global energy use decoupling or convergence we examine the key factors driving change in energy use globally over the past four decades we test for both strong decoupling where economic growth has less effect on energy use as income increases and weak decoupling where energy use declines overtime in richer countries ceteris paribus our econometric approach is robust to the presence of unit roots unobserved time effects and spatial effects our key findings are that the growth of per capita energy use has been primarily driven by economic growth convergence in energy intensity and weak decoupling there is no sign of strong decoupling

the role of firm size in bilateral bargaining a study of the cable television industry we examine the effect of buyer merger on bilateral negotiations between a supplier and n buyers merger may have bargaining effects in addition to the usual efficiency effects the effect of merger on the buyers bargaining position depends on the curvature of the supplier s gross surplus function merger enhances worsens the buyers bargaining position if the function is concave convex based on a panel of advertising revenue in the cable television industry our estimates indicate that the gross surplus function for suppliers of program services is convex this result suggests that cable operators integrate horizontally to realize efficiency gains rather than to enhance their bargaining position vis a vis program suppliers

estimating demand for local telephone service with asymmetric information and optional calling plans in this paper i study the theoretical and econometric implications of agents uncertainty concerning their future consumption when a monopolist offers them either a unique mandatory nonlinear tariff or a choice in advance from a menu of optional two part tariffs agents uncertainty is resolved through individual and privately known shocks to their types in such a situation the principal may screen agents according to their ex ante or ex post type by offering either a menu of optional tariffs or a standard nonlinear schedule the theoretical implications of the model are used to evaluate a tariff experiment run by south central bell in two cities in kentucky in 1986 the empirical approach explicitly accounts for the existence of informational asymmetries between local telephone users and the monopolist leading to different nested econometric specifications under symmetric and asymmetric information the empirical evidence suggests that there exists a significant asymmetry of information between consumers and the monopolist under both tariff regimes all expected welfare components failed to increase with the introduction of optional tariffs for the estimated value of the parameters copyright 2002 wiley blackwell

ex ante and ex post welfare optimality under uncertainty it is widely believed by economic theorists that if there were no transactions costs and if all information about the economy were perfectly shared by all then arrow debreu contingent commodity markets should bring about an ideal allocation the basis for this belief seems clear we have the two efficiency theorems of welfare economics which assure us that in the absence of external effects any competitive allocation is pareto efficient and that any pareto efficient allocation is competitive provided that appropriate lump sum transfers are made of course there are some reservations that need to be made local satiation and non convexities are well known to cause problems but these are not the problems i wish to discuss here to return to the usual argument the next step involves noticing how with contingent commodity markets the efficiency theorems of welfare economics carry over to an economy with uncertainty as explained for instance in chapter 7 of debreu s theorpj of value the fundamental value judgment that gives these efficiency theorems their normative interest is what may be called consumer sovereignty it is an assumption that the social welfare ordering should respect the preferences that govern consumers market behaviour it is a serious value judgment more serious than most economists have been prepared to concede but its seriousness increases when there is uncertainty we know full well that individuals misperceive the probabilities of certain events assuming that they even perceive any probabilities at all see for example kahneman and tversky 1979 nor are we always willing to accept as appropriate the attitudes to risk of individuals who seem either extremely reckless or extremely cautious societies are often willing to make some gestures towards property owners who have not insured themselves adequately against damage from fire flood or tempest and not just because of imperfect insurance markets or even misperceptions of probabilities in addition the inequalities of income that arise when some individuals take more risks than others are not necessarily seen to be desirable particularly if an individual has undertaken a useful but risky activity and has a very low income as a result of failure such gestures are examples of contingent lump sum transfers it seems clear that if such transfers occur to a sufficient extent they could supplant completely the securities markets which are usually sufficient to bring about pareto efficiency they may even be able to go further and correct the imperfections of an arrow debreu market allocation when individuals do misperceive probabilities or else have wrong attitudes to risk this is the main question i wish to consider here the idea that consumer sovereignty should not always extend to economies with uncertainty is not new it can be found in work by diamond 1967 dr6ze

