beyond gdp the quest for a measure of social welfare this paper critically examines the various approaches to the measurement of individual well being and social welfare that have been considered for the construction of alternatives to gdp special attention is devoted to recent developments in the analysis of sustainability in the study of happiness in the theory of social choice and fair allocation and in the capability approach it is suggested in the conclusion that although convergence toward a consensual approach is not impossible for the moment not one but three alternatives to gdp are worth developing jel i31 e23 e01

investment spikes new facts and a general equilibrium exploration abstract using plant level data from chile and the u s we show that investment spikes are highly pro cyclical so much so that changes in the number of establishments undergoing investment spikes the extensive margin account for the bulk of variation in aggregate investment the number of establishments undergoing investment spikes also has independent predictive power for aggregate investment even controlling for past investment and sales we re calibrate the thomas 2002 is lumpy investment relevant for the business cycle journal of political economy cx 508 534 model that includes fixed costs of investing so that it assigns a prominent role to extensive adjustment the recalibrated model has different properties than the standard rbc model for some shocks

on the demise of pigovian economics much has been written on the emergence of the keynesian and hicksian research programs in the 1930s yet the demise of the marshallian research program to the extent that it was preserved extended and or amended by pigou has attracted little attention as a result arthur cecil pigou who contributed extensively to the theories of welfare economics 58 54 and unemployment 57 56 53 48 47 is seldom credited with more than discovering the divergence between social and private costs and developing such concepts as the pigovian tax or the pigou effect a broader more encompassing view of pigovian economics deserves our attention on at least two grounds first recent literature argues that modern welfare economics is no more scientific than the pigovian analysis it meant to replace 59 16 on methodological grounds therefore the advantages of modern welfare economics over its pigovian counterpart are not obvious pigovian welfare analysis however does possess a nontrivial welfare criterion2 which deals with issues concerning both equity and efficiency 3 pigou s welfare economics therefore can be found relevant to the growing literature on social choice inequality and income distribution 70 the second basis for continued interest in pigou s economic analysis is his extensive treatment of unemployment which has received much less attention than his welfare writings perhaps because it is befogged by many undeserving myths this work however is important for macro

fixed costs and long lived investments abstract fixed costs models are difficult to analyze because they feature non degenerate time varying distributions of capital across firms if investments are sufficiently long lived however then the cross sectional distribution of capital holdings has virtually no bearing on the equilibrium and the aggregate behavior of fixed cost models is essentially identical to neoclassical models the findings are due to a near infinite elasticity of investment timing for long lived investments a feature shared by fixed cost models and neoclassical models irrelevance results found in numerical studies of fixed cost models are not parametric special cases but instead are fundamental properties of models with long lived investment goods

regulating stock externalities under uncertainty abstract using a simple analytical model incorporating benefits of a stock costs of adjusting the stock and uncertainty in costs we uncover several important principles governing the choice of price based policies e g taxes relative to quantity based policies e g tradable permits for controlling stock externalities as in weitzman rev econom stud 41 4 1974 477 the relative slopes of the marginal benefits and costs of controlling the externality continue to be critical determinants of the efficiency of prices relative to quantities with flatter marginal benefits and steeper marginal costs favoring prices but some important adjustments for dynamic effects are necessary including correlation of cost shocks across time discounting stock decay and the rate of benefits growth applied to the problem of greenhouse gases and climate change we find that a price based instrument generates several times the expected net benefits of a quantity instrument

cooperation in international environmental negotiations due to a preference for equity this paper demonstrates that cooperation in international environmental negotiations can be explained by preferences for equity within a n country prisoner s dilemma in which agents can either cooperate or defect in addition to the standard non cooperative equilibrium cooperation of a large fraction or even of all countries can establish a nash equilibrium in an emission game however where countries can choose their abatement level continuously equity preferences cannot improve upon the standard inefficient nash equilibrium finally in a two stage game on coalition formation the presence of equity interested countries increases the coalition size and leads to efficiency gains here even a stable agreement with full cooperation can be reached

perceptual and structural barriers to investing in natural capital economics from an ecological footprint perspective this paper argues that perceptual distortions and prevailing economic rationality far from encouraging investment in natural capital actually accelerate the depletion of natural capital stocks moreover conventional monetary analyses cannot detect the problem this paper therefore makes the case for direct biophysical measurement of relevant stocks and flows and uses for this purpose the ecological footprint concept to develop the argument the paper elaborates the natural capital concept and asserts the need of investing in natural capital to compensate for net losses it shows how the ecological footprint can be used as a biophysical measure for such capital and applies this concept as an analytical tool for examining the barriers to investing in natural capital it picks four issues from a rough taxonomy of barriers and discusses them from an ecological footprint perspective it shows why marginal prices cannot reflect ecological necessities how interregional risk pooling encourages resource liquidation how present terms of trade undermine both local and global ecological stability and how efficiency strategies may actually accelerate resource throughput affirming the necessity of biophysical approaches for exploring the sustainability implications of basic ecological and thermodynamic principles it draws lessons for current development

