pushing the boundaries of climate economics critical issues to consider in climate policy analysis abstract climate policy choices are influenced by the economics literature which analyses the costs and benefits of alternative strategies for climate action this literature in turn rests on a series of choices about the values and assumptions underlying the economic analysis the methodologies for treating dynamics technological change risk and uncertainty and the assumed interactions between economic systems society and the environment including institutional constraints on climate policy we identify and discuss such critical issues pushing at the boundaries of current climate economics research new thinking in this area is gathering pace in response to the limitations of traditional economic approaches and their assumptions on economic behaviour ecological properties and socio technical responses we place a particular emphasis on the role of induced technological change and institutional setups in shaping cost effective climate action that also promotes economic development and the alleviation of poverty

modelling the redirection of technical change the pitfalls of incorporeal visions of the economy this paper discusses attempts to represent the role of r d in the transition towards a low carbon economy through models with no meaningful granularity to inform the studied phenomenon by means of a critical analysis of acemoglu et al 2012 we show that the advantage of these models their analytical tractability does not make up for their disadvantages lack of control over policy implications and questionable numerical results on the one hand a comprehensive analysis of the results of acemoglu et al 2012 shows that even research subsidies do not pave the way for ambitious climate policies with low transitory costs thus contradicting their policy message on the other hand critical parameters such as the elasticity of substitution between clean and dirty technologies carbon sinks or the productivity of researchers are not in accordance with existing scientific knowledge we show that using more realistic parameters leads to even more pessimistic conclusions and that their model provides no leeway for overcoming them we suggest that a too highly aggregated model can only describe an incorporeal economy and comes to a deadlock we propose a more promising route for economic research in order to break this deadlock

the collateral channel how real estate shocks affect corporate investment abstract what is the impact of real estate prices on corporate investment in the presence of financing frictions firms use pledgeable assets as collateral to finance new projects through this collateral channel shocks to the value of real estate can have a large impact on aggregate investment to compute the sensitivity of investment to collateral value we use local variations in real estate prices as shocks to the collateral value of firms that own real estate over the 1993 2007 period the representative us corporation invests 0 06 out of each 1 of collateral jel d22 g31 r30

estimating the effect of hierarchies on information use theory suggests that greater hierarchical distance between a subordinate and his boss makes it more di cult to share abstract and subjective information in decision making a novel data set put together from credit dossiers of large corporate loan applicants enables us to observe the information collected by loan o cers and also how it is used by the ultimate loan approving o cer we flnd that greater hierarchical geographical distance between the information collecting agent and the loan approving o cer leads to less reliance on subjective information and more on objective information by exploiting non linearities in the assignment rules that determine an applicant s hierarchical distance and using information collecting agent flxed efiects we show that our result cannot be driven by endogenous assignment of applicants we also flnd that higher frequency of interactions between the information collecting agent and loan approving o cer both over time and through geographical proximity helps mitigate the efiects of hierarchical distance on information use our results show that hierarchical distance in uences information use and highlights the importance of human touch in communication

gasoline price volatility and the elasticity of demand for gasoline abstract we examine how gasoline price volatility impacts consumers price elasticity of demand for gasoline results show that volatility in prices decreases consumer demand for gasoline in the intermediate run we also find that consumers appear to be less elastic in response to changes in gasoline price when gasoline price volatility is medium or high compared to when it is low moreover we find that when we control for variance in our econometric model gasoline price elasticity of demand is lower in magnitude in the long run

the demand for gasoline abstract sufficient time must be allowed to elapse to assess fully the response of gasoline demand to price changes hitherto empirical work on the subject has generally not examined the period beyond 1975 moreover the extant time series studies concentrate almost exclusively on the usa this study extends both the observation period and the country coverage a vehicle stock adjustment model is estimated via its reduced form without explicit consideration of the vehicle stock itself however the estimation procedure incorporates the structure by way of constraints on the parameters cross section analysis offers additional evidence concerning the truly long run price elasticity the results suggest that there is no need to resort to elaborate models to explain adequately gasoline demand gasoline demand exhibits a long run price elasticity near unity with time lags exceeding six years while there is tentative evidence that the duration of these lags is not fixed

welfare specifications and optimal control of climate change an application of fund the sensitivity of the optimal control of carbon dioxide emissions to the specification of the social welfare function is systematically explored using the fund model increasing risk aversion emphasises climate change damages relative to emission reduction costs but at the same time increases the discount rate of consumption without international co operation the discount rate effect dominates so that optimal control decreases with increasing risk aversion with international co operation optimal control first increases then decreases with increasing risk aversion since climate change falls heaviest on the poor optimal control increases with increasing inequity aversion full fledged intergenerational welfare functions on the one hand emphasise climate change damages but on the other hand place more weight on current poorer generations in fund the two tendencies almost cancel

the induced innovation hypothesis and energy saving technological change we develop a methodology for testing hicks s induced innovation hypothesis by estimating a product characteristics model of energy using consumer durables augmenting the hypothesis to allow for the ine uence of government regulations for the products we explored the evidence suggests that i the rate of overall innovation was independent of energy prices and regulations ii the direction of innovation was responsive to energy price changes for some products but not for others iii energy price changes induced changes in the subset of technically feasible models that were offered for sale iv this responsiveness increased substantially during the period after energy efficiency product labeling was required and v nonetheless a sizable portion of efficiency improvements were autonomous

