securitization of taxes implicit in payg pensions to preserve solvency a pay as you go payg pension system needs to adjust contribution rates and pension promises over time currently it is not possible to hedge in the financial market against politically determined uncertainty as regards these parameters i consider a policy reform whereby property rights are established on the implicit lifetime tax levied by payg finance and are assigned to the pension institution these property rights are well defined if the reform also features rule based allocation of aggregate risk in the form of defined contribution or defined benefit schemes i show that a payg pension system may indeed be instantly restructured so as to minimize political risk and allow financial market diversification of risk a side benefit is securitization of human capital flows which are not traded in existing financial markets the new securities if traded in appropriately competitive financial markets are complementary to the notional account reforms of the 1990s however fiscal instability can increase if securitization is implemented in the absence of initial solvency and credible adoption of rule based methods to allocate aggregate risk salvador valdes prieto

econometric developments in agricultural and resource economics the first 100 years this article reviews the major contributions of agricultural and resource economists in the area of econometrics over the past 100 years early on a number of agricultural economists were in on the ground floor in terms of developing new econometric methods over time as the economics profession became more empirically oriented agricultural and resource economists increasingly assumed the role of early adopters of new econometric methods even so agricultural and resource economists continue to make useful modifications to econometric techniques in order to adapt the methods to the unique nature of the problems and applications that we study

referenda under oath herein we explore whether a solemn oath can eliminate hypothetical bias in a voting referenda a popular elicitation mechanism promoted in non market valuation exercises for its incentive compatibility properties first we reject the null hypothesis that a hypothetical bias does not exist second we observe that people who sign an oath are significantly less likely to vote for the public good in a hypothetical referenda we complement this evidence with a self reported measure of honesty which confirms that the oath increases truthfulness in answers this result opens interesting avenues for improving the elicitation of preferences in the lab and beyond

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

assessment of the economic impacts of continuous energy intensity target constraint in china based on an analytical general equilibrium model abstract based on the framework of analytical general equilibrium model this study builds an energy intensity target eit constraint model and simulates the impacts of continuous eit constraint policy on the fossil fuel production ffp sector non fossil fuel production nffp sector household sector and price system in china the main findings of this paper are firstly the eit constraint can change the marginal products and the cross price elasticities of input factors secondly stricter eit constraint can transfer capital and labor inputs from the ffp sector to the nffp sector and lead to a contractionary effect in the ffp sector shown as declining inputs and output the contractionary effect will decline gradually or even fade away if the eit constraint is gradually reduced thirdly if the total capital and labor inputs in the whole economy continue to grow at certain rates along with the weakening of the eit constraint the reduction in energy input and the growth of capital and labor inputs in the nffp sector will slow down however the growth rates of output and intermediate input will increase continuously fourthly the eit constraint has negative impacts on the nffp sector price system and household consumption but these impacts are affordable to the whole economy if the eit constraint is loosened under a certain level it may not curb the growth of fossil fuel consumption anymore therefore other supporting policies for energy conservation must be in place

global demographic trends and social security reform how sustainable are the current social security systems in the developed economies given the projected demographic trends the most recent literature has answered this question through dynamic general equilibrium models in a closed economy framework this paper provides a new quantitative benchmark of analysis for this question represented by a two region model south and north of the world economy where capital flows across regions the timing and the extent of the demographic transition and the associated economic forces shaping capital accumulation and equilibrium factor prices are very different in the two regions thus the projected paths of interest rate and wage rate in the north diverge substantially between closed and open economy we perform a wide range of policy experiments under both scenarios our main conclusion is that if one is interested in quantifying the path of the fiscal variables e g the value of the payroll tax needed to keep the social security system viable or to finance a transition towards a fully funded system then these two benchmarks yield similar results however if the focus is on quantifying the path of factor prices aggregate variables and ultimately welfare then the two approaches can diverge significantly

x efficiency and economies of scale in pension fund administration and investment pension funds operating costs impair pension benefits so it is crucial for pension funds to operate at the lowest cost possible in practice we observe substantial differences in costs per member for dutch pension funds both across and within pension fund size classes this article presents new estimates of scale economies of pension funds and is the first that also measures pension fund x inefficiency we use a unique supervisory data set which distinguishes between administrative and investment costs and apply various approaches and models our estimates show large economies of scale for pension fund administrations but modest diseconomies of scale for investment activities we also found that many pension funds have substantial x inefficiencies for both administrative and investment activities the two kinds of inefficiency differ across types of pension funds therefore most pension funds should be able to improve their cost performance and hence increase pension benefits

valuation in the lab experimental methods have proven useful to explore the power and limits to nonmarket valuation through stated preference methods we now understand better how people learn about and react to the incentives institutions and information created by surveys this paper briefly reviews topics in experimental valuation including ex ante bias corrections ex post bias calibration and examining the circumstances that strengthen or weaken the economist s presumption of rational valuation

valuing environmental commodities some recent experiments a general model of consumer behavior is proposed to assess six recent experiments that have attempted to reveal preferences for environmental goals each experiment used a mix of both the techniques and the theory of demand for non market commodities and each was designed to estimate a non market attitude associated with the environment and to analyze potential biases in the techniques the six cases show some consistency in results the linkage within the contingent market between the environmental attribute institutional setting and the bidding instrument must be realistic and accepted by the respondent to avoid biased results possibly the most important result is the replication of results using a traditional property value study and a contingent bidding approach all evidence obtained to date suggests that hedonic studies of property values or wages travel costs and survey techniques all yield values well one order of magnitude in accuracy 41 references 2 tables

