do too many cooks always spoil the stew an experimental analysis of rent seeking and the role of a strategic buyer laboratory methods are used to evaluate the effects of institutional arrangements and rent defending activity on rent seeking auction outcomes in part nash equilibrium predictions are a useful behavioral guide as predicted more rents are dissipated in perfectly discriminating auctions where the high bidder wins than in lotteries where relative bids determine the chance of winning also as predicted the introduction of a rent defending buyer reduces social costs nevertheless the social costs of rent seeking consistently exceed predicted levels moreover individual bidding especially by buyers deviates markedly from nash predictions

comparing policies to confront permit over allocation abstract instability in cap and trade markets particularly with respect to permit price collapses has been an area of concern for regulators to that end several policies including hybrid price quantity mechanisms and the newly introduced market stability reserve msr systems have been introduced and even implemented in some cases i develop a stochastic dynamic model of a cap and trade system parameterized to values relevant to the european union s emission trading system eu ets to analyze the performance of these policies aimed at adding stability to the system or at least at reducing perceived over allocations of permits results suggest that adaptive allocation mechanisms such as a price collar or msr can reduce permit over allocations and permit price volatility in a more cost effective manner than simply reducing scheduled permit allocations however it is also found that the performance of these adaptive allocation policies and in particular the msr are greatly affected by assumed discount rates and policy parameters

dynamic supply adjustment and banking under uncertainty in an emission trading scheme the market stability reserve abstract we study the impact of a supply management mechanism smm similar to the market stability reserve proposed in 2015 which preserve the overall emissions cap and we comment on the recent cap changing amendments we provide an analytical description of the conditions under which an smm alters the emissions abatement paths affecting the expected length of the banking period and its variability while abatement strategies of risk neutral firms solely depend on the former for risk averse firms changes in the latter would lead to higher risk premia accelerated depletion of the bank and consequently further reduction of abatement and allowance prices cancellation of part of the reserve could partially outweigh the effect on risk premia sustaining allowance prices

marginal lobbying cost and the optimal amount of rent seeking in some ideal world in which information was free and the desire to promote the public interest prevailed the results developed in this paper would have no relevance the efficient amount of publicly provided goods and services would be known costlessly and the public interest motivation would assure that these quantities were provided in our less than ideal world however things are far different costly lobbying activities provide useful though incomplete information on the relative value of different public outlays but with private interest rather than public interest dominant this lobbying will also be used by special interests as a means of acquiring socially excessive quantities of government services

election goals and the allocation of campaign resources this paper compares the equilibrium behavior and outcomes in a model of two party competition for legislative seats under two different assumptions about the parties goals 1 parties maximize the expected number of seats won and 2 parties maximize the probability of winning a majority of the seats the two goals may lead to qualitatively different behavior and studying the differences yields insights into the relationship between the goals and the role of assymetries between the parties

homes and castles should we care about idiosyncratic risk we consider a novel set of data comprising every transaction in the netherlands housing market between 1995 and 2011 and take a closer look at the idiosyncratic risk as it played out in those years shiller and weiss 1999 proposed a home equity insurance policy that eliminates systematic risk we use their insurance scheme as an analytical tool to add detail to the comovement of individual transactions and the market we are particularly interested in the policy s loss coverage efficiency and payout probability at best protection against market risk is only around the half way mark to risk elimination

house prices home equity based borrowing and the u s household leverage crisis us household leverage sharply increased in the years preceding the 2007 eco nomic recession the top panel of figure 1 shows the steady rise in household debt since 1975 which accelerated beginning in 2002 in just five years the household sector doubled its debt balance in comparison the contemporaneous increase in corporate debt was modest the middle panel shows that the increase in household debt from 2002 to 2007 translated into a striking rise in household leverage as mea sured by the debt to income ratio during the same time period corporate leverage declined the dramatic absolute and relative rise in us household leverage from 2002 to 2007 is unprecedented compared to the last 25 years one reason for the rapid expansion in household leverage during this period is that mortgage credit became more easily available to new home buyers mian and sufi 2009 strong house price appreciation from 2002 to 2006 however which may have been fueled by the availability of mortgage credit to a riskier set of new home buyers could also have had an important feedback effect on household lever age through existing homeowners given that 65 percent of us households already owned their primary residence before the acceleration in house prices the feedback from house prices to borrowing may be an important source of the rapid rise in household leverage that preceded the economic downturn our central goals in this study are to estimate how homeowner borrowing responded to the increase in house prices and to identify which homeowners responded most aggressively we examine this home equity based borrowing channel using a dataset consisting of anonymous individual credit files of a national consumer credit bureau agency we follow a random sample of over 74 000 us homeowners who owned their homes as of 1997 at an annual frequency from the end of 1997 until the end of 2008 the bottom panel of figure 1 plots the growth in debt of 1997 homeowners over time and shows that existing homeowners borrow significantly more debt as their house prices appreciate from 2002 to 2006 while the aggregate trend is suggestive