are the economic costs of stabilising the atmosphere prohibitive abstract macro economic studies of the costs of reducing co2 emissions generally estimate the global cost of stabilising the atmospheric concentrations of co2 in the range 350 550 ppm in trillions of usd this creates the impression that the cost of co2 reductions is so large that it threatens economic development but presented in another way a completely different picture emerges there is widespread agreement amongst the more pessimistic macro economic studies that stringent carbon controls are compatible with a significant increase in global and regional economic welfare even if the cost of co2 abatement rises to 5 of global income per year by the end of this century this reduction is minor compared with the tenfold increase in global income that is expected since income is assumed to grow by a couple of percent per year the trillion usd cost could also be expressed as a few years delay in achieving an order of magnitude higher income levels similar observations can also be made as regards near term abatement targets such as the kyoto protocol a more widespread recognition of the fact that carbon abatement policies will only marginally affect economic growth is likely to increase the willingness to introduce carbon abatement policies

discussion of accounting standards and debt covenants has the balance sheet approach led to a decline in the use of balance sheet covenants abstract demerjian this issue argues that a shift by u s standard setters towards the balance sheet approach reduces the usefulness of balance sheet numbers for contracting consistent with this argument he provides evidence of a decline in the use of balance sheet based covenants in debt contracts a useful finding nevertheless i argue that the evolution of standard setting is more complex than this argument implies and evaluate the economic basis of demerjian s arguments for how debt contracts respond to changes in accounting rules one conclusion that emerges is that there are still some important open issues regarding the economic determinants of debt contracts

is addiction rational theory and evidence this paper makes two contributions to the modeling of addiction first we provide new and convincing evidence that smokers are forward looking in their smoking decisions using state excise tax increases that have been legislatively enacted but are not yet effective and monthly data on consumption second we recognize the strong evidence that preferences with respect to smoking are time inconsistent with individuals both not recognizing the true dife culty of quitting and searching for self control devices to help them quit we develop a new model of addictive behavior that takes as its starting point the standard rational addiction model but incorporates time inconsistent preferences this model also exhibits forward looking behavior but it has strikingly different normative implications in this case optimal government policy should depend not only on the externalities that smokers impose on others but also on the internalities imposed by smokers on themselves we estimate that the optimal tax per pack of cigarettes should be at least one dollar higher under our formulation than in the rational addiction case

the contracting benefits of accounting conservatism to lenders and borrowers abstract this paper examines the ex post and ex ante benefits of accounting conservatism to lenders and borrowers in the debt contracting process i expect conservatism to benefit lenders ex post through the timely signaling of default risk as manifested by accelerated covenant violations and to benefit borrowers ex ante through lower initial interest rates consistent with these predictions i find that more conservative borrowers are more likely to violate debt covenants following a negative price shock and that lenders offer lower interest rates to more conservative borrowers

the price elasticity of opium in taiwan 1914 1942 abstract between 1895 and 1945 the japanese colonial government virtually eliminated opium use in taiwan by licensing and treating existing users prohibiting sales to others and raising the price we evaluate these policies using a two part model to describe the fraction of the population using opium and consumption among users and the rational addiction model by becker et al 1991 we confirm that opium is addictive and find no evidence supporting the rational addiction hypothesis demand is price elastic with estimated short and long run demand elasticities of 0 48 and 1 38 these results have implications for control of other addictive substances

gasoline demand revisited an international meta analysis of elasticities meta analysis is used to determine if there are factors that systematically affect price and income elasticity estimates in studies of gasoline demand four econometric models are estimated using long run and short run price and income elasticity estimates from previous studies as the dependent variables explanatory variables include functional form lag structure time span national setting estimation technique and other features of the model structure elasticity estimates are found to be sensitive to the inclusion or exclusion of some measure of vehicle ownership static models appear to overestimate short run elasticities underestimate long run price elasticities but pick up the full long run income responsiveness there is variation in the elasticity of demand across countries especially in the short run and gasoline demand appears to be getting more price elastic and less income elastic over time

information reliability and a theory of financial intermediation this paper is an analysis of when it will be beneficial for agents engaged in the production of information to form coalitions the model is cast in a financial market framework thus leading to an identification of conditions sufficient for the existence of financial intermediaries intermediation is shown to improve welfare if informational asymmetries are present and the information generated to rectify these asymmetries is potentially unreliable the usual appeal to transactions costs to explain intermediation is not needed

a long march perspective on tobacco use in canada in this paper we present a model of tobacco demand in canada with a view to establishing if price and tax policy on the one hand or educational regulatory and demographic influences on the other have been primarily responsible for the substantial drop in consumption since 1980 we address some methodological and econometric issues that have escaped the attention of some analysts to this point using data for the period 1972 2000 we find that non price developments have had a strong deterrent effect and that the price elasticity of demand is now lower than even the recently obtained low estimates propose these findings have strong public policy content jel classification i12 c13 c22 une perspective de longue haleine sur l usage du tabac au canada dans ce memoire on presente un modele de la demande de tabac au canada en vue d etablir laquelle des deux strategies d une part la politique de prix et d imposition de taxes et d autre part les influences de l education de la reglementation ainsi que les changements demographiques a ete davantage responsable de la chute importante dans la consommation du tabac depuis 1980 le texte examine certains problemes methodologiques et econometriques qui ont jusqu ici echappea l attention des analystes a l aide de donnees pour la periode 1972 2000 on montre que les facteurs qui n ont rien a voir avec le prix ont eu un fort effet dissuasif et que l elasticite de la demande par rapport au prix est maintenant plus faible que les faibles elasticites suggerees par certaines etudes recentes ces resultats ont une grande importance pour la politique publique

optimal climate policy is a utopia from quantitative to qualitative cost benefit analysis abstract the dominance of quantitative cost benefit analysis cba and optimality concepts in the economic analysis of climate policy is criticised among others it is argued to be based in a misplaced interpretation of policy for a complex climate economy system as being analogous to individual inter temporal welfare optimisation the transfer of quantitative cba and optimality concepts reflects an overly ambitious approach that does more harm than good an alternative approach is to focus the attention on extreme events structural change and complexity it is argued that a qualitative rather than a quantitative cba that takes account of these aspects can support the adoption of a minimax regret approach or precautionary principle in climate policy this means implement stringent ghg reduction policies as soon as possible