fair demographic risk sharing in defined contribution pension systems in this article we formulate and solve the optimal design problem of a defined contribution public pension fund in a highly stylized but still rather general non stationary framework we adopt the viewpoint of a benevolent social planner who aims at treating in a fair manner the successive overlapping generations participating to such a long term mandatory system using the approach of el karoui and jeanblanc 1998 for the optimal consumption and portfolio choice problem with random income in a complete market we exhibit a solution to our intertemporal stochastic control problem where each generation receives a fair lumpsum retirement benefit it is proportional to the contributions she has paid during her active worklife and follows a fixed common rule although her pension value itself may depend on variables only observable at her retirement time we next relax the assumption that the collective pension system is mandatory and investigate the performance of individual investment plans in the market comparing the outcomes of both alternatives we derive a condition under which the collective fund can be expected to overperform the individual plan in the special case of a stationary economy such a possibility has been pointed out by gollier 2008 in fact this effect results from the possibility for the collective fund to borrow today against contributions of future generations which allows to implement riskier strategies and may improve its performance

pareto improving social security reform when financial markets are incomplete this paper studies an overlapping generations model with stochastic production and incomplete markets to assess whether the introduction of an unfunded social security system leads to a pareto improvement when returns to capital and wages are imperfectly correlated a system that endows retired households with claims to labor income enhances the sharing of aggregate risk between generations our quantitative analysis shows that abstracting from the capital crowding out effect the introduction of social security represents a pareto improving reform even when the economy is dynamically efficient however the severity of the crowding out effect in general equilibrium tends to overturn these gains

information effects in contingent markets information bias in contingent markets is poorly understood in this paper testable hypotheses concerning beneficial contingent market information effects are developed conceptually perspective information and relative expenditure information were expected to increase comprehension and increase bids provision cost information was expected to counteract free riding behavior and also increase bids hypothesis tests using experimental markets suggested that each information type induced small statistically insignificant bid increases however the combined effect of the three information types induced a desirable statistically significant increase in bids this result supports the contention that not all contingent market information effects are biases

auctioning the provision of an indivisible public good abstract a community of n agents must determine which of its members should provide an indivisible public good each of the agents can provide the public good but the provision cost varies among the agents we identify here an efficient solution concept for such problems and design a class of auction like mechanisms each of which nash implements and under appropriate domain restrictions fully nash implements this the mechanisms are in the spirit of k th lowest bidder auctions journal of economic literature classification numbers c72 d44 h41

decreasing absolute risk aversion and utility indices derived from cake eating problems abstract this paper establishes the following characterization of decreasing absolute risk aversion dara utility indices j exhibits dara if and only if it is the indirect function corresponding to an infinite horizon cake eating problem for some nondecreasing and concave utility function of consumption the characterization is applied to the analysis of resource extraction under uncertainty and to an inverse optimal problem

intergenerational risk sharing and risk taking of a pension fund abstract by using their financial reserves efficiently pension funds can smooth shocks on their asset returns and can thus facilitate intergenerational risk sharing in addition to the primary benefit of improved time diversification this form of risk allocation affords the additional benefit of allowing these funds to take better advantage of the equity premium which also favors the consumers in this paper our aim is twofold first we characterize the socially efficient policy rules of a collective pension plan in terms of portfolio management capital payments to retirees and dividend payments to shareholders we examine both the first best rules and the second best rules where in the latter case the fund is constrained by a solvency constraint and by a guaranteed minimum return to workers contributions second we measure the social surplus of the system compared to a situation in which each generation would save and invest in isolation for its own retirement we estimate that the certainty equivalent return of the pension saving scheme goes from 3 23 per year to 3 76 when intergenerational risk sharing is introduced one of the main results of the paper is that better intergenerational risk sharing does not reduce the risk born by each generation rather it increases the expected return to the workers contributions

the advantages of contingent valuation methods for benefit cost analysis the preceding is a taxonomic discussion of some reasons why contingent market methods may often be a superior means of generating data with which to value non market commodities we have argued that economists have erred in viewing the situations these methods posit as necessarily fictional that the data generated by the methods may for non marketed goods and the activities with which they are associated accord more closely with the conditions of received economic theory that the methods can make it easier to remove the difficulties of estimation and interpretation introduced by confounding variables and that they often permit one to deal more readily with phenomena that have not been in the range of historical experience nevertheless whatever the advantages a major disadvantage remains until detailed analytical knowledge is acquired of the manner in which expectations are formed there exists no way to refute empirical propositions established from contingent markets nevertheless the previously mentioned south coast air basin experiment where the bids obtained for clean air conformed fairly closely to the values implied in a residential property value study suggest that contingent valuations have a basis in the real decision processes of consumers