macroeconomics after the crisis time to deal with the pretense of knowledge syndrome the recent financial crisis has damaged the reputation of macroeconomics largely for its inability to predict the impending financial and economic crisis to be honest this inability to predict does not concern me much it is almost tautological that severe crises are essentially unpredictable for otherwise they would not cause such a high degree of distress what does concern me about my discipline is that its current core by which i mainly mean the so called dynamic stochastic general equilibrium approach has become so mesmerized with its own internal logic that it has begun to confuse the precision it has achieved about its own world with the precision that it has about the real one this is dangerous for both methodological and policy reasons to be fair to our field an enormous amount of work at the intersection of macroeconomics and corporate finance has been chasing many of the issues that played a central role during the current crisis including liquidity evaporation collateral shortages bubbles crises panics fire sales risk shifting contagion and the like however much of this literature belongs to the periphery of macroeconomics rather than to its core i will discuss the distinction between the core and the periphery of macroeconomics as well as the futile nature of the integrationist movement that is the process of gradually bringing the insights of the periphery into the dynamic stochastic general equilibrium structure i argue that the complexity of macroeconomic interactions limits the knowledge we can ever attain and that we need to place this fact at the center of our analysis we should consider what this complexity does to the actions and reactions of the economic agent and seek analytical tools and macroeconomic policies that are robust to the enormous uncertainty to which we are confined

lumpy investment and corporate tax policy in the presence of both convex and nonconvex capital adjustment costs in a dynamic general equilibrium model corporate tax policy generates both intensive and extensive margin effects via the channel of marginal q i ts impact is determined largely by the strength of the extensive margin effect which in turn depends on the cross sectional distribution of firms depending on the initial distribution of firms the economy displays asymmetric responses to tax changes moreover an anticipated increase in the future investment tax credit reduces investment and adjustment rate initially

on the self interested use of equity in international climate negotiations abstract we discuss self interested uses of equity arguments in international climate negotiations using unique data from a world wide survey of agents involved in international climate policy we show that the perceived support of different equity rules by regions may be explained by the ranking of their economic costs despite being self interested equity arguments may be perceived as being used for different reasons for example out of fairness considerations or in order to facilitate negotiations consistent with experimental and behavioral studies on fairness perceptions we find that individuals are more likely to state reasons with positive attributes if they evaluate their own region or regions that support the individual s personally preferred equity rule negotiators perceive the use of equity by regions as less influenced by pressure from interest groups

lumpiness capital adjustment costs and investment dynamics aggregate investment in the us economy displays a hump shaped pattern in response to shocks and the autocorrelation of aggregate investment growth is positive for the first few quarters turning negative for the later quarters this paper shows that this feature of the data is the natural outcome of a two sector consumption investment model designed and calibrated to reproduce plant level evidence on capital accumulation

the poverty of sustainability rescuing economics from platitudes the idea of sustainability has become confused and incoherent if sustainability is to regain a plausible pertinence to economic policy it must be understood to encompass two realms 1 human interaction with nature and 2 human interaction with others with respect to their interaction with nature the on going redefinition of the purposes of nature requires that institutions norms rules property regimes undergo constant evolution so that human action conduces to nondestructive action caution in the social realm is the greatest risk to environmental sustainability

nonconvex factor adjustments in equilibrium business cycle models do nonlinearities matter recent empirical analysis has found nonlinearities to be important in understanding aggregated investment using an equilibrium business cycle model we search for aggregate nonlinearities arising from the introduction of nonconvex capital adjustment costs we find that while such costs lead to nontrivial nonlinearities in aggregate investment demand equilibrium investment is effectively unchanged our finding based on a model in which aggregate fluctuations arise through exogenous changes in total factor productivity is robust to the introduction of shocks to the relative price of investment goods

lumpy investment lumpy inventories the link between the physical micro environment frictions and heterogeneity and the macroeconomic dynamics in general equilibrium macro models is influenced by the details of how exactly general equilibrium closes such a model we make this general observation concrete in the context of the recent literature on how important nonconvex capital adjustment costs are for aggregate investment dynamics specifically we introduce inventories into a two sector lumpy investment model we find that with inventories nonconvex capital adjustment costs dampen and propagate the reaction of investment to shocks the initial response of fixed capital investment to productivity shocks is 50 higher with frictionless adjustment than with the calibrated capital adjustment frictions once inventories are introduced the reason for this result is that with two means of transferring consumption into the future fixed capital and inventories the tight link between aggregate saving and fixed capital investment is broken in contrast in the case the literature has focussed on with only one type of capital good to save and invest in fixed capital investment dynamics are more tightly linked to consumption dynamics which in turn are determined by the euler equation of a representative household which holds regardless of whether fixed capital investment is costly or not