the transition from dirty to clean industries optimal fiscal policy and the environmental kuznets curve abstract this paper investigates privately and socially optimal patterns of economic development in a two sector endogenous growth model with clean and dirty goods we consider a second best fiscal policy framework in which distortionary taxes jointly influence economic growth and environmental quality in this policy setting three conditions produce an environmental kuznets curve ekc i dirty output is bounded ii clean output grows endogenously and iii growth in the dirty sector reduces growth in the clean sector these conditions do not arise with a consumption externality but can emerge with a production externality endogenous labor supply implications are also investigated although not necessary for producing an ekc endogenous labor supply provides additional linkages that produce an ekc under circumstances in which it would otherwise not appear

signals or noise explaining the variation in recreation benefit estimates this paper uses meta analysis to summarize the benefit estimates derived from travel cost recreation demand models after reviewing approximately 200 published and unpublished studies prepared from 1970 to 1986 77 were found to report either consumer surplus estimates or sufficient information to derive them using these estimates of the consumer surplus per unit of use from each study it was possible to evaluate the influence of variables describing the site characteristics the activities undertaken at each site the behavioral assumptions and the specification decisions the findings provide clear support for using econometric methods to summarize results from diverse empirical studies they highlight the important research issues in model development and offer a consistency check to the procedures used in benefit transfer analyses for policy evaluations

sustainable development with extractive and non extractive use of the environment in production this paper considers an economy in which the environment plays a role both in welfare and production an endogenous growth model which allows for abatement activities is formulated in order to study the impact of pollution on welfare and long term growth conditions for optimal and balanced economic growth are discussed and a numerical example is given to provide some insight in the mechanisms at work in the model

rational addiction to caffeine an analysis of coffee consumption it is common knowledge that coffee tea and other beverages that contain caffeine are habit forming a recent medical study confirms that caffeine is strongly addictive with subjects exhibiting syndromes of intoxication withdrawal and dependence strain et al 1994 p 1043 that study concludes that the effect is physiological not just psychological it is of interest to ask whether the addictive nature of the most widely used psychoactive substance in the world is apparent from data on consumption there are several economic models of addiction among them the rational addiction model of becker and murphy 1988 stands out because of its simplicity and consistency with economic theory in this model the utility a consumer derives from consumption depends not only on the quantity c that is consumed but also on the degree of addiction at addiction is a form of human capital taking the form of a possibly harmful rather than beneficial stock variable it is increased as a by product of consumption and it gradually depreciates as time passes thus current consumption affects future choices consuming the good now increases its desirability in the future the becker murphy model is rational and forward looking in that the consumer is aware of these future effects and weighs them in making the current consumption choice this is in strong contrast to models that are based on assumptions of myopia and nonrational behavior an implication of the model is that this forward looking behavior can be detected in the data theory predicts that consumption data

rebound directed technological change and aggregate demand for energy abstract we analyse the long run role of energy in aggregate production the factor share of energy has been remarkably constant despite the relative decline in the price of energy we analyse possible explanations for this observation ruling out the idea that endogenous directed technological change has led to a failure of energy augmenting technology to keep pace with labour augmenting technology instead we propose a model in which a combination of income and substitution effects has driven both shifts in consumption patterns towards existing energy intensive goods and the emergence of new such goods

a model of technological breakthrough in the renewable energy sector abstract models with induced technological change in the energy sector often predict a gradual expansion of renewable energies and a substantial share of fossil fuels remaining in the energy mix through the end of our century however there are historical examples where new products or technologies expanded rapidly and achieved a high output in a relatively short period of time this paper explores the possibility of a technological breakthrough in the renewable energy sector using a partial equilibrium model of energy generation with endogenous r d our results indicate that due to increasing returns to scale a multiplicity of equilibria can arise in the model two stable states can coexist one characterized by a lower and one by higher supply of renewable energy the transition from the low output to the high output equilibrium is characterized by a discontinuous rise in r d activity and capacity investments in the renewable energy sector the transition can be triggered by a rise in world energy demand by a drop in the supply of fossil fuels or by policy intervention under market conditions the transition occurs later than in the social optimum hence we identify a market failure related to path dependence and technological lock in that can justify a strong policy intervention initially paradoxically well intended energy saving policies can actually lead to higher emissions as they reduce the incentives to invest in renewable energies by having a cushioning effect on the energy price hence these policies should be supplemented by other instruments that restore the incentives to invest in renewable energies finally we discuss the influence of monopoly power in the market for innovations we show that market power can alleviate the problem of technological lock in but creates a new market failure that reduces static efficiency

i ll never forget my first cigarette a revealed preference analysis of the habits as durables model we provide a revealed preference analysis of the habits as durables model this approach avoids the need to impose a functional form on the underlying utility function we show that our characterization is testable by means of linear programming methods and we demonstrate its practical usefulness by means of an application to cigarette consumption using a spanish household consumption data set we find that the habits as durables model has better empirical fit in terms of predictive success compared to the short memory habits and life cycle models

the economic causes of obesity a survey abstract obesity rates have increased dramatically over the last 30 years rising obesity has developed into a considerable worldwide public health problem with significant economic and social consequences accordingly obesity has become a subject of economic research this paper provides a broad survey of the recent and growing economic literature on the causes of obesity the literature both theoretical and empirical overall aims to explain the rising obesity trend and to identify the factors that contribute to obesity also surveyed are non economic causes and consequences of obesity and the interconnection with economic influences an understanding of the causes of obesity allows policies to be considered that might stem the global increase in obesity