papers in experimental economics competitive market institutions double auctions vs sealed bid offer auctions consider a market with the following characteristics 1 privacy that is each agent knows only his own valuation or cost conditions 2 exchange follows the rules of the oral double auction that is buyers freely announce bids or accept offers and sellers freely announce offers or accept bids 3 aggregate market supply and demand per trading period is stationary for at least two to three periods and 4 there are at least four buyers and as many sellers the literature reporting the results of a large number of experimental markets with these characteristics documents what appears to be a remarkably rapid convergence to a competitive equilibrium ce however any claim of double auction da convergence to the ce can only have meaning in one of three senses i the ce is attained immediately ii after t periods of trading some measure of the market s state such as mean price is nearer relative to experimental sampling variability to a ce than to some distinct alternative equilibrium such as a monopoly or nash equilibrium iii after t periods of trading this measure is nearer to a ce in da experimental markets than in markets organized under a different institution of contract for example a sealed bid auction since everything from electrons and the stars to rats and people yield state measures subject to error or random variation the deterministic criterion i can have no serious scientific standing by such criteria any hypothesis can be rejected and there could be no science of physics biology or economics 2 with the exception of certain very simple markets such as single object auctions or certain idealized markets such as the cournot quantity adjuster model economics has only two concepts of equilibrium monopoly and competitive the only formal model of da trading that has been proposed see david easley and john ledyard p 6 predicts stochastic convergence in finite time with probability one to a ce hence the only test alternative to the ce research hypothesis in da markets is a monopoly or monopsony equilibrium experimentalists have not reported statistical tests of the ce professor department of economics university of arizona assistant professor department of economics indiana university instructor department of economics university of arizona and sandia national laboratories albuquerque nm respectively we are indebted to the national science foundation for research support and to art denzau and mort kamien for helpful comments there is an early and recently growing body of experimental evidence for convergence to a competitive equilibrium under double auction rules the earliest evidence contained in experiments initiated in january 1956 is reported in smith 1962 1964 1965 1976 however these early experiments used between twenty and fifty or so participant buyers and sellers because in keeping with prevailing professional beliefs it was thought that a ce was unlikely to be approached unless numbers were quite large using large numbers was not unreasonable since it is a good beginning procedure to give a theory whatever is believed to be its best shot more recent evidence using six buyers six sellers and two traders in speculative da markets with cyclical demand is reported by r m miller charles plott and smith and williams 1979 for evidence from a comparison of oral and computerized da experiments with four buyers and four sellers see williams 1980 for further evidence in the context of the study of price controls see m isaac and plott 1981b and smith and williams 1981b in the context of a conspiracy study see isaac and plott 1981a in the context of comparisons between da and posted offer pricing see jon ketcham smith and williams in the context of a study of four variations on da rules see smith and williams 1980 all of these more recent papers report double auction experiments using no more than four buyers and four sellers 2as frederick mosteller once noted if you wanted to reject the inverse square law of attraction try tossing a sheet of paper out the window

social security and unsecured debt abstract in this paper we use a calibrated life cycle model to explore quantitatively ways of reducing the burden of social security in a world populated by both optimizing and rule of thumb consumers social security contributions force young households with upward sloping income profiles to save a sizeable portion of their income for retirement when their optimal consumption plan would likely have them either saving little or borrowing we first use household data to document that young households have accumulated social security contributions that are large relative to debt holdings then using a calibrated life cycle model we show that both allowing households to use social security wealth to pay off their debt and exempting young households from social security contributions but in both cases requiring higher contributions later mitigate many of the inefficiencies of social security from the perspective of life cycle financial planning specifically in our preferred experiment which exempts households whose heads are under 30 from making social security contributions we find that certainty equivalent consumption increases by 3 4 for optimizing households and by 3 3 for rule of thumb households

intergenerational risk sharing abstract in this paper we examine government debt and tax transfer policies that can be improve the allocation of risk between generations markets cannot allocate risk efficiently between two generations whenever the two generations are not both alive prior to the occurence of a stochastic event this implies that government policies transferring risk between generations have the potential to create first order welfare improvements our model provides a non keynesian justification for the debt finance of wars and recessions as well as an added rationale for social security type tax transfer schemes which aid unlucky generations e g the depression generation at the expense of luckier generations

china s industrial energy consumption trends and impacts of the top 1000 enterprises energy saving program and the ten key energy saving projects abstract this study analyzes china s industrial energy consumption trends from 1996 to 2010 with a focus on the impact of the top 1000 enterprises energy saving program and the ten key energy saving projects from 1996 to 2010 china s industrial energy consumption increased by 134 even as the industrial economic energy intensity decreased by 46 decomposition analysis shows that the production effect was the dominant cause of the rapid growth in industrial energy consumption while the efficiency effect was the major factor slowing the growth of industrial energy consumption the structural effect had a relatively small and fluctuating influence analysis shows the strong association of industrial energy consumption with the growth of china s economy and changing energy policies an assessment of the top 1000 enterprises energy saving program and the ten key energy saving projects indicates that the economic energy intensity of major energy intensive industrial sub sectors as well as the physical energy intensity of major energy intensive industrial products decreased significantly during china s 11th five year plan fyp period 2006 2010 this study also shows the importance and challenge of realizing structural change toward less energy intensive activities in china during the 12th fyp period 2011 2015