asymmetric all pay auctions with incomplete information the two player case abstract we prove existence and uniqueness of bayesian equilibrium for a class of generally asymmetric all pay auctions with incomplete information due to its importance in applications some prominence is given to the first price all pay auction for which a detailed characterization of equilibrium and an approximation to equilibrium of its well studied complete information version are supplied furthermore we relate our uniqueness result to the well known multiplicity of equilibria in the war of attrition second price all pay auction which emerges as a limit point of the class of two player auction games considered journalof economic literature classification numbers d44 c62 c72

dissipation of contestable rents by small numbers of contenders the theory of rent seeking with its origins in the observations of gordon tullock 1967 or to use jagdish bhagwati s 1982 proposed term the theory of directly unproductive profit seeking activities is concerned with the potentially adverse effects on resource allocation of incentives to cap ture and defend artificially contrived rents and transfers the scope for so cial loss proposed by the theory derives from the relation between the value of a contestable prize and the value of the resources attracted into the con test to determine the beneficiary of the prize underlying this social loss is a specification of how rational behavior by optimizing agents links the value of the prize sought to the resources expended it has been traditional to assume competitive behavior in describing the activities of lobbying and influence seeking then if some further condi tions are satisfied l the total value of the resources expended precisely equals the value of the prize sought so dissipation is complete 2 conse quently the social cost associated with contestability of a rent can be in ferred from the value of the rent itself and the detailed and hard to come by information on individual outlays made in the course of the contest be comes unnecessary by basing their analyses on competitive dissipation contributors to the rent seeking literature see the review by robert tollison 1982 have been able to presume that the observed value of a contested rent is an exact measure of the associated social cost of monopoly power or regu lation similarly in the trade theoretic literature where the rights contested are to quota premia or revenues from trade taxes krueger 1974 bhagwati

cap and trade programs under delayed compliance consequences of interim injections of permits virtually every analysis of cap and trade programs assumes that rms must surrender permits as they pollute however no program existing or proposed requires such continual compliance some e g the acid rain program limiting so2 emissions require compliance once a year others e g the regional greenhouse gas initiative limiting co2 emissions require compliance every three years the paths of emissions and permit prices would be invariant to compliance timing holland moore 2013 if the government never injected additional permits between successive compliance dates however virtually all emissions trading programs require such injections through either 1 interim permit auctions or 2 sales from cost containment reserves intended to cap permit prices in such cases analyses which abstract from delayed compliance may mislead policy makers for example a cost containment reserve judged sucient to cap prices at a ceiling over a year may sell out in a single day

overlapping efforts in the eu emissions trading system abstract according to the phase iv 2021 2030 rules of the eu ets the total amount of emission permits allocated to firms is not fixed but endogenous this implies that a national climate policy that overlaps with the ets can have an impact on total aggregate emissions roughly speaking if firms increase their holdings of emission permits the total amount of permits allocated is reduced this paper analytically investigates how an overlapping national policy affects the aggregate bank of emission permits if marginal abatement costs are not too convex national climate policies increase banking and thus tend to reduce overall emissions

rent seeking contest when the prize increases with aggregate efforts the objective of this article is to investigate contests in which efforts are productive tullock s standard rent seeking model is extended by making the rent itself increase with the aggregate efforts a positive externality is thereby introduced into the contest because a contender s private effort in quest of the rent generates a benefit for other contenders coupled with a negative externality presented in the standard rent seeking model the net effect on the social efficiency of the contest is a priori ambiguous it is shown that the extended contest generates socially wasteful excessive aggregate efforts

asymmetric rent seeking with more than two contestants this article considers a rent seeking model with n asymmetriccontestants each contestant may have a different valuation ofthe rent or a different relative ability to win the rent oneof the n contestants is selected as the winner based ontullock s probabilistic contest rule with constant returns toscale a pure strategy nash equilibrium solution is obtainedand its consequences are investigated