covenants and collateral as incentives to monitor although monitoring borrowers is thought to be a major function of financial institutions the presence of other claimants reduces an institutional lender s incentives to do this thus loan contracts must be structured to enhance the lender s incentives to monitor covenants make a loan s effective maturity and the ability to collateralize makes a loan s effective priority contingent on monitoring by the lender thus both covenants and collateral can be motivated as contractual devices that increase a lender s incentive to monitor these results are consistent with a number of stylized facts about the use of covenants and collateral in institutional lending modern finance theory suggests that financial intermediaries such as commercial banks insurance companies and finance companies monitor and control their borrowers on behalf of other investors 1 this article investigates how the loans made by these institutions can be structured so as to best enhance the institutions role as delegated monitors covenants and collateral are common features of loans made by financial institutions but these features are somewhat difficult to justify consider loan covenants clauses in a loan contract that require the borrower to take or refrain from various actions berlin and mester 1992 magee and sridhar 1994 and park 1994 show that by giving institutions the right to renegotiate or call loans when covenants are violated covenants serve as tripwires that enhance the flexibility and efficiency of financial contracting also as documented in smith and warner 1979 control rights from covenants reduce borrower adverse selection or moral hazard nevertheless by allowing institutions to demand repayment based on any information contractible or not

are cigarette bans really good economic policy this study investigates the quarterly relationship between the quantity of cigarettes sold real disposable income per capita and the relative price level of cigarettes in canada careful attention is paid to the nonstationarity of the data and the dynamic specification of the model it is concluded that cigarette demand is extremely insensitive to price and income changes this is evidence of the large consumer surplus smokers enjoy and the large revenue increasing potential of a cigarette tax increase policy as opposed to cigarette bans

cigarette tax revenues and tobacco control in japan the hypotheses of non addiction myopia and rational addiction are tested using annual quarterly and monthly data changes in the prices of japanese cigarettes can be viewed as exogenous from the point of view of consumer behaviour because the japanese government controls cigarette prices the empirical results of this paper support the addiction hypothesis the short run and long run price elasticities range from 0 338 to 0 421 and from 0 679 to 0 686 respectively thus increases in tax revenues in the long run are likely to be smaller than those in the short run as a result tax increases would be an effective means of curbing smoking and reducing its social cost furthermore the debt compensation programmes for the japan railway and the national forestry will not go according to plan unless revenues are increased in the future

information and control in ventures and alliances this paper develops a theory of control as a signal of congruence of objectives and applies it to nancial contracting between an investor and a privately informed entrepreneur we show that formal investor control is i increasing in the information asymmetries ex ante ii increasing in the uncertainty surrounding the venture ex post iii decreasing in the entrepreneur s resources and iv increasing in the entrepreneur s incentive consict in contrast real investor control that is actual investor interference is decreasing in information asymmetries control rights are further such that control shifts to the investor in bad states of nature

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

gasoline prices gasoline consumption and new vehicle fuel economy evidence for a large sample of countries abstract countries differ considerably in terms of the price drivers pay for gasoline this paper uses data for 132 countries for the period 1995 2008 to investigate the implications of these differences for the consumption of gasoline for road transport to address the potential for simultaneity bias we use both a country s oil reserves and the international crude oil price as instruments for a country s average gasoline pump price we obtain estimates of the long run price elasticity of gasoline demand of between 0 2 and 0 5 using newly available data for a sub sample of 43 countries we also find that higher gasoline prices induce consumers to substitute to vehicles that are more fuel efficient with an estimated elasticity of 0 2 despite the small size of our elasticity estimates there is considerable scope for low price countries to achieve gasoline savings and vehicle fuel economy improvements via reducing gasoline subsidies and or increasing gasoline taxes

the price elasticity of selective demand a meta analysis of econometric models of sales the author describes a meta analysis of econometric studies that estimated the elasticity of selective sales or market share to price the literature review yielded 367 suitable price elasticities

generational welfare under a climate change policy with induced innovation we develop a climate economy model with generational heterogeneity and the potential for climate policy induced technological change we use the model to assess the distributional implications of climate policies and of policy designs which recycle generated revenues to finance research and development r d we model only innovation in the energy generated per unit of fossil fuels so the quantitative results we derive are small our emphasis is on the distributional impacts of redistributing climate policy rents to enhance r d we show that while investments of climate policy rents to accelerate innovation are likely to be welfare improving as long as significant market failures exist they are also likely to exacerbate the distributional inequities created across generations by climate change policies the political feasibility of climate policies may be harmed by rent transfers to r d as these transfers can increase the costs borne by agents alive today while increasing benefits to generations born far into the future

the investment opportunity set and accounting procedure choice abstract this paper provides evidence on the cross sectional relation between firms investment opportunities their debt and compensation contracts their size and financial leverage and their accounting procedure choices this evidence is important because previous studies hypothesize that the link between firms investment opportunities and their accounting choices helps explain extant results on the size debt equity and bonus plan hypotheses however while i find that firms investment opportunities do affect the nature of their contracts i also find that the traditional explanations for accounting choice are important after controlling for the effects of the investment opportunity set

climate policy and induced r d how great is the effect abstract carbon taxes or tradable permit systems to address climate change may induce research and development in energy related technologies we construct a single knowledge stock model of r d growth and climate to assess the importance of this effect the contribution of induced r d is shown to be very sensitive to i the duplication externality ii the feasibility of dedicated research subsidies to internalize inter firm knowledge spillovers iii the opportunity cost of r d iv the initial level of research expenditure and v the elasticity of substitution between energy and other factors of production in contrast the direction and scale of the inter temporal research spillover are of secondary importance we find strong support for rezai s 2011 argument that when the business as usual scenario no policy is modeled appropriately all externalities treated as external sacrifices for early generations associated with optimal climate policy are minor or non existent employing our preferred selections for the parameters we find that adding an induced r d component to the model increases the welfare impact of the first best policy optimally chosen carbon tax and research subsidies by an average value of more than 400 and of the second best policy carbon tax alone by approximately 22