urbanization energy consumption and emissions in the indian context a review abstract as the world s fastest growing major economy and home to nearly one fifth of the worlds population india a vibrant democracy is in the midst of a profound transformation and rapid urbanization urbanization improves the quality of life of people while promoting economic growth however it also increases energy consumption and is capable of generating an energy crisis urbanization has a significant impact on carbon dioxide co2 emissions as well this paper empirically investigates the temporal dynamic and causal relationships between urbanization energy consumption and emissions the study also aims to understand the urbanization process in india in terms of the level and tempo of urbanization and the urban growth morphology by utilizing the census data of 1901 2011 the rise in energy consumption and resulting emissions in the context of rapid urbanization is also reviewed to address these problems the study recommends a series of measures and a set of strategies that include energy intensity and emission intensity reduction measures through continuous monitoring information feedback systems introduction of industrial energy quota management incentives for energy efficient facilities shutting down of inefficient facilities and setting up of smart residential buildings reduction of distribution and transmission losses by investing in smart grids is also highly recommended

urban energy transition in china insights from trends socioeconomic drivers and environmental impacts of beijing abstract the coal dominated energy structure has not only fueled china s rapid economic development but also brought great pressure on china promoting energy transition is among the great challenges for china as one of the most developed megacities in china beijing promotes energy transition intensively in this study we explored the trends socioeconomic drivers and environmental impacts of the energy transition process in beijing during the decades we found that beijing s energy transition has gone through four typical stages after a parallel growth between the economy and coal dominated energy consumption at beginning the growth rate of energy consumption has gradually slowed down since 1996 between 2000 and 2007 the energy structure became relatively balanced and diversified driven by the changes of energy intensity energy structure and final demand composition along with the economic structure s shift from heavy manufacturing to service thereafter economic development was seriously decoupled from direct energy consumption and the de coal trend had made remarkable achievements so2 and nox emissions have declined significantly since 2007 diversified energy structure based on the de coal trend cleaner energy and economic restructuring promotes energy transition meanwhile the feasibility of implementation also should be considered in other cities energy transition process in china

saving and liquidity constraints this paper is concerned with the theory of saving when consumers are not permitted to borrow and with the ability of such a theory to account for some of the stylized facts of saving behavior the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life cycle models copyright 1991 by the econometric society

the application of laboratory experimental economics to the contingent valuation of public goods we have implicitly argued in the last section that a dynamic iterative survey mechanism may well need to be employed in the design of contingent valuation survey instruments in order to improve the accuracy of responses furthermore due to the current inaccuracy of hedonic and travel cost approaches for valuing public goods the least cost method in our view for establishing anchor or true individual values for testing alternative survey instruments is to use laboratory experiments the objective of these experiments should be the development of the most simple survey design which gives accurate responses subject to the budget of the investigator is a complex iterative voting procedure required how fast will such a procedure converge to true values what is the effect on incentives of relaxing the unanimity voting feature for large groups all of these operational questions can at least qualitatively be answered in an experimental laboratory setting

an experimental market for public goods the pbs station program cooperative beginning with the 1974 75 season the public broadcasting service pbs undertook a three year experiment to decentralize through a market process the selection of programs to be broadcast over the national noncommercial television network the experimental market called the station program cooperative spc enables each of the approximately 150 participating stations to vote with dollars for the programs they prefer based on information about the subject matter quality and costs of the alternatives the spc had two purposes the first was to determine whether a decentralized market mechanism for acquiring national programming can be established that first has a reasonable cost and second retains the basic features of a network a network is a means of centralizing the acquisition transmission and promotion of programming although the advantages of networking are several probably the most important is that it saves substantial transactions cost in comparison to the two other alternatives syndication in which each station negotiates for nationally distributed programs with the owner of the rights to the program and localism in which each station produces its own programming see bruce owen jack beebe and willard manning the second purpose of the spc is to determine its impact upon the types of programs that are broadcast centralized programming authorities such as the present commercial networks and the corporation for public broadcasting because they are few in number are relatively easy targets for political pressure with respect to program content may at least tacitly collude in programming decisions and in any event have limited experience concerning the nature of the demand for programs in all markets in the network system see noll merton peck and john mcgowan ch 8 because of the cost advantages of networking and the technical barriers to entry of new networks in principle a network can produce an inefficient programming mix and still meet minimum standards of profitability or in the case of the noncommercial sector public acceptability concomitantly station managers may be too unsophisticated about judging programming quality and sensing the structure of demand in the local market to select programming that in benefit cost terms is better than that selected by a centralized decision maker while direct evidence on which system works better is not possible to acquire two useful questions can be answered at least in principle 1 do the spc and centralized decision making lead to the selection of different programs and if so is that difference systemmatic and 2 xvhich system produces higher audience california institute of technology financial support for preparing this paper was provided by the national science foundation rann program grant apr76 01920 we are indebted to richard beatty and pbs for providing us with remarkably complete data for all three spcs we are of course solely responsible for the contents of this paper

china s energy intensity target allocation needs improvement lessons from the convergence analysis of energy intensity across chinese provinces abstract to explore the reasonability of the decomposition of china s national energy intensity target we tested the convergence of energy intensity across 30 chinese provinces including stochastic convergence convergence and o convergence based on panel data from 30 chinese provinces across three five year plan periods the results confirmed the existence of stochastic convergence and convergence but did not prove the existence of o convergence in china s energy intensity in addition by comparing the convergence speed over the three five year plan periods the results showed that china s energy intensity targets for the provinces slowed convergence in energy intensity during the 11th and 12th five year plan periods highlighting the need to optimize the decomposition of china s national energy intensity target finally issues related to the decomposition of china s national energy intensity target were discussed and policy suggestions were proposed to optimize it from the perspective of promoting the convergence of energy intensity across chinese provinces