menu costs and the neutrality of money a model of endogenous price adjustment under money growth is presented firms follow s s pricing policies and price revisions are imperfectly synchronized in the aggregate price stickiness disappears and money is neutral the connection between firm price adjustment and relative price variability in the presence of monetary growth is also investigated the results contrast with those obtained in models with exogenous fixed timing of price adjustment

fat tails and the social cost of carbon at high enough greenhouse gas ghg concentrations climate change might conceivably cause catastrophic damages with small but nonnegligible probabilities other things being equal this should lower the discount rate used to evaluate mitigation investment decisions and raise the social cost of carbon scc if the bad tail of climate damages is sufficiently fat with probability and if the utility function has relative risk aversion greater than one then at least in theory for at least some formulations this insurance like catastrophe reducing aspect of mitigation investments can be very powerful in the most extreme limit this tail hedge insurance effect can be infinitely strong and can dominate the economic analysis by making the scc infinite this kind of extreme and empirically unbelievable limiting result is a version of what i have previously labeled the dismal theorem 1 in this paper i use the simplest possible model to lay bare the basic structure of the argument i then attempt to place the underlying issues in a balanced perspective the dismal theorem of an infinite scc is a theoretical limiting result which relies on particular assumptions that may or may not have actual relevance for climatechange policy depending upon the interaction of a variety of empirical factors functional forms and parameter values i argue that the main value of the dismal theorem is to serve as a warning flag that a credible economic analysis of climate change should seriously consider extreme tail values of damages and their associated probabilities because they may have the potential to increase the scc significantly

regulation by prices quantities or both a review of instrument choice choosing appropriate policy instruments is an important part of successful regulation once objectives are agreed and suitable targets adopted policy makers can employ command and control regulation and or economic instruments and choose between fixing a price or a quantity this paper examines the relative advantages of price quantity and hybrid instruments according to their efficiency under uncertainty the trade off between credible commitment and flexibility implementation international considerations and political economy various illustrations of the theory are provided with two detailed applications to climate change and transport policy specifically congestion and safety pricing

the ideology of efficiency searching for a theory of policy analysis the potential pareto improvement criterion and other measures of economic efficiency do not pass the test of consistency and coherence within economic theory nor do such measures accord with what public decision makers seek in policy advice from economists such efficiency measures are nonetheless durable components of the ideology of economics in general and benefit cost analysis in particular the objectivity of the policy scientist has been confused with the objectivity of the science while economic efficiency has no claim to objectivity the policy scientist can be an objective analyst of policy choices

why the far distant future should be discounted at its lowest possible rate abstract a critical feature of the distant future is currently unresolvable uncertainty about what will then be the appropriate rate of return on capital to use for discounting this paper shows that there is a well defined sense in which the lowest possible interest rate should be used for discounting the far distant future part of any investment project some implications are discussed for evaluating long term environmental projects or activities like measures to mitigate the possible effects of global climate change

in defence of degrowth abstract this article defends the proposal of sustainable degrowth a starting premise is that resource and co2 limits render further growth of the economy unsustainable if degrowth is inevitable the question is how it can become socially sustainable i e a prosperous and stable rather than a catastrophic descent pricing mechanisms alone are unlikely to secure smooth adaptation a full ensemble of environmental and redistributive policies is required including among others policies for a basic income reduction of working hours environmental and consumption taxes and controls on advertising policies like these that threaten to harm the economy are less and less likely to be implemented within existing market economies whose basic institutions financial property political and redistributive depend on and mandate continuous economic growth an intertwined cultural and political change is needed that will embrace degrowth as a positive social development and reform those institutions that make growth an imperative sustainable degrowth is therefore not just a structuring concept it is a radical political project that offers a new story and a rallying slogan for a social coalition built around the aspiration to construct a society that lives better with less

explaining investment dynamics in u s manufacturing a generalized s s approach we are grateful to olivier blanchard whitney newey james stock an editor three anonymousreferees and seminar participants at brown cepr champoussin chicago columbia econometric society meetings caracas and tokyo efcc harvard impa lse nber princeton rochester site toronto u de chile and yale for their comments financial support to caballero from the national science and sloan foundations and to engel from fondecyt grant 195 510 and the mellon foundation grant 9608 is gratefully acknowledged 2since plants entry is excluded from their sample these statistics are likely to represent lowerbounds on the degree of lumpiness in plants investment patterns 3we use the word project to emphasize the fact that the actual implementation of a projectmay cover more than a year observation realistic time to build aspects of investment are not incontradiction with the view that investment episodes are lumpy in nature 4 see chirinko 1994 for a survey of the empirical investment literature