the economics of pollution permit banking in the context of title iv of the 1990 clean air act amendments abstract this paper presents a model of the collective emission permit banking behavior of electricity generating units affected by title iv of the clean air act amendments of 1990 a rigorous treatment of the constraint that pollution permits cannot be borrowed from future allocations is introduced this approach enables an analysis of the impact of future changes in electricity demand regulations and technologies on the present permit price and emissions level the effect of uncertainty on the banking behavior is also explored

measuring the external benefits of homeownership abstract the subsidization of homeownership is justified on efficiency grounds only to the extent that it provides benefits to people other than the homeowner we use the clustered neighborhoods subsample in the american housing survey to measure that benefit in the form of higher housing prices in neighborhoods with higher ownership rates and lower vacancies we attempt to account for unobservable neighborhood and house attributes that may be correlated with occupancy and ownership through instrumental variables switching regressions and panel methods estimates indicate that a housing transition from renting to owning creates approximately 1300 in measured benefits

output based allocations in pollution markets with uncertainty and self selection we study pollution permit markets in which a fraction of permits are allocated to firms based on their output output based allocations which are receiving increasing attention in the design of carbon markets around the world e g europe california new zealand are shown to be optimal under demand and supply volatility despite the output distortions they may create in a market that covers multiple sectors the optimal design combines auctioned permits with output based allocations that are specific to each sector and increasing in its volatility when firms are better informed about the latter or must self select the regulator resort to some free i e lump sum allocations to sort firms out numerical exercises illustrate the policy relevance of our results the gains from considering output based allocations can be substantial

getting at systemic risk via an agent based model of the housing market systemic risk must include the housing market though economists have not generally focused on it we begin construction of an agent based model of the housing market with individual data from washington dc twenty years of success with agent based models of mortgage prepayments give us hope that such a model could be useful preliminary analysis suggests that the housing boom and bust of 1997 2007 was due in large part to changes in leverage rather than interest rates

a model of intertemporal emission trading banking and borrowing abstract this paper provides a general treatment of emission trading banking and borrowing in an intertemporal continuous time model using optimal control theory the decentralized behavior of firms is shown to lead to the least cost solution attainable under joint cost minimization explicit solutions for the time paths of emissions and permit prices are derived when firms are allowed to both bank and borrow and when firms are only allowed to bank emission permits the policy implications of emission banking and borrowing are discussed

emissions trading systems with cap adjustments abstract emissions trading systems etss with fixed caps lack provisions to address systematic imbalances in the supply and demand of permits due to changes in the state of the regulated economy we propose a mechanism which adjusts the allocation of permits based on the current bank of permits the mechanism spans the spectrum between a pure quantity instrument and a pure price instrument we solve the firms emissions control problem and obtain an explicit dependency between the key policy stringency parameter the adjustment rate and the firms abatement and trading strategies we present an analytical tool for selecting the optimal adjustment rate under both risk neutrality and risk aversion which provides an analytical basis for the regulator s choice of a responsive ets policy

endogenizing the cap in a cap and trade system assessing the agreement on eu ets phase 4 in early 2018 a reform of the world s largest functioning greenhouse gas emissions cap and trade system the eu emissions trading system ets was formally approved the reform changed the main principles of the system by endogenizing the emissions cap we show that the emissions cap is now affected by the allowance demand and is therefore no longer set directly by eu policymakers as a consequence national policies that reduce allowance demand can now reduce long run cumulative emissions which is not possible in a standard cap and trade system using a newly developed dynamic model of the eu ets we show that policies that reduce allowance demand can have substantial effects on cumulative emissions after the reform model simulations also suggest that the reform reduces long run cumulative emissions and to a lesser extent reduces emissions in the short run even so the reform has a small short run impact on the currently large allowance surplus

soft and hard price collars in a cap and trade system a comparative analysis we use a stochastic dynamic framework to compare price collars price ceilings and floors in a cap and trade system with uncertainty in the level of baseline emissions and costs we consider soft collars which provide limited volume of additional emission allowances a reserve at the price ceiling and hard collars which provide an unlimited supply of additional allowances thereby preventing allowance prices from exceeding the price ceiling conversely allowances are removed from the market if prices fall to the floor we find that increasing the size of the reserve strictly lowers expected net present values of compliance costs however there is a diminishing effect as the allowance reserve is expanded most of the expected cost savings are achieved with a modest reserve consequently a rather limited soft price collar could provide considerable assurance about cost while preventing the possibility that emissions could spiral out of control