ex ante equity in public risk in evaluating decision alternatives that involve risk of death among members of the public there are two types of equity that must be considered namely ex ante and ex post equity among the two ex ante equity is more controversial this paper suggests refinements to recent definitions of ex ante equity based on distribution of individuals risks across equally desirable outcomes and historical inequity

symbiosis vs crowding out the interaction of formal and informal credit markets in developing countries abstract it is a common observation in many developing countries that enterprises are active borrowers in both formal and informal credit markets we propose a model in which the formal sector s superior ability in deposit mobilization is traded off against the informational advantage that lenders in the informal sector enjoy the formal sector can screen borrowers by providing only partial financing for projects thereby forcing borrowers to resort to the informal sector for the remainder of the loan we use the model to predict how the market structure responds to changes in the environment and we consider the policy implications of various forms of government intervention

multidimensional incentive compatibility and mechanism design abstract incentive compatibility conditions are characterized in general for problems in which several goods are to be allocated and agents types are multidimensional two questions of monopoly pricing under multidimensional uncertainty are then analyzed first we find the optimal nonlinear pricing scheme when the monopolist knows only the distribution of an arbitrarily parameterized family of demand curves and second we solve for the optimal bundling policy for a multiproduct monopolist

can risk benefit analysis provide consistent policy evaluations of projects involving loss of life many public projects such as the construction of nuclear reactors roads and bridges involve risks to life risk benefit analysis assesses the costs and benefits of these projects by an extension of the well known willingness to pay compensating variation criterion to these situations see mishan i982 or jones lee i976 the approach taken is an ex ante one looking at people s expected utility or a substitute before deaths occur rather than a measure of actual ex post welfare losses and gains a good case can be made against these ex ante decision rules see broome i978 hammond i983 or ulph i982 but we do not consider it in this paper even in the ex ante setting however the willingness to pay measures used in risk benefit analysis may not be consistent with individual welfare these difficulties are surveyed by arrow i983 experimental evidence shows that individuals do not update their subjective probabilities in a way that is consistent with bayes theorem preference reversal willingness to pay is opposite to stated preferences occurs and choices depend on the way in which alternatives are described framing as serious as these problems are we address in this paper the question of the consistency of risk benefit tests even when individuals are rational and perfectly informed subjective and objective probabilities coincide and compensating or equivalent variations are summed across individuals to provide a social riskbenefit test we investigate the conditions under which these tests provide orderings of all the social alternatives thus avoiding inconsistent social preferences for example alternative x preferred to alternative y and y to x or x preferred to y y preferred to z and z preferred to x we require individual preferences to be consistent in the sense of hicks and allais utility depends on the probability of being alive and on consumption enjoyed while alive and consider as well the special case of the expected utility hypothesis we show that in a simple one good model section i both compensating and equivalent variations are exact indexes of individual welfare gain or loss accepting a project if and only if the sum of compensating variations is positive is equivalent in this model only to the ex ante potential pareto improvement criterion for project acceptance lemma i argues that the compensating variation or equivalent variation

the macro economic rebound effect and the uk economy abstract this paper examines the macroeconomic rebound effect for the uk economy arising from energy efficiency policies 2000 2010 using the macroeconomic model mdm e3 the literature distinguishes between three types of rebound effect direct indirect and economy wide the macroeconomic rebound effect considered here is the combination of the indirect and economy wide effects policies for the domestic business commercial and public and transport sectors of the economy are analysed for 2000 2010 overall the policies lead to a saving of about 8 of the energy which would otherwise have been used and a reduction in co2 emissions of 10 or 14 mtc by 2010 there are also favourable macroeconomic effects lower inflation and higher growth we find that the macroeconomic rebound effect arising from uk energy efficiency policies for the period 2000 2010 is around 11 by 2010 averaged across sectors of the economy when this is added to the assumed direct rebound effect of around 15 this gives a total rebound effect of around 26 arising from these policies thus the findings of the study support the argument that energy efficiency improvements for both consumers and producers stimulated by policy incentives will lead to significant reductions in energy demand and hence in greenhouse gas emissions