what induced china s energy intensity to fluctuate 1997 2006 abstract china is the second largest energy consumer in the world during 1997 2002 china s energy intensity declined by 33 however it rose by 10 7 over 2003 2005 and declined by 1 2 in 2006 what induced china s energy intensity to fluctuate so drastically industry accounts for approximately 70 of the total energy consumption in china in this paper we decompose china s industrial energy intensity changes between 1997 and 2002 into sectoral structural effects and efficiency effects measured by sectoral energy intensities at two digit level and including the shifts of product mix in the sub sector or firm level using tornqvist and sato vartia index methods the results show that in this period efficiency effects possibly contributed to a majority of the decline while the contribution from structural effects was less during 2003 2005 the excessive expansion of high energy consuming sub sectors and the high investment ratio were foremost sources of the increasing energy intensity attributed to the government efforts the energy intensity has started to decline slightly since july 2006 in future to save more energy in addition to technical progress china should attach more importance to optimizing its sectoral structure and lowering its investment ratio

voluntary participation and intergenerational risk sharing in a funded pension system we explore the feasibility of a funded pension system with intergenerational risk sharing when participation in the system is voluntary typically the willingness of the young to participate depends on their belief about the future young s willingness to do so we characterise equilibria with voluntary participation and show that the likelihood of their existence increases with risk aversion and financial market uncertainty we find that mandatory participation is often necessary to sustain a funded pension pillar and to let participants benefit from intergenerational risk sharing

information and strategyproofness in joint project selection abstract we introduce the following multi activity public goods problem with excludables a group of agents with limited budgets is to select a subset of new technologies to be developed each technology has a known cost and may provide different returns which are private information to the agents agents coordinate their activities through a central administrator once purchased technologies are used freely by all contributors through examining information provided to the agents and the administrator we create a bounded rationality environment and provide a strategyproof selection and cost allocation mechanism under a particular decision criterion

risk sharing across generations without publicly owned equities abstract the u s social security trust fund currently invests in government bonds investing some of it instead in equities while continuing to pay social security benefits under existing rules would alter potentially improve the sharing of financial risks across non trading generations this paper shows that the same risk sharing can be achieved without direct government ownership of equities if instead the government places a linear and symmetric tax on risky private capital returns this equivalence is very robust and holds even if some agents are endogenously borrowing constrained

a rational economic model of paygo tax rates abstract we argue that paygo rates are determined by a representative agent and a benevolent government jointly maximizing the expected life time utility of the agent the distributions of labor and capital income are calculated from national data on real gdp real wages and the real return to capital since 1950 with uniform risk aversion predicted rates explain 83 of the variance of observed rates the globalization of capital markets would lead to convergence of paygo rates our results are immune to crises like 2008

intergenerational risk shifting through social security and bailout politics abstract this paper adopts a stochastic overlapping generations framework to analyze the allocation of aggregate financial risks under different social security systems and a majority voting rule we study whether there will be switches between pay as you go payg and fully funded ff systems in such an economy we show that in case of a negative aggregate shock low income young individuals will form a political coalition with the elderly to implement a payg system payg scheme is shown to persist even after a good aggregate shock if the system is redistributive enough

social security and risk sharing abstract in this paper we identify conditions under which the introduction of a pay as you go social security system is ex ante pareto improving in a stochastic olg economy with capital accumulation and land we argue that these conditions are consistent with realistic specifications of the parameters of the economy in our model financial markets are complete and competitive equilibria interim pareto efficient therefore a welfare improvement can only be obtained if agents welfare is evaluated ex ante and arises from an improvement in intergenerational risk sharing we also examine the optimal size of a given social security system as well as its optimal reform

laboratory testbeds and non market valuation the case of bidding behavior in a second price auction with an outside option researchers now use the lab to examine the behavioral underpinnings of valuation before the field application which some argue has less experimental control but lab valuation work raises its own set of concerns when it uses private goods to explore non market valuation behavior because private goods have substitutes often unaccounted for in the lab therefore the lab as a tool to testbed field valuation work may be limited herein we design an induced valuation experiment to explore bidding behavior in a second price auction with an outside option that is a perfect substitute for the auction commodity theory predicts that rational bidders will consider the prices of outside options when formulating bidding strategies and will reduce their bids whenever their resale value exceeds the price of the outside option our results suggest that bidders account for outside options when formulating bids with behavior following comparative static predictions in addition we provide evidence concerning hypothetical versus actual behavior with induced values the data suggesting a hypothetical bias in the level of bids but not in bid shaving