covid 19 tests the market stability reserve we compare the decrease in energy demand and co2 emissions in europe during the financial crisis 2008 2009 with the expected drop in demand and emissions due to covid 19 and the price response of the eu emission trading system eu ets we ask whether the rather limited current price reduction may be due to the market stability reserve msr implemented in the eu ets between the two crises stylized facts and basic theory are complemented with simulations based on a model of the eu ets together they suggest a mixed result the msr stabilizes the eu ets price in turbulent times but imperfectly we show that the more persistent the covid 19 shock is the less the msr is able to serve its purpose

reexamining efficient rent seeking in laboratory markets given millner and pratt s 1989 finding of behavior inconsistent with theory we reexamine efficient rent seeking in experimental markets we show that a when r 3 no nash equilibrium exists and therefore behavior has no theoretical benchmark to judge consistency and b when r 1 with a new experimental design utilizing an explicit expected payoff matrix rent seeking behavior is consistent with both nash equilibrium and dissipation hypotheses

mixed strategy play in single stage first price all pay auctions with symmetric players abstract we consider sealed bid first price all pay auctions with complete information discrete strategy space budget constraint and symmetric players and then construct the equilibrium solution in mixed strategies for both fixed and variable prizes the equilibrium solution yields predictions concerning the effects of group size and value of the prize that are tested experimentally the experimental results support equilibrium play on the aggregate but not individual level adaptive learning on the individual level accounts for the major trends in the aggregate expenditures over time

business cycles and emission trading with banking abstract we propose an emission cap adjustment policy for an emission trading system ets that allows banking of allowances for later use and faces business cycle uncertainty the forward looking banking decisions cause a commitment problem with respect to regulator s next period allowance supply decision we tackle the commitment problem by focusing on the markov equilibrium of the policy the equilibrium policy has a surprisingly simple structure combining features from both price and quantity instruments the regulator s ability to choose a new cap for each period does not render banking obsolete but on the contrary makes banking an integral part of the equilibrium policy using data from the eu ets to calibrate the model we solve the markov equilibrium policy for the case of carbon emissions regulation and compare markov policies with and without the possibility to bank allowances a counterfactual analysis of the eu ets during the period of 2009 2013 shows that the optimal markov policy would have led to a steadier allowance price level and a stricter emission regulation than what was actually observed in the eu ets

rent seeking for pure public goods in this paper we present a formal analysis of rent seeking for public goods by two or more groups with different numbers of individuals we begin by considering equally wealthy groups under risk neutrality a case which constitutes our basic model several surprising and interesting results emerge from the analysis of this basic case the problem is then extended to deal with a groups with different wealth levels and b risk aversion this last extension brings about a further crop of interesting and useful results

the design of rent seeking competitions committees preliminary and final contests the paper examines the common practice in multi contest rent seeking competitions where finalists are selected based on rent seekers efforts in a preliminary contest we find that for any single contest design rent seeking expenditures could be reduced by introducing a preliminary contest if the marginal returns to rent seeking effort in the preliminary contest is sufficiently low in addition to other reasons the paper argues that this may explain why such multi contest designs are common we argue that rent seeking expenditure in the preliminary stage represents the cost of reducing the number of contestants we also find that the practice of setting a higher quality standard in the final contest than the quality standard in the preliminary contest reduces rent seeking waste we derive an expression for the optimal number of finalists under certain conditions we find that the optimal number of finalists is directly proportional or equal to the square root of the number of potential contestants finally we show that whether rent seeking expenditures rise or fall when the rent is awarded by a committee instead of a single administrator depends on the sensitivity of the committee relative to that of the single administrator

alternative approaches to cost containment in a cap and trade system we compare several emissions reduction instruments including quantity policies with banking and borrowing price policies and hybrid policies safety valve and price collar using a dynamic model with stochastic baseline emissions the instruments are compared under the design goal of obtaining the same expected cumulative emissions across all options based on simulation analysis with the model parameterized to values relevant to proposed us climate mitigation policies we find that restrictions on banking and borrowing including the provision of interest rates on the borrowings can severely limit the value of the policy depending on the regulator chosen allowance issuance path although emissions taxes generally provide the lowest expected abatement costs a cap and trade system combined with either a safety valve or a price collar can be designed to provide expected abatement costs near those of a tax but with lower emissions variance than a tax consistently a price collar is more cost effective than a safety valve for a given expected cumulative emissions outcome because it encourages inexpensive abatement when abatement costs decline