assessing the accuracy of the aggregate law of motion in models with heterogeneous agents this paper shows that the r2 and the standard error have fatal flaws and are inadequate accuracy tests using data from a krusell smith economy i show that approximations for the law of motion of aggregate capital for which the true standard deviation of aggregate capital is up to 14 119 higher than the implied value and which are thus clearly inaccurate can have an r2 as high as 0 9999 0 99 key in generating a more powerful test is that predictions of the aggregate law of motion are not updated with the aggregated simulated individual data

an analysis of returns to scale in public production with an application to fire protection abstract this paper analyzes returns to scale in public production existing studies fail to differentiate among three dimensions of scale service quality the level of governmental activity and the number of people served a fourth dimension economies of scope is need for agencies that provide multiple services this paper provides a formal definition of returns to scale for each dimension this framework is applied to fire protection using a translog cost function with two services fire prevention and fire suppression the results indicate economies of scope increasing returns to quality scale and constant returns to population scale

retrospectives cost benefit analysis and the classical creed cost bene t analysis provides the dominant economic approach with whicheconomists talk to each other to government bureaucrats and to the general laityabout the desirability of public programs and investment projects cost bene tstudies have pushed economic thinking into public debates and reciprocally havebrought an uncommon level of public scrutiny to the technical deliberations ofeconomists precisely because cost bene t analysis addresses serious real world decisions this widely used and frequently abused tool of applied economics has had a bumpyhistory last year newspaper headlines across the country announced that apentagon investigation had found systematic manipulation of net bene t estimatesat the army corps of engineers for example grunwald 2000 the corps hasbeen the political godfather of cost bene t analysis in the united states but ithas also long been suspected of an institutional bias in favor of projects that canadd signi cantly to its own budget allocations re ecting on the early record of

justifying the lindahl solution as an outcome of fair cooperation the motivation for the lindahl equilibrium is mostly a rather artificial price mechanism even though the analogy to a competitive market was emphasised by lindahl himself his approach does not directly explain the normative ideas behind his concept in the present paper we therefore show how the lindahl equilibrium can be deduced from some simple equity axioms these normative assumptions are the benefit principle on the one hand and the equal sacrifice principle or equivalently a non envy condition as a postulate for distributional equity on the other fairness among agents with different preferences and incomes is taken into account by considering their marginal willingness to pay as shadow prices in this way the reason why the lindahl solution can be perceived as an outcome of fair cooperation might become more understandable

consumption dynamics during recessions when will durable expenditures respond strongly to economic stimulus we build from micro evidence and show that in a heterogeneous agent business cycle model with xed costs of durable adjustment responsiveness is substantially dampened during recessions our model estimates imply that during the great recession durable expenditures were half as responsive to additional stimulus as during the boom in the 1990s this procyclical responsiveness is driven by changes in the distribution of households desired durable holdings over the cycle we directly test our model by estimating this distribution empirically using psid micro data and nd that the distribution in the data moves cyclically as predicted in addition to this micro evidence we also provide support for our model s procyclical responsiveness using aggregate time series data and we show this time series evidence is inconsistent with simpler models featuring smooth adjustment costs

expanding the behavioral foundations of labor economics the author examines critiques and suggests modifications to the psychological assumptions of the rational choice model of the human agent that underlies much of the theoretical work in modern neoclassical labor economics he analyzes the rational choice model in terms of three psychological constructs motivation cognition and emotion in the context of a five step model of the human behavioral process examples from the empirical and theoretical labor economics literature illustrate both problems with the current theory and new or improved insights and predictions that can be gained by incorporating additional psychological theories and concepts in economic analysis the author concludes that although the rational choice model is a powerful and productive conceptual device in many cases it cannot adequately explain behavior in the world of work and labor economic theory would be improved by a more interdisciplinary approach that integrates conceptual and empirical research from the behavioral sciences abstract courtesy jstor

combining price and quantity controls to mitigate global climate change abstract uncertainty about compliance costs causes otherwise equivalent price and quantity controls to behave differently and leads to divergent welfare consequences although most of the debate on global climate change policy has focused on quantity controls due to their political appeal this paper argues that price controls are more efficient simulations based on a stochastic computable general equilibrium model indicate that the expected welfare gain from the optimal price policy is five times higher than the expected gain from the optimal quantity policy an alternative hybrid policy combines both the political appeal of quantity controls with the efficiency of prices using an initial distribution of tradeable permits to set a quantitative target but allowing additional permits to be purchased at a fixed trigger price even sub optimal hybrid policies offer dramatic efficiency improvements over otherwise standard quantity controls for example a 50 trigger price per ton of carbon converts the 3 trillion expected loss associated with a simple 1990 emission target to a 150 billion gain these results suggest that a hybrid policy is an attractive alternative to either a pure price or quantity system

