most common case where trading partners average control cost curves cross the trading outcome with discrete abatement is inherently sensitive to the initial allocation of abatement responsibilities

bookbuilding vs fixed price an analysis of competing strategies for marketing ipos we compare two mechanisms for selling ipos the fixed price method and american book building when investors have correlated information and can observe each other s subscription decisions in this environment the fixed price method is a strategy that can create cascading demand alternatively an underwriter building a book aggregates investor information into the offer price we find that bookbuilding generates higher expected proceeds but exposes the issuer to greater uncertainty and that it provides the option to sell additional shares that are not underpriced on the margin

impacts of alternative allowance allocation methods under a cap and trade program in power sector emission trading is considered to be a cost effective environmental economic instrument for pollution control however the policy design of an emission trading program has a decisive impact on its performance allowance allocation is one of the most important policy design issues in emission trading not only for equity but also for policy performance in this research an artificial market for sulfur dioxide so2 emission trading was constructed by applying an agent based model the performance of the jiangsu so2 emission trading market was examined under different allowance allocation methods and transaction costs the results showed that the market efficiency of emission trading would be affected by the allocation methods when the transaction costs are positive the auction allowance allocation method was more efficient and had the lowest total emission control costs than the other three allocation methods examined however the use of this method will require that power plants pay for all of their allowance and doing so will increase the production costs of power plants on the other hand output based allowance allocation is the second best method

public transaction costs of agri environmental schemes and their determinants analysing stakeholders involvement and perceptions despite an overall budget increase for rural development in the new programming period 2007 2013 most older member states in the now expanded european union are facing a substantial reduction in their budget for rural development and thus for agri environmental schemes aess it can be assumed that in most countries none or at best only part of this loss can be offset by national funds therefore the design of more efficient national governance structures for aess which decrease public transaction costs tcs would be an appropriate solution to this problem the objective of this paper is to define the factors that influence these public tcs so that appropriate action can then be taken to reduce them a statistical analysis with a proxy for public tcs is combined with an analysis of stakeholder perceptions excluding farmers concerning public tc influencing factors the research showed that it is mainly scheme related factors that are perceived to be important although the governance structure institutional environment and level of trust also play a role finally the analysis of perceptions concerning tcs also showed that aes related actors have a limited knowledge of tcs

how vulnerable is the emissions market to transaction costs an abms approach abstract the impact of transaction costs on the early emissions trading market is examined by applying an agent based model and simulation abms approach for a realistic model set up bounded rationality stochastic characteristics and learning by doing are considered in our search processes marginal abatement cost parameters are obtained from yoo et al 2010 which is an experimental study on the emissions trading in the korean power sector sensitivity analyses are performed on market performance indices with regard to transaction cost parameters which represent scales and the learning elasticities of transaction costs a total of 960 simulations were run in this sensitivity analysis sensitivity analysis results consistently show that higher transaction costs worsen market performance the most remarkable finding in these results is that welfare performance of all the transactions decreases by up to 50 as the scale parameters of transaction costs increase implying that welfare gain from introducing emissions trading disappears significantly however with learning curve effect welfare performance could be regained by up to 26 in sum although transaction costs significantly encroach upon trade gains at the early stage based on our simulation results the welfare loss by way of transaction costs is lessened as the knowledge of market participants progresses

initial public offering discount and competition abstract lacking examples of initial public offering ipo mechanisms that are open to the public and priced competitively previous studies could not determine what size discount if any is economically efficient we compare two pricing regimes on the tel aviv stock exchange an investor driven dutch auction limited by a binding maximum price replaced by one that is free of that constraint our evidence shows that rationing and herding disappear improving the access of uninformed investors to strong issues and alleviating their exposure to losses attached to weak issues pricing quality increases by the elimination of the underpricing bias decreased price dispersion and increased price sensitivity to ipo unique factors underwriter services do not deteriorate but garner moderately higher fees apparently to compensate for a higher risk consistently there is no deterioration in ipo efficiency as a screen from weak issues our evidence does not support the view that underpricing is competitive or eff