valuing public goods a comparison of survey and hedonic approaches although the theory of public goods has progressed rapidly since paul samuelson s seminal article the empirical measurement of the value of demand for public goods only recently has received increased attention perhaps the best known and most widely accepted empirical approach has been the use of hedonic prices wherein for example it is assumed that either wages or housing values reflect spatial variation in public good characteristics of different communities this indirect approach based on theoretical work of charles tiebout kelvin lancaster sherwin rosen and others has proven quite successful among public goods or bads which have been valued using the hedonic approach are climate i hoch air pollution robert anderson and thomas crocker d harrison and d rubinfeld social infrastructure r cummings et al and other community characteristics such as noise level j nelson and ethnic composition ann schnare an alternative approach is to directly ask households or individuals to state their willingness to pay for public goods using survey techniques despite arguments that strategic bias will invalidate survey results there exists the need for an alternative to the hedonic approach as an example consider the case of a remote and unique scenic vista valuable to recreators which is threatened by air pollution from a proposed coal fired plant a typical situation in the western united states although it is possible in principle to impute the value of clean air and visibility from the relative decline in local visitation which might follow construction of a power plant information on the value of visibility at the site is needed prior to construction for socially optimal decision making on plant location and pollution control equipment the hedonic approach is unavailable both because the scarcity of local population as opposed to recreators makes use of wage or property value data impossible and because scenic vistas may themselves be unique for these reasons a randall et al first applied survey methods for valuing visibility and other environmental effects of large coal fired power plants in the four corners region of new mexico since this initial application the survey approach has been widely used to value environmental commodities where market data for hedonic analysis is difficult to acquire see for example brookshire ives and schulze rowe et al brookshire et al other early attempts to value public goods using the survey approach include r davis peter bohm and j hammack and g brown although results of using the survey approach for estimating the value of public goods appear to be internally consistent replicable and consistent with demand theory see schulze et al little work on external validation has been reported thus the purpose of this paper is to report on an experiment designed to validate the survey approach by direct comparison to a hedonic property value study the los angeles metropolitan area was chosen for the experiment because of the well defined air pollution problem and be assistant professor university of wyoming assistant professor university of missouri rolla associate professor university of wyoming and professor university of wyoming respectively the research reported here was funded under a grant methods development for assessing air pollution control benefits from the u s environmental protection agency we would like to give special thanks to alan carlin and shelby gerking for their helpful suggestions and contributions additional helpful comments were received from a myrick freeman iii john tschirhart and james murdoch all conclusions are of course our sole responsibility

time diversification liquidity constraints and decreasing aversion to risk on wealth abstract the aim of this paper is to provide a theoretical foundation to the notions of time diversification and decreasing absolute aversion to risk on wealth we examine the attitude towards risk on initial wealth when the agent allocate this wealth to consumption over his lifetime time diversification occurs in that case because the agent will optimally split the risk on wealth into small seemingly independent risks on consumption the introduction of liquidity constraints reduces the implicit time horizon of the consumer and thereby increases his risk aversion the negative relationship between initial wealth and the implicit time horizon where the consumer will be liquidity constrained provides an argument for decreasing aversion to risk on wealth

markets and the measurement of value consumer s surplus and the hicksian measures of compensating and equivalent variation have a long history in empirical economic analysis however at both the theoretical and the empirical level economists psychologists and public choice theorists have not been able to reach a significant consensus regarding the usefulness of these measures economic theorists have only recently dissected the differences which exist between alternative welfare measures in a systematic and transparent fashion in willig 1976 hausman 1981 and takayama 1984 the role of income in determining the correct theoretical measurements of compensating and equivalent variations was exposed during this same period of time theoretical results obtained by the psychologists kahneman and tversky 1979 indicated that the fundamental structure of preferences upon which the theoretical economic results are based is flawed the so called prospect theory of decision developed by these authors indicated that measured of welfare based upon payment will differ from measures of welfare based upon compensation because of the fact that individuals will value losses at a greater marginal rate than gains this difference was then predicted to dominate any income effect important in the economist s model finally this period recorded the emergence of many demand revealing processes which provide individuals with appropriate incentives to accurately reveal their preferences as summarized in coursey and schulze 1986 one interpretation of the literature on incentive compatibility suggests a set of well defined guidelines for improving both the accuracy and validity of compensating and equivalent variation measures these differences in professional preferences regarding what is important in improving the accuracy of economic welfare measurements led john

the stability of stated preferences for public goods evidence from recent budget games we have investigated the stability of the individual response in recent budget games based on survey data which is an important requirement for the reliability of this instrument budget games have gained popularity due to the problems encountered with alternative methods to determine preferences for public goods such as the analysis of actual public expenditure date using median voter theory or similar approaches the short term test retest correlations within an interval of one month turn out to be rather low typical around 0 3 no explanation of the test retest differences could be found from the usual socio economic and political characteristics of the respondents or from information characteristics of the survey design also the pattern of budget game outcomes for different countries and different periods is rather similar the cumulative evidence suggests that the survey response to budget games is generated to a large extent by very general notions on the un desirability of public goods defence is bad education and health care are good this implies that outcomes are often not related to the actual level and structure of public expenditure or revenues as a result the individual responses even to the more sophisticated budget games are subject to large uncertainty margins our results should warn researchers and even more important policy makers against giving too much weight to stated preferences for public expenditure or taxation levels obtained from budget games of course further research is needed to obtain the precise limits of the instrument including laboratory experimental economics