internal and international migration in mexico 1995 2000 using micro data from mexico and us 2000 population censuses and following a multi choice variant of roy s 1951 model this article pools into one model the determinants of internal and international migration in mexico while paying explicit attention to the potential problem of self selection the results reveal that ignoring multiple destinations in the migration decision might lead to erroneous inferences about the determinants of migration and the type of selection after controlling for wage differences the results suggest that single adult men with low schooling levels tend to migrate to the us while married women and men with higher levels of schooling tend to migrate within mexico we also found that there are strong differences between domestic and international social networks

performance pricing in bank debt contracts abstract performance pricing links bank debt interest rate spreads to a borrower s performance via two options interest decreasing performance pricing reduces spreads if credit quality improves it is more common when prepayment is more likely or costly and when adverse selection costs are higher and is less common when multiple performance measures better predict credit quality interest increasing performance pricing increases spreads if credit quality deteriorates it is more common when lenders reduce interest rates to add this provision when downgrades are more likely and when moral hazard costs are higher we find lower spreads for contracts with interest increasing performance pricing

are the economic costs of non stabilising the atmosphere prohibitive a comment in a recent paper in this journal azar and schneider present carbon abatement costs as a few years delay in an increasing path of welfare and they suggest the adoption of stricter abatement policies to avoid climate change we show that the same argument can be used to derive the opposite conclusion in most studies not only abatement costs but also climate change costs represent a small loss in future welfare the reason for this is the implicit assumption of perfect long term substitutability between man made and environmental goods that many of these models adopt we argue that instead of downplaying the costs of abatement measures we should try to better understand the substitutability possibilities between man made and environmental goods that is the character of long term costs of climate change

economic growth international competitiveness and environmental protection r d and innovation strategies with the warm model abstract it is often argued that policies designed to protect the environment may harm economic growth moreover if introduced unilaterally by a given country they may reduce the competitiveness of domestic firms these arguments are generally based on the assumption that environmental protection has to be achieved through the introduction of emission charges e g a carbon tax however three issues need to be raised first the tax is not the only policy instrument and is not the most efficient one that can be used to reduce polluting emissions secondly even when a tax policy is implemented it is important to assess the feedback effects induced by recycling the tax revenue thirdly and most importantly the role of technical progress cannot be neglected therefore there may exist a policy mix that provides firms with the correct incentives to adopt energy saving technologies and to invest in environment friendly r d the first two issues have partly been explored both in the theoretical and empirical literature the third issue i e the role of incentives to technical progress still lacks adequate quantitative assessment this is why a new model has been developed which endogenizes technical progress and its effects and feedbacks on economic energy and environmental variables using warm an econometric general equilibrium model for the european union and for each member country this paper presents simulation results up to 2015 of the effects of some industrial environmental policies which are aimed at protecting the environment without necessarily damaging competitiveness and economic growth the results show that policies that stimulate environmental r d technological innovation and diffusion may provide firms with the correct incentives to avoid damaging the environment while preserving their competitiveness in the market moreover such a policy based both on r d subsidies and on innovation incentives may not worsen the public sector budget balance as a result of the positive effects on economic growth

on the use of instrumental variables in accounting research abstract instrumental variable iv methods are commonly used in accounting research e g earnings management corporate governance executive compensation and disclosure research when the regressor variables are endogenous while iv estimation is the standard textbook solution to mitigating endogeneity problems the appropriateness of iv methods in typical accounting research settings is not obvious drawing on recent advances in statistics and econometrics we identify conditions under which iv methods are preferred to ols estimates and propose a series of tests for research studies employing iv methods we illustrate these ideas by examining the relation between corporate disclosure and the cost of capital

a theory of the syndicate form follows function we relate the organizational form of investment banking syndicates to moral hazard in team production although syndicates are dissolved upon deal completion membership stability across deals represents a barrier to entry that enables the capture of quasi rents this improves incentives for individual bankers to cultivate investor relationships that translate into greater expected proceeds reputational concerns of lead bankers amplify the effect we derive conditions under which restricted entry and designation of a lead banker strictly pareto dominate in which case it is also strictly pareto dominant for the syndicate s fee to be greater than members cost of participation copyright the american finance association 2001

cigarette smoking and self control this paper empirically studies time inconsistent preferences in the context of cigarette smoking behavior with hyperbolic discounting an individual has time inconsistent preferences which give rise to a lack of self control i e she may perpetually postpone the execution of a plan this implies that a smoker who wants to quit has a demand for control devices e g a smoking ban in public areas or a hike in cigarette excise taxes this paper empirically tests this implication using a sample that is based on survey data from taiwan the estimation results indicate that a smoker s intention to quit has a positive effect on the smoker s support for smoking bans and a cigarette excise tax increase these results lend support to the validity of the time inconsistent preferences in the context of cigarette smoking behavior this casts doubt on the validity of the assumption that individuals have time consistent preferences in becker and murphy s becker g s murphy k m 1988 a theory of rational addiction journal of political economy 96 4 675 700 rational addiction model

distance and private information in lending we study the effects of physical distance on the acquisition and use of private information in informationally opaque credit markets using a unique data set of all loan applications by small firms to a large bank we show that borrower proximity facilitates the collection of soft information leading to a trade off in the availability and pricing of credit which is more readily accessible to nearby firms albeit at higher interest rates ceteris paribus analyzing loan rates and firms decision to switch lenders provides further evidence for banks strategic use of private information however distance erodes our lender s ability to collect proprietary intelligence and to carve out local captive markets suggesting that the requisite soft information is primarily local the author 2010 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