mill s scissors structural change and the natural resource inputs to labour the environmental structural change strategy claims that by shifting our expenditures to economic sectors with lower environmental intensity absolute resource consumption and environmental impact can be lowered environmental input output methodologies for computing these intensities attribute no resource consumption to labour or households because these are not classified as sectors the suggestion that service sectors entail less environmental impact however loses force if a unit of labour contains embodied energy and attributing these inputs to labour drastically reduces intensity variation between sectors relative growth of service sectors has furthermore not been accompanied by decreased resource consumption thus models whose intensity computations cover not only inter firm payments but also labour earnings and household expenditures may have superior predictive power if moreover natural resource and labour inputs to product are incommensurable intensity ratios themselves have perhaps only monetary rather than real significance

institutional ecological economics abstract new institutional economics and its forerunners have we argue made important contributions to the evolving agenda of ecological economics the conceptualisation of environmental problems as instances of interdependence and the acknowledgement of positive transaction costs are key insights into the nature of environmental problems we also discuss how plurality of behavioural motivations and limited cognitive capacity have important implications for environmental decision making and its analysis we show how evolutionary and collective action theories offer complementary takes on the choice and change of environmental governance institutions and how the concept of social capital can enrich analyses of environmental governance we conclude that an emerging institutional ecological economics has the greatest relative advantage in analysing the design implementation and effectiveness of environmental governance solutions

is lumpy investment relevant for the business cycle the lumpiness of investment activity at the plant level is a well established fact previous research has suggested that such discrete and occasional adjustments have significant aggregate implications in particular it has been argued that changes in plants willingness to invest in response to aggregate shocks can at times generate large movements in total investment demand in this study i reassess these predictions in a general equilibrium environment specifically assuming nonconvex costs of capital adjustment i derive generalized s s adjustment rules yielding lumpy plant level investment within an otherwise standard equilibrium business cycle model in contrast to previous partial equilibrium analyses model results reveal that the aggregate effects of lumpy investment are negligible in general equilibrium households preference for relatively smooth consumption profiles offsets changes in aggregate investment demand implied by the introduction of lumpy plant level investment as a result

a review of the stern review on the economics of climate change the stern review calls for immediate decisive action to stabilize greenhouse gases because the benefits of strong early action on climate change outweighs the costs the economic analysis supporting this conclusion consists mostly of two basic strands the first strand is a formal aggregative model that relies for its conclusions primari ly upon imposing a very low discount rate concerning this discount rate aspect i am skeptical of the review s formal analysis but this essay points out that we are actual ly a lot less sure about what interest rate should be used for discounting climate change than is commonly acknowledged the review s second basic strand is a more intuitive argument that it might be very important to avoid possibly large uncertain ties that are difficult to quantify concerning this uncertainty aspect i argue that it might be recast into sound analytical reasoning that might justify some of the review s conclusions the basic issue here is that spending money to slow global warming should perhaps not be conceptualized primarily as being about consump tion smoothing as much as being about how much insurance to buy to offset the small change of a ruinous catastrophe that is difficult to compensate by ordinary savings

climate clubs overcoming free riding in international climate policy notwithstanding great progress in scientific and economic under standing of climate change it has proven difficult to forge inter national agreements because of free riding as seen in the defunct kyoto protocol this study examines the club as a model for international climate policy based on economic theory and empirical modeling it finds that without sanctions against non participants there are no stable coalitions other than those with minimal abatement by contrast a regime with small trade penalties on non participants a climate club can induce a large stable coalition with high levels of abatement jel q54 q58 k32 k33

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

inventories and the business cycle an equilibrium analysis of s s policies we develop an equilibrium business cycle model where nonconvex delivery costs lead firms to follow s s inventory policies calibrated to postwar us data the model reproduces two thirds of the cyclical variability of inventory investment moreover it delivers strongly procyclical inventory investment greater volatility in production than sales and a countercyclical inventory to sales ratio our model challenges several prominent claims involving inventories including the widely held belief that they amplify aggregate fluctuations despite the comovement between inventory investment and final sales gdp volatility is essentially unaltered by inventory accumulation because procyclical inventory investment diverts resources from final production thereby dampening fluctuations in sales

cred a new model of climate and development this paper describes a new model climate and regional economics of development cred which is designed to analyze the economics of climate and development choices its principal innovations are the treatment of global equity calculation of the optimum interregional flows of resources and use of mckinsey marginal abatement cost curves to project the cost of mitigation the model shows more equitable scenarios have better climate outcomes the challenge of climate policy is to persuade high income countries to accept the need for both international equity and climate protection