china s numerical management system for reducing national energy intensity in china the national target for energy intensity reduction when integrated with target disaggregation and information feedback systems constitutes a numerical management system which is a hallmark of modern governance this paper points out the technical weaknesses of china s current numerical management system in the process of target disaggregation the national target cannot be fully disaggregated to local governments sectors and enterprises without omissions at the same time governments at lower levels face pressure for reducing energy intensity that exceeds their respective jurisdictions in the process of information feedback information failure is inevitable due to statistical inaccuracy furthermore the monitoring system is unable to correct all errors and data verification plays a limited role in the examination system to address these problems we recommend that the government use total energy consumption as the primary indicator of energy management reform the accounting and reporting of energy statistics toward greater consistency timeliness and transparency clearly define the responsibility of the higher levels of government

intergenerational risk sharing and fiscal policy abstract risk sharing implications of alternative fiscal policies are compared in a stochastic production economy with overlapping generations ex ante efficiency is shown to be achievable with optimal transfers regardless of distributional concerns for crra preferences stylized real world policies notably safe debt and safe pensions are found inefficient in the direction of imposing not enough productivity risk on retirees and too much on future generations safe transfers can be rationalized as efficient if preferences display age increasing risk aversion such as habit formation the ubiquity of safe transfers suggests that governments treat the young as more risk tolerant than older cohorts

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

intergenerational risk sharing and endogenous labour supply within funded pension schemes funded defined benefit pensions add to welfare on account of providing intergenerational risk sharing but lower it on account of inducing labour supply distortions we show that a properly designed funded defined benefit pension scheme involves a welfare improvement even if contributions are distortionary and even if individuals face potentially correlated wage and equity risks numerical calculations indicate that diversification gains from risk sharing are large compared to the losses related to labour supply distortions this result withstands a number of extensions like the introduction of a short sale constraint for individuals or the inclusion of a labour income tax

auctions experiments and contingent valuation laboratory experiments are a welcome development that promise to make a significant contribution to the study of economic behavior heiner 1985 plott 1982 smith 1982 1985 while relatively new to economics controlled laboratory studies of human behavior have long constituted the core of experimental psychology where there is a wealth of methodological experience from which experimental economists might profitably draw in particular current attempts to apply laboratory auction methods to valuing nonmarket environmental goods would be improved by more rigorous experimental design and data analysis procedures

the future of social security with an introduction by daniel l mcfadden the past and the present processes leading to social security legislation inform expectations regarding the future of social security and with international comparisons provide lessons to those who would learn them jel h55

labor supply flexibility and portfolio choice in a life cycle model abstract this paper examines the effect of the labor leisure choice on portfolio and consumption decisions over an individual s life cycle the model incorporates the fact that individuals may have considerable flexibility in varying their work effort including their choice of when to retire given this flexibility the individual simultaneously determines optimal levels of current consumption labor effort and an optimal financial investment strategy at each point in his life cycle we show that labor and investment choices are intimately related the ability to vary labor supply ex post induces the individual to assume greater risks in his investment portfolio ex ante

social security investment in equities this paper explores the general equilibrium impact of social security portfolio diversification into private securities either through the trust fund or private accounts the analysis depends critically on heterogeneities in saving production assets and taxes limited diversification weakly increases interest rates reduces the expected return on short term investment and the equity premium decreases safe investment increases risky investment and increases a suitably weighted social welfare function however the effects on aggregate investment long term capital values and the utility of young savers hinges on assumptions about technology aggregate investment and long term asset values can move in opposite directions jel h55

savings and portfolio choice in a two period two asset model we extend arrow s analysis of portfolio choice in a one period model to savings and portfolio choice in a two period model this abstract was borrowed from another version of this item

revealed preference for public goods the most serious problem for the modern theory of optimal public expenditure is that although it has to be based on some social welfare function individual preferences for public goods which constitute the elements of any individualistic social welfare function are hard to assess it is argued that since every individual can freely participate in the consumption of a public good there is an incentive for him to either underreport or overreport his preferences depending on how the reported preferences are used in the financing process of the public good i this argument will be correct if an individual s preferences for public goods can be expressed only directly in many cases however the consumption of a public good has some technical or objective relationship with the consumption of some private goods thus the benefit an individual derives from free highways depends on how much he spends on a car and gasoline even the benefit an individual derives from the judicial system depends on how much he spends to hire the services of lawyers also an individual can enjoy the same security police provide by hiring private guards and installing locks and so on in these cases if we know the technical relationships between the consumption of private goods and the consumption of public goods then from the market data relating the amounts of private goods bought to prices and the data on the existing amounts of public goods we might be able to infer i the amounts of final goods consumed say the number of trips from one point to another the degree of justice the security from robbery etc and ii their opportunity costs which the individual was willing to pay but if we succeed in this inference then all that remains to be done in order to find the individual s utility function will be to integrate back the relationship between the amounts of final goods consumed and their opportunity costs a trivial example can be provided by assuming that each public good is perfectly substitutable with a private good let yi be the quantity of the ith public good and xi be the quantity of a private good which is a perfect substitute for the ith public good then the benefit derived from the ith public good and its perfect substitute can be measured by xi yi suppose we have ascertained an individual consumer s demand functions for private good when all the yi are zero we know from the revealed preference theory that if these demand functions satisfy a certain condition namely the symmetry of the slutsky matrix then there exists a utility function unique up to a monotone transformation