heterogeneity irreversible production choices and efficiency in emission permit markets abstract this paper investigates a class of market mechanisms for environmental regulation based on the clean air act tradable discharge permit program laboratory market experiments capture some of the more salient institutional features and focus on issues of firm technological heterogeneity and irreversible investment regarding the operation of the permit market experimental results suggest that higher degrees of abatement cost heterogeneity may lead to reduced trade volume while the implications of increased cost heterogeneity regarding price volatility are mixed finally increased cost heterogeneity appears to result in decreased laboratory efficiency

a model of the demand for investment banking advising and distribution services for new issues this paper presents a theory of the demand for investment banking advising and distribution services for the case in which the investment banker is better informed about the capital market than is the issuer and the issuer cannot observe the distribution effort expended by the banker the optimal contract under which the offer price decision is delegated to the better informed banker in order to deal with the adverse selection and moral hazard problems resulting from the informational asymmetry and the observability problem is characterized the model demonstrates a positive demand for investment banking advising and distribution services and provides an explanation of the underpricing of new issues an investment banker performs three functions which may be of value to an issuer of new securities underwriting advising and distribution this paper presents a theory of the demand for investment banking advising and distribution services based on an informational asymmetry between an issuer of new securities and an investment banker ultimately a theory of the organization of the financial intermediary industry is required that would predict which firms would use which types of financial intermediaries for which purposes and which firms would raise capital without engaging the services of a financial intermediary only a limited set of such predictions are developed here in the context of a model of a fixedprice offering under a negotiated contract in which the investment banker is

transitional politics emerging incentive based instruments in environmental regulation abstract this paper proposes a positive theory of environmental instrument choice we study a democratic society that seeks to lower the level of pollution from industrial sources to a pre specified target the target can be implemented by one of three instruments s uniform emission standards p tradeable permits and t emission taxes the conflict of interest between special interests representing polluters and the electorate is resolved by an elected politician we characterize when each of the three policy instruments is chosen in political equilibrium and show that the transition observed in many countries from s to either p or t can be understood as a natural consequence of increasingly ambitious environmental targets

a whiter shade of pale on the political economy of regulatory instruments we consider an intertemporal policy game between changing governments that differ in their attitudes towards a particular feature of market outcomes exemplified with environmental pollution when in power a government will choose policy instruments and set strictness of regulation with a view to influencing the policy of future possibly different governments we demonstrate that a brown government favours emission quotas over effluent taxes as quotas establish property rights that are costly to reverse conversely a green government prefers to regulate by taxes in order to limit the incentives of future brown governments to ease regulations strategic behaviour tends to exaggerate policy differences making green governments greener and brown governments browner compared to when such strategic considerations were not an issue jel d81 d9 h23 l51 q28 q38

bookbuilding and strategic allocation in the bookbuilding procedure an investment banker solicits bids for shares from institutional investors prior to pricing an equity issue the banker then prices the issue and allocates shares at his discretion to the investors we examine the books for 39 international equity issues we find that the investment banker awards more shares to bidders who provide information in their bids regular investors receive favorable allocations especially when the issue is heavily oversubscribed the investment banker also favors revised bids and domestic investors investment banks commonly build a book before pricing an equity issue in the united states it has been standard practice for a number of years in many other countries where fixed price offerings were traditionally used the bookbuilding procedure is becoming increasingly common especially for international equity issues 1 under the formal bookbuilding procedure the investment banker solicits indications of interest from institutional investors such indications consist of a bid for a quantity of shares and might include a maximum price i e a limit price or other details the investment banker uses the information to construct a demand curve the issue price is not set according to any explicit rule but rather based on the banker s interpretation of investors indications of interest he generally sets the price at a level at which demand exceeds supply and then allocates shares to the bidders at his discretion thus the

what can we learn from the grand policy experiment lessons from so2 allowance trading stable url http links jstor org sici sici 0895 3309 28199822 2912 3a3 3c69 3awcwlft 3e2 0 co 3b2 tthe journal of economic perspectives is currently published by american economic association your use of the jstor archive indicates your acceptance of jstor s terms and conditions of use available athttp www jstor org about terms html jstor s terms and conditions of use provides in part that unless you have obtainedprior permission you may not download an entire issue of a journal or multiple copies of articles and you may use content inthe jstor archive only for your personal non commercial use please contact the publisher regarding any further use of this work publisher contact information may be obtained athttp www jstor org journals aea html each copy of any part of a jstor transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission the jstor archive is a trusted digital repository providing for long term preservation and access to leading academicjournals and scholarly literature from around the world the archive is supported by libraries scholarly societies publishers and foundations it is an initiative of jstor a not for profit organization with a mission to help the scholarly community takeadvantage of advances in technology for more information regarding jstor please contact support jstor org http www jstor orgtue jun 26 16 25 17 2007