prioritarianism and climate change prioritarianism is the ethical view that gives greater weight to well being changes affecting individuals at lower well being levels this view is influential both in moral philosophy and in theoretical work on social choice where it is captured by a social welfare function swf summing a concave transformation of individual well being numbers however prioritarianism has largely been ignored by scholarship on climate change this article compares utilitarianism and prioritarianism as frameworks for evaluating climate policy it reviews the distinctive normative choices that are required for the prioritarian approach specifying a ratio scale for well being if the prioritarian swf takes the standard atkinson form determining the degree of concavity of the transformation function i e the degree of social inequality aversion and choosing between ex ante and ex post prioritarianism under conditions of risk the article also sketches some of salient implications of a prioritarian swf for climate policy with respect to the social cost of carbon the social discount rate optimal mitigation and the dismal theorem finally it discusses the issue of variable population

beyond revealed preference choice theoretic foundations for behavioral welfare economics we propose a broad generalization of standard choice theoretic welfare economics that encompasses a wide variety of nonstandard behavioral models our approach exploits the coherent aspects of choice that those positive models typically attempt to capture it replaces the standard revealed preference relation with an unambiguous choice relation roughly x is strictly unambiguously chosen over y written xp y iff y is never chosen when x is available under weak assumptions p is acyclic and therefore suitable for welfare analysis it is also the most discerning welfare criterion that never overrules choice the resulting framework generates natural counterparts for the standard tools of applied welfare economics and is easily applied in the context of specific behavioral theories with novel implications though not universally discerning it lends itself to principled refinements

economics and identity this paper considers how identity a person s sense of self affects economic outcomes we incorporate the psychology and sociology of identity into an economic model of behavior in the utility function we propose identity is associated with different social categories and how people in these categories should behave we then construct a simple game theoretic model showing how identity can affect individual interactions the paper adapts these models to gender discrimination in the workplace the economics of poverty and social exclusion and the household division of labor in each case the inclusion of identity substantively changes conclusions of previous economic analysis

environmental regulations and the problem of sustainability moving beyond market failure abstract the standard metaphor of market failure is an impediment to the crafting of environmental policy that can escape policy lock in sustainability requires a policy process that can avoid this lock in sustainability concerns the creation of dynamic human processes that can respond to indeed anticipate unanticipated feedback from biological processes

natural resource economics methodological orientations and policy effectiveness increasing numbers of resource economists serve as advisors to and employees of government agencies to be effective in this advisory role requires at least a modest amount of methodological thinking i will develop this argument by recasting randall s schools of resource economics into two groups the mainstream which includes his n rp pc u and pc i and the institutional or his i le also i will not distinguish resource economics from the larger discipline this more aggregated classification system will facilitate my discussion of how methodological orientations of economists affect their approach to and effectiveness in the public policy process i will argue that an institutionalist understanding of the governmental decision process is essential to being effective as a mainstream resource economist

plant level irreversible investment and equilibrium business cycles this paper evaluates the importance of microeconomic irreversibilities for aggregate dynamics using a real business cycle rbc model characterized by investment irreversibilities at the establishment level the main finding is that investment irreversibilities do not play a significant role in an otherwise standard realbusiness cycle model even though investment irreversibilities are crucial for establishment level dynamics aggregate fluctuations are basically the same under fully flexible or completely irreversible investment jel e22 e32

household equivalence scales theory versus policy researchers agree that household equivalence scales are intended to measure the variation in income needed to bring households of different composition to the same welfare level researchers do not agree however about how the term household welfare is to be defined this article traces the historical and philosophical development of three distinct definitions when the conceptual bases of several popular methods for the estimation of equivalence scales are explored it becomes clear that advances in theoretical rigor have not always worked to bring the literature closer to answering questions of policy concern

the economic effects of climate change greenhouse gas emissions are fundamental both to the world s energy system and to its food production the production of co2 the predominant gas implicated in climate change is intrinsic to fossil fuel combustion specifically thermal energy is generated by breaking the chemical bonds in the carbohydrates oil coal and natural gas and oxidizing the components to co2 and h2o one cannot have cheap energy without carbon dioxide emissions similarly methane ch4 emissions an important greenhouse gas in its own right are necessary to prevent the build up of hydrogen in anaerobic digestion and decomposition one cannot have beef mutton dairy or rice without methane emissions climate change is the mother of all externalities larger more complex and more uncertain than any other environmental problem the sources of greenhouse gas emissions are more diffuse than any other environmental problem every company every farm every household emits some greenhouse gases the effects are similarly pervasive weather affects agriculture energy use health and many aspects of nature which in turn affects everything and everyone the causes and consequences of climate change are very diverse and those in low income countries who contribute least to climate change are most vulnerable to its effects climate change is also a long term problem some greenhouse gases have an atmospheric life time measured in tens of thousands of years the quantities of emissions involved are enormous in 2000 carbon dioxide emissions alone and excluding land use change were 24 billion metric tons of carbon dioxide tco2