estimating country specific environmental kuznets curves from panel data a bayesian shrinkage approach designing an efficient global climate policy turns out to be a difficult yet crucial task since there are noteworthy cross country differences in energy and carbon intensities in this article the environmental kuznets curve ekc hypothesis is tested for carbon dioxide co2 emissions and as a modelling technique the iterative bayesian shrinkage procedure is employed to handle the cross country differences the results suggest that first the ekc hypothesis is rejected for 47 out of the 51 countries considered when the heterogeneity in countries energy efficiencies and cross country differences in the co2 emissions trajectories are accounted for second a classification of the results with respect to the development levels of the countries concerned reveals that the emergence of an overall inverted u shaped curve is due to the fact that in high income countries increase in gross domestic product gdp decreases emissions while in low income countries emissions and gdp are positively correlated

transitional impacts of environmental policy in an endogenous growth model to explore the link between a tighter environmental policy and economic growth the authors employ an endogenous growth model with endogenous technological progress in abatement technologies the environment which is modelled as a renewable resource acts both as a public consumption good and as a public input into production the entire transition towards a new balanced growth path after a tightening of environmental policy is computed analytically the authors find sharp contrasts between short run and long run effects whereas the level and the growth rate of output may decline in the short run income growth may improve in the long run copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

bridging the gap the design of bank loan contracts and distance how do the distance constraints faced by lenders in acquiring borrower information affect the design of bank loan contracts theoretical studies posit that greater information asymmetry leads to the allocation of stronger ex ante decision rights to the lender the uninformed party consistent with this hypothesis we find that upon inception contracts tend to be more restrictive when firms seek loans from remote lenders this finding is robust to potential endogeneity bias and simultaneity of various loan terms overall we establish a strong informational link between distance and loan contract design

rational habits in gasoline demand abstract the dynamics of demand for energy goods such as gasoline are complicated by investment decisions and behavioral habits both types of complication can be captured by a habits model in which past consumption enters into an agent s current utility function if the agent is forward looking or rational then habits imply his consumption of the habit forming good will be sensitive to his expectation of future market conditions in particular future prices this sensitivity implies in turn that traditional measures of price elasticity will underproject consumers responsiveness to policy interventions this paper examines the implications of rational habits on gasoline demand using a simple model encompassing myopic and rational habits i demonstrate that an agent with rational habits will respond to anticipated future price changes and react more strongly to permanent than to temporary price changes with this distinction increasing in the strength of the habit i then estimate several habits models using panel data on u s states for the years 1989 through 2008 my preferred specification yields evidence of rational habits and moreover i find consumers to be twice as responsive to tax driven price changes as to market driven price changes taxes and other policies that operate through the gasoline price are a more powerful policy instrument than traditional price elasticity would lead us to believe

do banks price discriminate spatially evidence from small business lending in local credit markets abstract in this paper we explore the effects of bank borrower physical proximity on price and non price aspects of small business lending in local credit markets along the price dimension our analysis reveals that interest rates increase with bank borrower distance and decrease with the distance between borrower and other competing banks along the quantity dimension we observe that more distant borrowers are more likely to experience binding credit limits we also show that the quantity effects of bank borrower distance are concentrated among less transparent firms our findings are consistent with pricing based on marginal costs that reflect information based factors and are in contrast to the established paradigm where banks adopt spatial discriminatory pricing rules when lending to small sized enterprises

induced innovation and energy prices this paper uses u s patent data from 1970 to 1994 to study the impact of energy prices on energy efficient innovations theories of technological change have focused both on demand side factors which spur innovative activity by increasing the value of new innovations and supply side factors such as scientific advancements that make new innovations possible data on demand side factors are easily obtained but data on supply side factors that influence innovation are not readily available this paper uses patent citations as a measure of the usefulness of the existing base of scientific knowledge citations to previous patents are used to construct productivity estimates which measure the usefulness of the existing stock of knowledge to inventors in a given energy field for any given year these estimates are then combined with data on demand side factors to estimate a model of induced innovation in energy technologies the results indicate that both energy prices and the supply of knowledge have strongly significant positive effects on innovation the paper concludes with a discussion of the implication of this work for environmental policy

a model of addiction and social interactions many consumer behaviors are both addictive and social understanding how these two phenomena interact informs basic models of human behavior and matters for policymakers when the behavior is regulated i develop a new model of demand that incorporates both addiction and social interactions and show that under certain conditions social interactions reinforce the effects of addiction i also show how the dynamics introduced by addiction can solve the pernicious problem of identifying the causal effects of social interactions i then use the model to illustrate a new and important identification problem for studies of social interactions existing estimates cannot be used to draw welfare conclusions or even to deduce whether social interactions increase aggregate demand finally i develop a method that allows researchers to distinguish between two common forms of social interactions and draw welfare conclusions jel d11 h20

environmental policy in the presence of induced technological change we examine the hypothesis that induced technological change itc can dramatically lower the cost of a carbon tax in a static optimal tax model the research and development sector is represented by an aggregate stock of energy saving technology which acts as a weak substitute with a polluting resource in the energy generation sector using this model we analytically show how itc occurs and affects the cost of a carbon tax applying quantitative estimates of the size of itc to numerical simulations calibrated to the us economy we find that existing empirical evidence can reduce the welfare cost of environmental tax reform by 12 our tests of alternative parameters show that this result is highly sensitive to the assumptions used suggesting that itc could result in much larger reductions in cost