endogenous technological change and emissions the case of the german steel industry abstract the paper starts from the observation that innovation and technical progress are only portrayed superficially in the predominant environmental economic top down models and that the assumption of perfect factor substitution does not correctly mirror actual production conditions in many energy intensive production sectors bottom up models on the other hand neglect macroeconomic interdependencies between the modelled sector and the general economy this paper presents a new modelling approach in an integrated bottom up top down approach based on the example of crude steel production in germany it is demonstrated how technological progress can be portrayed as process related and policy induced and how the technology choice between limitational processes can be explicitly modelled and implemented in the econometric input output model panta rhei the new modelling approach presented permits a process specific analysis of the impacts of changed frame conditions the effects of which on the choice of technology on the one hand and the technological progress on the other can be described endogenous to the model these features are demonstrated in a co2 tax simulation results show that policy induced technological change is besides a switch in production processes the major source of co2 reduction for the steel sector

tail estimation and mean var portfolio selection in markets subject to financial instability abstract risk managers are increasingly required by international regulatory institutions to adopt accurate techniques for the measurement and control of portfolios financial risks the task requires first the identification of the different risk sources affecting the portfolio and the measurement of their impact then after the adoption of appropriate portfolio strategies aimed at neutralising these risks the comprehensive concept of value at risk var as a maximum tolerable loss with a given confidence interval has become in this regard the industry standard in risk management in the paper we focus on the implications of different risk measurement techniques and portfolio optimisation strategies in presence of markets subject to periods of severe instability resulting in significant deviations of financial returns from the normality assumption typically adopted in mainstream finance comparative results on 1 day var 99 estimation are presented over a range of bond and equity markets with different risk profiles the reference period of our analysis includes several market shocks and in particular the argentinean eurobond crisis of july 2001 the solution of an optimal portfolio problem over the crisis period is discussed within a mean variance var99 portfolio space emphasising the difficulty of the portfolio s relative return maximisation problem faced by fund managers

how much market do market based instruments create an analysis for the case of white certificates in the context of economic instruments for more energy efficiency and climate protection tradable certificates have been investigated for renewable energy and for a number of emissions in contrast tradable energy efficiency or white certificates have only lately been considered as a market based tool to foster energy efficiency as compared to standards and labelling for example theoretically there is little doubt about the advantages in practice however some fundamental problems arise critical issues are the design of an efficient artificial market for white certificates its compatibility with the european emissions trading system the identification of a suitable target group for an energy efficiency obligation and the measurement of energy savings as compared to a reference use of energy we use the theoretical framework of transaction cost economics to elaborate these issues we conclude that transaction costs and investment specificity will restrict markets for white certificates in practise long term contracts rather than spot trade will be the prevailing form of governance for energy efficiency investments

signalling and the pricing of new issues this paper develops a signalling model with two signals two attributes and a continuum of signal levels and attribute types to explain new issue underpricing both the fraction of the new issue retained by the issuer and its offering price convey to investors the unobservable intrinsic value of the firm and the variance of its cash flows many of the model s comparative statics results are novel empirically testable and consistent with the existing empirical evidence on new issues in particular the degree of underpricing which can be inferred from observable variables is positively related to the firm s post issue share price