children and household economic behavior this paper looks at some of the methodological issues that arise in modeling the effects of children on household behavior and presents some estimates for selected areas for our purposes household behavior will be taken to refer to household decisions on labor supply the allocation of expenditure to different periods and the decision as to what to do with the difference between income and expenditure i shall be concerned mainly with the effects of dependent children and i restrict attention largely to western societies excerpt

dynamic properties of energy affordability measures measures of affordability are applied in practice e g to assess the affordability of energy services water or housing they can be interpreted as measures of deprivation in a specific domain of consumption the large body of literature on affordability measure has little overlap with the existing literature on poverty measurement a comprehensive assessment of the response of affordability measures as a result of changes in the distribution of income or expenditure is missing this paper aims to fill this gap by providing a conceptual discussion on the dynamics of energy affordability measures several types of measures are examined in a microsimulation framework to assess their dynamic properties our results indicate that some measures exhibit odd dynamic behavior this includes measures used in practice such as the low income high cost measure and the double median of expenditure share indicator odd dynamic behavior is attributed to definitions made with respect to higher moments of the expenditure distribution definitions that rely on a percentage share of expenditure relative to income or an absolute or relative income poverty line fare well from a dynamic perspective

searching for sustainability the poverty of spontaneous order abstract traditional approaches to sustainability rely on models that depend upon judgments of welfare across future generations right prices and some sense as to what future persons will find giving of utility these models both accept the spontaneous order of market processes and rely on that order to derive optimal consumption paths into the future sustainability is however not a problem of divining optimal paths predicated upon right prices rather sustainability to be operational requires a prior constructed order predicated upon rights for future persons and duties for those now living who sit in a position as dictator over the settings and circumstances that will be passed on to future persons rights based approaches to sustainability do not rely upon unknowable preferences of future persons but rather upon an environmental regency in which those now living agree to preserve settings and circumstances for the future this reminds us that the issue of sustainability concerns not how much to preserve but what to preserve

specifications of social welfare in economic studies of climate policy overview of criteria and related policy insights an important assumption in economic studies of climate policy is the social welfare function this paper shows that applying distinct decision or social welfare criteria can result in different optimal policies of climate control notably if climate change impacts are uncertain first decision criteria in current climate economic studies are reviewed next the most important alternatives are discussed including their mathematical formalization and incorporation in economy climate models most of these alternative criteria suggest more stringent climate policies to be optimal than the standard discounted utilitarianism approach however several important welfare criteria have not or hardly seen any application in the economic analysis of climate policy we conclude that there is clear need for systematic research on this theme for which the current review provides a solid basis

the movement from real to abstract value theory 1817 1959 general value theory has become a nonagenda item for orthodox economics determination of exchange value is the only value questio n asked value theory is synonymous with price theory bounded by representative classical works of david ricardo and gerard debreu this involved a process wherein the inclusive real value base of classical political economy is replaced by reductionis t abstract value the thesis is grounded on three classical value questions the determinants the measure and the source s of value it is developed in discussion of classical real value the half way house of neoclassicism and post neoclassical closure of the abstract equilibrium based value system copyright 1988 by oxford university press

interest rates and the market for new light vehicles we study the impact of interest rates changes on both the demand for and supply of new light vehicles in an environment where consumers and manufacturers face their own interest rates an increase in the consumers interest rate raises their cost of financing and thus lowers the demand for new vehicles an increase in the manufacturers interest rate raises their cost of holding inventories both channels have equilibrium effects that are amplified and propagated over time through inventories which serve as a way to both smooth production and facilitate greater sales at a given price through the estimation of a dynamic stochastic market equilibrium model we find evidence of both channels at work and of the important role played by inventories a temporary 100 basis point increase in both interest rates causes vehicle production to fall 12 percent and sales to fall 3 25 percent at an annual rate in the short run

ecological sufficiency individual liberties and distributive justice implications for policy making we investigate the prospects of voluntary ecological sufficiency for environmental and climate policy under the constraints implied by political liberalism we find that freedom of choice restricts sufficiency to rather wealthy societies and that a sufficiency threshold cannot be derived by referring to the poor sufficiency can be in conflict with the demands of social justice i e if the sufficiency threshold is below the social minimum implied by social justice benefits from sufficiency are highly related to individual perceptions such benefits cannot be expressed in a standard preference framework consequently alternative measures of welfare and inequality are required if sufficiency is a significant phenomenon in society standard environmental policies can have a pronounced interaction with voluntary sufficiency i e if quantity regulation is present overall the voluntary notion of sufficiency causes a dilemma as sufficiency is largely a matter of civil society however voluntary sufficiency is expected to make important contributions to the preservation of ecological resources if properly balanced with social and environmental policies and framed by public discursive control