risk aversion and rent seeking an extension and some experimental evidence theoretical investigations indicate that the risk attitudes of individuals will effect the amount of rent that can be assumed to be dissipated by rent seeking activities following this line of investigation we extend hillman and katz s work to a small numbers case and demonstrate that the degree to which a monopoly rent is dissipated is dependent upon the structure of the risk attitudes of two risk averse individuals

what ails the european union s emissions trading system abstract the european union has adopted economists idea of curbing carbon emissions by establishing markets where bankable emissions allowances can be traded implicit in proofs that cap and trade minimizes the expected discounted cost of capping emissions however is that the regulator not intervene once the market is established otherwise market participants encounter uncertainties beyond what a social planner faces this paper discusses the equilibrium that results when private agents bank tradable allowances in the face of ongoing risk of future regulatory intervention and shows that the cap will be achieved at unnecessarily high cost even if no regulatory intervention actually occurs evidence that such risks are currently distorting eu ets comes from the depressed current spot price from the findings of schopp and neuhoff 2014 that speculators require multiples of the riskless rate of interest to bank permits and from the sensitivity of prices to votes and announcements about proposed future regulatory changes

supportive housing and neighborhood property value externalities we analyzed impacts on single fam institutional settings as part of the nationily home prices of eleven small scale supportive wide deinstitutionalization movement housing facilities announced in denver during beginning in the 1970s chronically men 1989 1995 using a difference in differences econo tally ill developmentally and physically dis metric specification we found that these facilities abled non violent produced a positive impact on house prices within offenders recovering 1 001 to 2 000 feet we attributed this effect to coun substance abusers and frail elderly inditervailing externalities building rehabilitation vs viduals have increasingly been domiciled resident behaviors that vary in their spatial extent in small scale facilities located in residen supportive housing facilities were systematically tial neighborhoods this normalization sited in neighborhoods with declining relative of residential environment coupled with prices compared to elsewhere in the census tract on site and on call specialized care is seen this location bias led a conventional econometric as therapeutic bymany policy makers new specification to erroneously estimate a negative property value impact from supportive housing

the effects of price risk on housing demand empirical evidence from u s markets this article examines how price risk affects housing demand it identifies two relevant channels a financial risk effect that reduces demand and a hedging effect that increases demand since current homes may hedge future housing costs the latter dominates when hedging incentives are strong namely when the likelihood of moving up the housing ladder is high and the tendency to move across markets is low for households with weak hedging incentives the article finds negative effects of price risk on the timing and size of home purchases but positive effects for households with strong hedging incentives

supply constraints and housing market dynamics abstract although the volatility of house prices is often ascribed to demand side factors constraints on housing supply have important and little studied implications for housing dynamics i illustrate the strong relationship between the volatility of house prices and the regulation of new housing supply i then employ a dynamic structural model of housing investment to investigate the mechanisms underlying this relationship i find that supply constraints increase volatility through two channels first regulation lowers the elasticity of new housing supply by increasing lags in the permit process and adding to the cost of supplying new houses on the margin second geographic limitations on the area available for building houses such as steep slopes and water bodies lead to less investment on average relative to the size of the existing housing stock leaving less scope for the supply response to attenuate the effects of a demand shock my estimates and simulations confirm that regulation and geographic constraints play critical and complementary roles in decreasing the responsiveness of investment to demand shocks which in turn amplifies house price volatility

procrastinating reform the impact of the market stability reserve on the eu ets abstract we study the impact of the market stability reserve msr on price and emission paths of the eu ets from 2019 onwards the msr will adjust the number of allowances auctioned as a function of the size of the surplus i e in times of a large surplus it shifts the issue date of allowances into the future in a perfectly competitive allowance market the msr only affects price and emission paths if the baseline equilibrium becomes unfeasible if the msr is binding prices increase in the short run but drop in the medium run relative to the baseline the msr increases price variability if uncertainty over future allowance demand is resolved while there is a surplus the long run cap is unaffected by both the msr and overlapping climate policies this contrasts the eu s objectives of improving the resilience of the eu ets and increasing synergies with overlapping climate policies

an analysis of the war of attrition and the all pay auction we study the war of attrition and the all pay auction when players signals are affiliated and symmetrically distributed we a find sufficient conditions for the existence of symmetric monotonic equilibrium bidding strategies and b examine the performance of these auction forms in terms of the expected revenue accruing to the seller under our conditions the war of attrition raises greater expected revenue than all other known sealed bid auction forms journal of economic literature classification numbers d44 d82 1997 academic press