an international policy architecture for the post kyoto era in february 2005 the kyoto protocol to the united nations framework convention on climate change came into force but without participation by the united states its impacts on emissions of greenhouse gases including carbon dioxide co2 the primary anthropogenic driver of climate change will be trivial but scientific robert t watson 2001 and economic charles d kolstad and michael a toman 2001 analyses point to the need for a credible international approach because the kyoto protocol s ambitious targets apply only to the short term 2008 2012 and only to industrialized nations the agreement will impose relatively high costs and generate only modest short term benefits while failing to provide a real solution joseph e aldy et al 2003 for these reasons most economists see the agreement as deeply flawed richard n cooper 1998 david g victor 2001 warwick j mckibbin and peter j wilcoxen 2002 although some see it as an acceptable first step axel michaelowa 2003 virtually all agree however that the protocol is not sufficient to the overall challenge we describe the basic features of a postkyoto international global climate agreement which addresses three crucial questions who when and how the respective elements are first a means to ensure that key nations industrialized and developing are involved second an emphasis on an extended time path of action employing a cost effective pattern over time and third inclusion of market based policy instruments i who expand participation to include all key countries

designing a climate change policy for the international maritime transport sector market based measures and technological options for global and regional policy actions abstract the international maritime transport sector has a significant abatement potential and some technical improvements that reduce ghg emissions would already be profitable without any policy in place this paper analyses in depth the limits and opportunities of policy options currently under consideration at the international level to stimulate the sector to reduce its ghg emissions in particular in order for the maritime transport sector to become more environmentally friendly the flexible nature of international market based measures and the european union emission trading scheme provide a definite window of opportunity without placing unnecessary high burden on the sector however the development of a regional policy such as at european level for the international maritime transport sector faces several obstacles allocation of emissions carbon leakage permit allocation treatment of the great variety in ship type size and usage and transaction cost global market based policies could overcome most of these challenges this paper provides an in depth analysis of the policy instruments currently under discussion to reduce the sector s burden on the environment and focuses on economic theory legal principles technological options and the political framework that together make up the basis of decision making regarding the international maritime transport sector s climate change policies

international emissions trading with endogenous allowance choices abstract this paper compares endogenous choices of tradable and non tradable emission allowances by non cooperative countries i find that the cost savings of trading do not necessarily lead to less pollution in particular environmentally more concerned countries usually choose less allowances if these are tradable but this may be offset by the choice of more allowances on the side of environmentally less concerned countries moreover if the establishment of a trading system requires the unanimous approval of all countries there may be no agreement on trading even if it were to lead to less pollution overall conversely a trading system may find unanimous approval even if it induces more pollution

environmental regulation a value theoretic and class based analysis following a value theoretic and class based approach it is argued in this paper that ecological problems are inseparably linked to the process of extracting surplus value in capitalism and owing to their adverse impacts instigate struggles over the appropriation of nature these struggles fought within and outside the state by competing agents shape environmental regulation in particular taxes permits command and control measures and subsidies affect prices profits and rents and have class and other social implications evidence of current environmental regulation shows that it takes places under the great influence of capitalist concerns

a two level dynamic game of carbon emission trading between russia china and annex b countries this paper proposes a computable dynamic game model of the strategic competition between russia and developing countries dcs mainly represented by china on the international market of emission permits created by the kyoto protocol the model uses a formulation of i a demand function for permits from annex b countries and ii marginal abatement costs mac in russia and china provided by two detailed models gemini e3 is a computable general equilibrium model that provides the data to estimate annex b demand for permits and macs in russia poles is a partial equilibrium model that is used to obtain mac curves for china the competitive scenario is compared with a monopoly situation where only russia is allowed to play strategically the impact of allowing dcs to intervene on the international emission trading market is thus assessed

fishing quota markets abstract in 1986 new zealand responded to the open access problem by establishing the world s largest individual transferable quota itq system using a 15 year panel dataset from new zealand that covers 33 species and more than 150 markets for fishing quotas we assess trends in market activity price dispersion and the fundamentals determining quota prices we find that market activity is sufficiently high in the economically important markets and that price dispersion has decreased we also find evidence of economically rational behavior through the relationship between quota lease and sale prices and fishing output and input prices ecological variability and market interest rates controlling for these factors our results show a greater increase in quota prices for fish stocks that faced significant reductions consistent with increased profitability due to rationalization overall this suggests that these markets are operating reasonably well implying that itqs can be effective instruments for efficient fisheries management