uncertainties in future energy demand in uk residential heating fossil fuels are the main source of space heating in the uk and therefore climate mitigation implies a systemic change in space heating systems the challenge is difficult because of an inefficient building stock and high penetration of natural gas we present new quantified scenarios for residential energy use in the uk to 2050 with minimal policy intervention the uk will remain locked into a gas based heating system which would conflict with the policy goal of decarbonisation however there is a range of scenarios in which this is avoided a system heavily reliant on heat pumps powered by low carbon electricity is uk policy makers currently preferred alternative we conclude that some shift in this direction is likely to be required but complete reliance on this solution raises a number of problems greater use of energy efficiency and biomass can also play a significant role these options have different risks but a more diversified strategy would be more prudent we conclude that the future of uk residential space heating is very uncertain but meeting low carbon heating goals is better conceptualised as reducing reliance on gas rather than necessarily mass electrification our analysis has implications for any country with high use of fossil fuels in space heating and ambitious decarbonisation goals

multiproduct nonlinear pricing with multiple taste characteristics we analyze optimal multiproduct nonlinear prices in the case where consumer tastes are characterized by more than one taste parameter we present conditions under which the optimal nonlinear price schedule can be computed by finding optimal price schedules separately for each market if so they are unbundled if not they are bundled bundling is weakly superior to unbundling and is strictly superior when a condition that we term uniform ordering of demand curves is weakly violated with uniform ordering of demand curves multiproduct nonlinear prices have the same features as single product ones without this condition it is easy to construct examples that contradict some well known results from the standard literature in mechanism design

energy backcasting a proposed method of policy analysis abstract there have recently emerged a number of analyses which suggest that there exists a large potential for soft energy policy paths it is difficult to illustrate this argument using conventional forecasting techniques therefore these analyses tend to use an alternative method called energy backcasting this involves setting policy goals and then determining how those goals could be met as yet however little attention has been paid to the theoretical aspects of backcasting techniques in this article a specific backcasting method is proposed which it is argued allows consideration of many factors obscured in traditional energy supply and demand forecasts

a monetary minsky model of the great moderation and the great recession abstract steve keen s model of minsky s financial instability hypothesis keen 1995 displayed qualitative characteristics that matched the real macroeconomic and income distributional outcomes of the preceding and subsequent fifteen years a period of economic volatility followed by a period of moderation leading to a rise of instability once more and a serious economic crisis this paper extends that model to build a strictly monetary macroeconomic model which can generate the monetary as well as the real phenomena manifested by both the great recession and the great moderation

misperceived job hazards and welfare abstract bayesian workers produce chemicals hazardously in one sector of a two sector economy having one safe sector adopting an expected ex post welfare perspective we show workers misperceptions of hazards entail a classic externality we characterise chemicals competitive monopoly and socially efficient outputs assuming workers receive identical wage accident compensation contracts under each the value of information which induces workers to place greater stress on firms safety records or sharpens their priors and extend the standard monopoly welfare loss index for sufficient conditions for monopoly to be preferred to competition in chemicals and for size ranking monopoly and efficient chemical outputs

two part tariffs with quality degradation abstract this paper examines a firm s incentive to sell a service that is of lower quality when the firm offers a menu of two part tariffs each tariff is characterized by a fixed fee together with two screening instruments these being a uniform per unit charge and a quality restriction we find that allocation of quality is monotonic in type while per unit charge might be non monotonic the results thus contradict one of the most established insights in nonlinear pricing that the per unit charge should be monotonically decreasing over the type space we show that this practice increases welfare due to increased consumption efficiency