how price inelastic is demand for gasoline in fuel subsidizing economies abstract in recent years governments that have historically subsidized domestic fuel consumption face an ever growing challenge in maintaining fuel subsidies and have embarked on subsidy reform this paper estimates the price and income elasticity of demand for gasoline in countries where fuel prices are government subsidized we make use of biennial panel road sector data for 32 countries over the 1998 2010 period and find demand for gasoline to be price inelastic both in the short run and long run we estimate the short run price and income elasticities at 0 05 and 0 16 and the long run price and income elasticities at 0 25 and 0 81 respectively it is our contention that concerned governments should play an active role in identifying and committing to a road map to progressively abandoning fuel subsidies they should also not be discouraged by relatively small consumption corrections in the short run a reduction in subsidies can eventually release considerable amount of resources for more crucial and potentially growth enhancing public services such as education and health

taxation smuggling and demand for cigarettes in canada evidence from time series data abstract this study analyzes canadian cigarette consumption and taxation between 1980 and 1994 a period in which there have been large price rises and declines and a dramatic increase in the consumption of contraband tobacco products we examine elasticities of legal cigarette sales and total sales including contraband with respect to the price of legal cigarettes and various other factors the growth of the contraband market since 1987 appears to have created two classes of cigarette taxed and untaxed with responses to changes in the legal price that are respectively higher and lower than was previously the case the sensitivity of total cigarette sales to the taxation instrument is much lower than it would appear from sales of taxed cigarettes alone

physician induced demand for childbirths a controversial technique for testing the hypothesis that physicians induce demand involves two stage least squares tsls regression analysis of cross section data on physician supply and utilization this paper tests the power of tsls by applying it where there is at most only a trivial amount of demand inducement the demand for childbirths we find evidence of inducement of childbirths calling into question the validity of the tsls approach this unlikely finding may be traced to at least two factors the first stage regression is not identified and the second stage regression does not adequately address border crossing

environmental regulation of households an empirical review of economic and psychological factors abstract the literature on sustainable consumption and environmental regulation of household behavior is dominated by conceptual and normative approaches as a result many suggestions lack a firm empirical basis to overcome this deficiency econometric studies in three areas of environmentally relevant activities of households are reviewed residential use of energy generation of solid waste and recycling and residential use of water next to price and income elasticities attention is devoted to individual socio economic features and psychological factors such as attitudes knowledge perceptions and values potential psychological determinants and related insights are further examined by discussing a range of representative and illustrative statistical psychological studies of environmental behavior one important general finding is that there are very few empirical studies that systematically combine socio economic and psychological determinants a range of insights for environmental policy is derived and research recommendations are offered

technological change and the timing of mitigation measures we use a coupled carbon cycle and energy systems engineering model to analyze the future time path of carbon emissions under an illustrative co2 concentration stabilization limit of 550 ppm our findings confirm the emission pattern as found by wre global emissions rise initially pass through stabilization in order to decline in the second half of the 21st century we show that for a given co2 concentration target emission trajectories within an intertemporal optimization framework depend mainly on two factors the discount rate and the representation of technological change as either static or dynamic we obtain a similar near term emission time path as wre when using a model with static technology and a discount rate of 7 we obtain a trajectory with lower emissions in the near term when using a lower discount rate and or treating technology dynamics endogenously in the model we briefly outline a model that endogenizes technological change through learning curves we then compare differences in emission trajectories between alternative model formulations of technological change they are sufficiently small as to be of secondary importance when compared to treating co2 concentration stabilization as an inter temporal optimization problem or not whereas our results confirm the computational results of wre we arrive nonetheless at different policy conclusions if long term emission reduction is the goal we cannot follow business as usual even in the short term action needs to start now action does not necessarily mean aggressive short term emission reductions but rather enhanced r d and technology demonstration efforts that stimulate technological learning these are the necessary preconditions that long term reduction targets can be met with improved technology and at costs lower than today we close by pointing out two further critical issues uncertainty and the possible mismatch between the world of economic models and that of climate policy

are the economic costs of non stabilizing the atmosphere prohibitive a response to gerlagh and papyrakis co rr ec te d pr oo f news views are the economic costs of non stabilizing the atmosphere prohibitive a response to gerlagh and papyrakis christian azar stephen h schneider b a department of physical resource theory chalmers university of technology goteborg university 412 96 gothenburg sweden b department of biological sciences stanford university 371 serra mall stanford ca 94305 5020 usa received 10 june 2003 accepted 11 june 2003

biofuel economics in a setting of multiple objectives unintended consequences this paper examines biofuels from an economic perspective and evaluates the merits of promoting biofuel production in the context of the policies multiple objectives life cycle implications pecuniary externalities and other unintended consequences the policy goals most often cited are to reduce fossil fuel use and to lower greenhouse gas emissions but the presence of multiple objectives and various indirect effects complicates normative evaluation to address some of these complicating factors we look at a several combinations of policy alternatives that achieve the same set of incremental gains along the two primary targeted policy dimensions making it possible to compare the costs and cost effectiveness of each combination of policies for example when this approach is applied to u s produced biofuels they are found to be 14 31 times as costly as alternatives like raising the gas tax or promoting energy efficiency improvements the analysis also finds the scale of the potential contributions of biofuels to be extremely small in both the u s and eu mandated u s corn ethanol production for 2025 reduces u s petroleum input use by 1 75 and would have negligible net effects on co2 emissions and although eu imports of brazilian ethanol may look better given the high costs of other alternatives this option is equivalent at most to a 1 20 reduction in eu gasoline consumption