signalling by underpricing in the ipo market abstract empirical evidence suggests the existence of hot issue markets for initial public offerings in certain periods and in certain industries new issues are underpriced and rationing occurs this paper develops a model consistent with this observation which assumes the firm itself best knows its prospects in certain circumstances firms with the most favorable prospects find it optimal to signal their type by underpricing their initial issue of shares and investors know that only the best can recoup the cost of this signal from subsequent issues

transaction costs of alternative greenhouse gas policies in the australian transport energy sector abstract this study employs a comparative analysis of the transaction costs of alternative policy instruments the institutional approach to the allocation of resources is emerging to supplement traditional analyses of market and government failures the causes of these failures are many but often point to high transaction costs that result largely from institutional impediments effective institutions can help reduce transaction costs through more effective signals and incentives including information generation to help markets function more efficiently and policies to be delivered more successfully the study which contributes to transaction costs measurement finds that the magnitudes and types of transaction costs associated with setting up and implementing three greenhouse gas reduction policy programs in australia are substantial and different the estimated transaction costs of the tradable permit and fee system are relatively high compared to those of the mandatory fuel label program and the voluntary fuel efficiency program which supports the view that market based policies can also be costly to deliver notwithstanding transaction costs have frequently been ignored in cost benefit analyses it is concluded that transaction costs need to be considered alongside other costs and benefits in the assessment of policies

the fundamentals of the future international emissions trading system the study aims to analyze the sectoral marginal abatements cost curves for a number of eu countries as well as to examine the efficiency aspects and the economic impacts for the major sectors of the ets under different carbon market configurations in 2010 and 2020 to produce a consistent and realistic assessment we employ sources such as ghg national inventories naps and poles world energy model to constitute the sectoral base year and 2010 2020 emission levels in different countries and regions we then use the market analysis tool aspen which enables to derive supply and demand from sectoral maccs produced with the poles model and to evaluate the economic impacts on the carbon market participants the paper shows that in compliance with the kyoto targets the benefits of an enlarged carbon market are significant since more than 50 of the abatement in the short term have to be achieved in ets sectors which may indeed use cdm or ji credits a second major conclusion is that in 2020 the new flexibility margins provided by the adjustment of investments in new capacities compensate for the increase in pressure towards stronger emission reductions this reduces the relative importance of the enlarged carbon market

tests of an american option pricing model on the foreign currency options market this paper tests the ability of the american option pricing model proposed by parkinson 18 or mason 14 to explain the pricing of the foreign currency options traded on the philadelphia stock exchange from february 28 1983 to march 26 1985 we find that the model underprices out of the money options relative to at the money and in the money options this relative underpricing is driven by an underpricing of out of the money call options of short maturity in addition the degree of relative mispricing for most categories of options is shown to be a decreasing function of the time to maturity of the options longer maturity options appear to trade at similar levels of implied volatility whether they are in at or out of the money most of these biases appear consistent with the fact that the underlying spot currency rate follows a mixed jump diffusion process as described in 17

do transaction costs influence firm trading behaviour in the european emissions trading system this study is one of the first to empirically investigate firm trading behaviour and the importance of permit trading transaction costs such as information costs and search costs in the first phase of the european union s emissions trading system eu ets the signs and significance of our constructed transaction costs proxy variables indicate for a presence of these costs in the initial years of the eu ets in particular this paper shows that ets firms with the smaller number of installations and with less trading experience were less likely to participate in the european emissions trading market and traded the lower quantities of permits furthermore these firms chose to trade permits indirectly via third parties this study also supports the concerns that transaction costs could be excessive for smaller participants and firms operating in the new eu member states

aligning renewable energy targets with carbon emissions trading to achieve china s indcs a general equilibrium assessment abstract this study evaluates the economic impact of achieving china s intended nationally determined contributions indcs through emissions trading scheme ets and renewable energy policy using a computable general equilibrium cge model we explored the behavior of different sectors in the carbon market carbon trade amount carbon price and the economic impact of an emissions cap and trade on the employment and gdp the results demonstrate that the electricity and aviation sectors have relatively higher mitigation costs and tend to be the main buyers of the carbon credits whereas chemicals nonmetal production iron and steel paper and other manufacturing sectors have relatively lower mitigation costs and tend to be the main sellers carbon trading price and market scale are closely related to various factors such as the emissions quota allocation scheme among sectors coverage of participating sectors and the level of renewable energy development emission trading is also confirmed to be an economically efficient approach that contributes to the achievement of emission reduction targets with less economic cost in order to make full use of this approach policy maker should assign an appropriate emissions quota allocation scheme extend coverage of various sectors and promote the expansion of low carbon technologies such as renewable energy