ex post assessment of china s industrial energy efficiency policies during the eleventh five year plan abstract china implemented a package of policies during the 11th five year plan 2006 2010 to improve industrial energy efficiency this assessment provides a methodology that establishes a causal relationship between policy implementation and energy conservation effects to enhance the confidence in the research findings this assessment applies two distinctive and independent approaches one top down and the other bottom up this assessment finds that industrial energy efficiency policies collectively achieved energy savings of 322 mtce 9 4 ej against the baseline scenario this accounted for 59 of the sector s total energy savings from 2006 to 2010 the remaining energy savings were realised through autonomous technology improvement 33 and sector level structural shift 8 correspondingly cumulative avoided co2 emissions realised through energy efficiency policies amounted to 760 million tons this assessment concludes that industrial energy efficiency policies were effective in realising energy conservation targets but energy conservation effects were not achieved in a cost effective way command and control measures were dominantly implemented with economic incentives and informational measures taking a complementary role while market based instruments did not play an important role as china is planning on implementing a nationwide emissions trading scheme special attention needs to be paid to policy interaction and coordination

social security and demographic shocks an overlapping generations model of social security with shocks to the productivity of labor and capital and demographic shocks is studied we focus attention on stationary long run allocations an allocation is interim optimal if there does not exist another feasible allocation that improves the expected welfare of all generations computed conditionally on the state of the world when they are born we characterize the set of interim optimal allocations and study the equilibria associated with various institutional forms of social security from the point of view of this optimality criterion we obtain the analogs of the two traditional welfare theorems of microeconomic theory assume that there exists a financial asset in fixed quantity which supports some non null intergenerational transfers then the rational expectations equilibrium allocation of this economy is interim optimal conversely any stationary interim optimal allocation can be supported by such an equilibrium with adequate lump sum transfers

implementation of energy saving policies in china how local governments assisted industrial enterprises in achieving energy saving targets abstract local governments have replaced the national ministries that are in charge of various industries to become the primary implementer of energy saving policies in china since 2000 this paper employs a case study based approach to demonstrate the significance of local governments policy measures in assisting industrial enterprises with energy saving activities in china based on the longitudinal case of the jasmine thermal electric power company this paper hypothesizes that sub national governments have played a major role in implementing energy saving policies in china since the 11th five year plan period a wide range of provincial and municipal agencies collaborated in implementing five types of policy measures informational policy skill building improved enforcement of central directives price adjustment and funding that reduced barriers to energy saving and motivated active pursuit of energy saving activities at industrial enterprises the case study demonstrates how an enterprise and local governments work together to achieve the enterprise s energy saving target the authors will investigate the hypothesis of this paper in the context of multiple case studies that they plan to undertake in the future

willingness to pay and compensation demanded experimental evidence of an unexpected disparity in measures of value aside from possible income effects measures of the maximum amounts people will pay to avoid a loss and the minimum compensation necessary for them to accept it are generally assumed to be equivalent unexpectedly wide variations between these sums however have been noted in survey responses to hypothetical options this paper reports the results of a series of experiments that confronted people with actual money payments and cash compensations the results indicate that the compensation measure of value seems to exceed significantly the willingness to pay measure which would appear to call into some question various rules of entitlement damage assessments and interpretations of indifference curves

industry energy use and structural change a case study of the people s republic of china abstract this paper examines the effects of structural change and improvements in energy intensities of individual industries in aggregate industry energy intensity changes in china during 1980 88 the divisia index is used to decompose the energy intensity effect and structural effect a major finding of this analysis is that the main contribution to changed aggregate energy intensity was from the changes in energy intensities of individual industries during the period structural effects were found to contribute little to the aggregate energy intensity changes

pension plan funding technology choice and the equity risk premium in this paper the impact of lazear contracts with defined benefit pensions on aggregate technology composition and the aggregate risk premium is examined in the presence of capital market constraints affecting workers defined benefit pensions bias the economy towards risk free production leveraging the risky technology relaxes the constraints and results in more risky production and a fall in the aggregate risk premium this effect holds with risky debt and low pension shortfall risk but breaks down with high pension shortfall risk a key prediction is that as lazear contracts become less common risky production will increase and the aggregate risk premium will fall

optimal dynamic trading with leverage constraints we solve for the optimal dynamic trading strategy of an investor who faces a leverage constraint i e a limitation on his ability to borrow for the purpose of investing in a risky asset we assume that the investor has constant relative risk aversion and that the value of the risky asset follows a geometric brownian motion in the absence of the leverage constraint the optimal strategy involves investing a fixed proportion of wealth in the risky asset we prove that in the presence of the leverage constraint the optimal investment also involves investing a fixed proportion of wealth in the risky asset when the leverage constraint is not binding however the two proportions are different reflecting the extent to which the investor alters his strategy even when the leverage constraint is not binding because of the possibility that the leverage constraint will become binding in the future

the effects of investing social security funds in the stock market when fixed costs prevent some households from holding stocks with fixed costs of participating in the stock market consumers with high income will participate in the stock market but consumers with lower income will not participate if a fully funded defined contribution social security system tries to exploit the equity premium by selling a dollar of bonds per capita and buying a dollar of equity per capita consumers who save but do not participate in the stock market will increase their consumption thereby reducing saving and capital accumulation calibration of a general equilibrium model indicates that this policy could reduce the aggregate capital stock substantially by about 50 cents per capita