a meta analysis on the price elasticity and income elasticity of residential electricity demand abstract price elasticity and income elasticity can quantitatively measure the impact of price volatility and income diversity on household electricity demand to analyze household electricity demand and better identify the main factors affecting residential electricity demand elasticity in previous literature a meta analysis based on a comprehensive and systematic summary of 103 articles is presented in this study the influencing factors are identified with a weighed least squares wls linear regression model to evaluate their strength the price elasticities and income elasticities are discussed from three dimensions namely short term long term and unmarked the results show that residential electricity demand is almost price inelastic and income inelastic in the short term but in the long term some residential electricity demand is price elastic and income elastic the results also reveal that residential electricity demand elasticity is affected by many factors such as time interval and sample period these conclusions can support the formulation of more effective electricity price and energy policy

is the rational addiction model inherently impossible to estimate the rational addiction ra model is increasingly often estimated using individual level panel data with mixed results in particular with regard to the implied rate of time discount this paper suggests that the odd values of the rate of discount frequently found in the literature may in fact be a consequence of the saddle point dynamics associated with individual level inter temporal optimization problems we report the results of monte carlo experiments estimating ra type difference equations that seem to suggest the possibility that the presence of both a stable and an unstable root in the dynamic process may create serious problems for the estimation of ra equations

the demand for cocaine by young adults a rational addiction approach abstract this paper applies the rational addiction model to the demand for cocaine by young adults in the monitoring the future panel the price of cocaine is added to this survey from the drug enforcement administration s system to retrieve information from drug evidence results suggest that annual participation and frequency of use given participation are negatively related to the price of cocaine in addition current participation frequency is positively related to past and future participation frequency the long run price elasticity of total consumption participation multiplied by frequency given participation of 1 35 is substantial

accounting standards and debt covenants has the balance sheet approach led to a decline in the use of balance sheet covenants abstract recent years have seen a sharp decline in the use of balance sheet based covenants in private debt contracts i hypothesize that changes in accounting standards can explain part of this decline standard setting has shifted towards a balance sheet approach which i predict has made the balance sheet less useful for contracting i measure the effect of the balance sheet approach on specific borrowers using a volatility ratio i find that borrowers with greater volatility ratios are less likely to have balance sheet based covenants this evidence is consistent with reductions in the contracting usefulness of the balance sheet being associated with reductions in balance sheet covenants

long term substitutability between environmental and man made goods abstract substitutability between environmental and man made goods plays a major role in the sustainability debate the notion of substitutability covers a continuous spectrum with perfect substitutability at one end and poor substitutability at the other in this paper it is shown that if economic growth sustains a sharp distinction emerges between perfect and poor substitutability without any intermediate interpretation of substitutability if poor substitutability prevails environmental resources will eventually constitute the major part of total consumption value we relate our results to baumol s disease and assess the implications of this phenomenon for the compensation of environmental losses

a climate change policy induced shift from innovations in carbon energy production to carbon energy savings abstract we develop an endogenous growth model with capital labor and carbon energy as production factors and three technology variables that measure accumulated innovations for carbon energy production carbon energy savings and neutral growth all markets are complete and perfect except for research for which we assume that the marginal social benefits exceed the marginal private benefits by factor four the model constants are calibrated so that the model reproduces the relevant global trends over the 1970 2000 period the model contains a simple climate module and is used to assess the impact of induced technological change itc for a policy that aims at a maximum level of atmospheric co2 concentration 450 ppmv itc is shown to reduce the required carbon tax by more than a factor 2 and to reduce costs of such a policy by half when we do not constrain aggregate r d expenditures to benchmark levels costs are further reduced numerical simulations show that knowledge accumulation shifts from energy production to energy saving technology we discuss reasons for differences between our results and earlier results reported in the literature

does local financial development matter we study the effects of differences in local financial development within an integrated financial market we construct a new indicator of financial development by estimating a regional effect on the probability that ceteris paribus a household is shut off from the credit market by using this indicator we find that financial development enhances the probability an individual starts his own business favors entry of new firms increases competition and promotes growth as predicted by theory these effects are weaker for larger firms which can more easily raise funds outside of the local area these effects are present even when we instrument our indicator with the structure of the local banking markets in 1936 which because of regulatory reasons affected the supply of credit in the following 50 years overall the results suggest local financial development is an important determinant of the economic success of an area even in an environment where there are no frictions to capital movements

taxation regulation and addiction a demand function for cigarettes based on time series evidence this work analyzes the effects of prices taxes income and anti smoking regulations on the consumption of cigarettes in california a 25 cent per pack state tax increase in 1989 enhances the usefulness of this exercise analysis is based on monthly time series data for 1980 through 1990 results show a price elasticity of demand for cigarettes in the short run of 0 3 to 0 5 at mean data values and 0 5 to 0 6 in the long run we find at least some support for two further hypotheses that antismoking regulations reduce cigarette consumption and that consumers behave consistently with the model of rational addiction

an empirical analysis of milk addiction we show the estimable rational addiction model tends to yield spurious evidence in favor of the rational addiction hypothesis when aggregate data are used direct application of the canonical model yields results seemingly indicative that non addictive commodities such as milk eggs and oranges are rationally addictive monte carlo simulation demonstrates that such results are likely to obtain whenever the commodity under scrutiny exhibits high serial correlation or when even a small amount of the variation in prices is endogenous or when overidentified instrumental variables estimators are used or when commonly imposed restrictions are employed we conclude that time series data will often be insufficient to differentiate rational addiction from serial correlation in the consumption series

endogenous technological change in climate change modelling this article investigates the impact on optimal co2 abatement and carbon tax levels of introducing endogenous technological change in a macroeconomic model of climate change we analyse technological change as a function of cumulative capacity as incorporated recently in energy systems models our calculations confirm that including endogenous innovation implies earlier emission reduction to meet atmospheric carbon concentration constraints however the effect is stronger than suggested in the literature moreover the development of non fossil energy technologies constitutes the most important opportunity for emission reductions optimal carbon tax levels reducing fossil energy use are lower than usually advocated