efficient pollution regulation getting the prices right this paper argues for efficient environmental regulations that equate the mar ginal damage of pollution to marginal abatement costs across space the paper estimates the source specific marginal damages of air pollution and calculates the welfare gain from making the current sulfur dioxide allowance trading pro gram for power plants more efficient the savings from using trading ratios based on marginal damages are between 310 and 940 million per year the potential savings from setting aggregate emissions efficiently and from includ ing more sources of air pollution are many times higher jel h23 q53 q58

full extraction of the surplus in bayesian and dominant strategy auctions we consider auctions for a single indivisible object in the case where the bidders have information about each other which is not available to the seller we show that the seller can use this information to his own benefit and we completely characterize the environ ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about each bidder s willingness to pay we provide this characterization for auctions in which the bidders have dominant strate gies and for those where the relevant equilibrium concept is bayesian nash in both set ups the existence of these auctions hinges on the possibility of constructing lotteries with the correct properties we consider the situation in which an agent the seller possesses one indivisible unit of a good to which he attaches no value but the good has value to a number of potential buyers and its transfer to one of them would increase social welfare in particular the transfer to the buyer with the highest valuation maximizes social welfare in this paper we completely characterize environments in which the seller can design an auction that will enable him to capture for himself the full increase in social welfare induced by the transfer of the good to the bidder with the highest willingness to pay if the seller had full information about the reservation prices of potential buyers his optimal selling strategy would be very simple he would announce a price equal or very close to the highest reservation value the optimal strategy for the bidder with the highest evaluation would be to accept the offer note that we are treating a situation in which the seller can commit himself to a price as a result of the exchange the utility of the seller increases by the full amount of the increase in social welfare and he has been able to fully extract the surplus in many circumstances however a seller has only imperfect knowledge of the buyers willingnesses to pay in this case he must find some mechanism or auction which will enable him to maximize his benefit from the sale of the object the auction literature starts with this observation and shows how the seller can by an astute choice of auction extract the largest possible fraction of the surplus in general the literature has shown that this proportion is strictly less than one in some circumstances the bidders will have information about each other which is not available to the seller for instance in auctions for petroleum drilling rights bidders know the results of geological tests which they have

litigation risk intermediation and the underpricing of initial public offerings we formally examine the role of litigation risk in initial public offering ipo pricing the underwriter s pricing decision trades off current revenue against expected future litigation costs both of which are increasing in the ipo price given a time consistency constraint and rational expectations on the part of investors however the standard litigation risk argument does not lead to equilibrium underpricing we develop a richer model that provides sufficient conditions under which there is equilibrium underpricing the issuer s choice of employing an underwriter versus floating the ipo on its own is examined and various testable implications of the model are developed article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

distributing pollution rights in cap and trade programs are outcomes independent of allocation standard economic theory predicts that if property rights to pollute are clearly established equilibrium outcomes in an efficient emissions permit market will be independent of how the emissions permits are initially distributed this so called independence property has important implications for policy design and implementation past studies document a strong positive correlation between the initial permit allocation and firm level emissions raising concerns that the independence property is failing to hold in real world settings we exploit the random assignment of firms to different permit allocation cycles in southern california s reclaim program in order to test the independence of permit allocation and emissions our results lend empirical support to the independence hypothesis

reversing property rights practice based approaches for controlling agricultural nonpoint source water pollution when emissions aggregate nonlinearly nonpoint source water pollution remains a major issue despite decades of research and sizable conservation programs we suggest that by taking advantage of contemporary modeling and optimization approaches good approximations to physical relationships can be constructed so that even in the presence of unobservable field emissions and nonlinear fate and transport relationships standard economic tools of command and control requirements performance standards and trading can be implemented the boone river watershed in the u s state of iowa is used for empirical demonstration although the approach can be used to construct voluntary conservation policies the described policies involve imposing requirements on agricultural polluters rather than relying on voluntary actions alone