unilateral climate policy harmful or even disastrous this paper deals with possible foreign reactions to unilateral carbon demand reducing policies it differentiates between demand side and supply side reactions as well as between intra and inter temporal shifts in greenhouse gas emissions in our model we integrate a stock dependent marginal physical cost of extracting fossil fuels into eichner and pethig s int econ rev 52 3 767 805 2011 general equilibrium carbon leakage model the results are as follows under similar but somewhat tighter conditions than those derived by eichner and pethig int econ rev 52 3 767 805 2011 a weak green paradox arises furthermore a strong green paradox can arise in our model under supplementary constraints that means a green policy measure might not only lead to a harmful acceleration of fossil fuel extraction but to an increase in the cumulative climate damages at the same time in some of these cases there is even a cumulative extraction expansion which we consider disastrous

a review of the stern review on the economics of climate change how much and how fast should we react to the threat of global warming the stern review argues that the damages from climate change are large and that nations should undertake sharp and immediate reductions in greenhouse gas emissions an examination of the review s radical revision of the economics of climate change finds however that it depends decisively on the assumption of a near zero time discount rate combined with a specific utility function the review s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today s marketplace real interest rates and savings rates

idiosyncratic shocks and the role of nonconvexities in plant and aggregate investment dynamics we examine a model of lumpy investment wherein establishments face persistent shocks to common and plant specific productivity and nonconvex adjustment costs lead them to pursue generalized s s investment rules we allow persistent heterogeneity in both capital and total factor productivity alongside low level investments exempt from adjustment costs to develop the first model consistent with available evidence on establishment level investment rates reassessing the implications of lumpy investment for aggregate dynamics in this setting we find that they remain substantial when factor supply considerations are ignored but are quantitatively irrelevant in general equilibrium the substantial implications of general equilibrium extend beyond the dynamics of aggregate series while the presence of idiosyncratic shocks makes the time averaged distribution of plant level investment rates largely invariant to market clearing movements in real wages and interest rates we show that the dynamics of plants investments differ sharply in their presence thus model based estimations of capital adjustment costs involving panel data may be quite sensitive to the assumption about equilibrium our analysis also offers new insights about how nonconvex adjustment costs influence investment at the plant when establishments face large and weakly persistent idiosyncratic productivity shocks consistent with existing estimates we find that nonconvex costs do not cause lumpy investments but act to eliminate them

does voluntary participation undermine the coase theorem abstract the coase theorem states that costless enforcement of voluntary agreements yields efficient outcomes we argue that previous treatments fail to recognize the full meaning of voluntary it requires a two stage game a non cooperative participation decision followed by coaseian bargaining only among those who choose to participate we illustrate this in a simple public goods model and find outcomes ranging from extremely inefficient to fully efficient however the efficient equilibrium is not robust to even very small transaction costs thus we cast doubt on coaseian claims of universal efficiency finally we outline a kind of coercion that restores efficiency

matching as a cure for underprovision of voluntary public good supply abstract matching mechanisms are widely regarded as providing a promising way to cure the public good underprovision problem but the pareto optimal interior matching equilibrium emerges only under very special conditions however we show that public good underprovision is normally avoided

a specification test for choosing the right public good price this article compares statistically three popular public good price definitions the bias of parameter estimates under the wrong definition is derived and calculated one definition is found to be clearly inferior whereas bias estimates indicate little difference between the two remaining definitions public good demand elasticities and their variances are calculated to demonstrate the importance of choosing the right price definition

the sufficiency strategy would rich world frugality lower environmental impact abstract one alleged weapon against unsustainable environmental impact is for the wealthy to consume less this sufficiency strategy is to complement the efficiency strategy of lowering ratios of resource inputs to economic outputs the former would reduce the affluence factor in i pat the latter the technology factor that the latter strategy suffers from a consumption rebound is widely recognized this paper identifies a similar rebound when the affluence factor is autonomously lowered the lower initial demand lowers prices which in turn stimulates new demand by others the strategy moreover addresses only the rich raising questions of its theoretical maximum efficacy its proponents usually conflate frugality with the north south dichotomy and intra generational with inter generational equity moreover there are difficulties with the supporting arguments that frugality is good for one s own sake as well as for the environment and that the rich should lead the way to living more lightly personal behaviour change is furthermore not a substitute for international political efforts finally since all changes in right side factors of the i pat equation change other right side factors such indirect attacks on impact should be abandoned in favor of supply and emissions quotas