optimal compensation for potential fatality abstract cordes and weisbrod have recently demonstrated that the requirement that the government actually compensate individuals adversely affected by public projects is likely to have serious resource allocation implications we examine a rudimentary model of government discretionary behaviour subject to a compensation requirement in the presence of physical risks risk assessments are endogenous and asymmetrically held features enabling analysis of the trade offs between compensation and protection or information available to the government and of the structure of compensation which motivates it to do what is objectively best for the individual we show that paradoxically greater government discretion seems more likely to ensure the latter

health utility indices and equity considerations the aim of this paper is to propose methods that incorporate equity concerns into cost utility analysis the focus of the paper is on qalys but the results apply to health utility indices in general two interpretations of qalys are considered qalys as von neumann morgenstern utilities and qalys as measures of health a justification is provided for aggregating consistently scaled qalys as utilities over individuals the conditions underlying unweighted aggregation of qalys are identified these conditions exclude two common types of equity concern algorithms are proposed that take into account equity concerns and that are relatively easy to apply

revenue implications of money creation under leviathan most governments possess a monopoly franchise in the creation of money economists provide an analytical justification for this institutional arrangement either in terms of the use of monetary aggregates for macro economic stabilization or in terms of the alleged inability of competitive markets to generate tolerably efficient monetary results any complete case for the government s monetary monopoly must however depend on a comparison of market and political arrangements a comparison that requires predictions about how governments are likely to behave once a monopoly franchise is assigned similarly such predictions are crucial in evaluating restrictions that might be imposed on the government s exercise of its money creation power in designing a monetary constitution in the analysis of political arrangements the revenue implications of the money creation power are probably more significant than considerations of either macro economic stability or optimality in the money supply although those revenue implications are incidental to demonstrating the nature of market failure in monetary arrangements they are fundamental in understanding how the government might exploit a monopoly in money creation once granted our interest in the revenue effects of money creation stems from a broader study of constitutional restrictions on the revenueraising authority of government see our book the power to create money is naturally encompassed in this restrictions on the revenue raising power must embody restrictions on the power to create money consequently the fiscal constitution has important implications for the monetary constitution in this paper we examine both the revenue implications of money creation and desirable consitutional restrictions on the money creation power within the context of a specific model of political processes

an antitrust analysis of bundled loyalty discounts abstract consider a monopolist in one market that faces competition in a second market bundled loyalty discounts in which customers receive a price break on the monopoly good in exchange for making all purchases from the monopolist have ambiguous welfare effects such discounts should not always be treated as a form of predatory pricing in some settings they act as tie in sales existing tests for whether such discounts violate competition laws do not track changes in consumer surplus or total surplus we apply a new test to an illustrative example based on smithkline that assumes the tied market has homogeneous goods if the tied market is characterized by hotelling competition bundling by the monopolist causes the rival firm to reduce its price in numerical examples we find that this can deter entry or induce exit

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

hybrid modelling of long term carbon reduction scenarios for the uk this paper summarizes the development of a new hybrid markal macro m m energy system model for the uk this hybrid model maintains the technological and sectoral detail of a bottom up optimisation approach with aggregated energy demand endogeneity and gdp impacts from a single sector neoclassical growth model the uk m m model was developed for underpinning analysis of the uk s groundbreaking mandatory long term 60 carbon dioxide co2 emissions reduction target hybrid modelling illustrates that long term uk co2 emission reductions are feasible however there are endemic uncertainties notably a trade off between behavioural and technological decarbonisation options with resultant energy system impacts in the requirements for zero carbon electricity uk m m model sensitivity runs further illustrate the range of energy system interactions including the deployment of the uk s limited co2 storage capacity alternate timing of power vs transport sectoral reductions the relative ease of switching between electricity generation portfolios and substitution opportunities between natural gas and coal the macro economic cost impacts range from 0 3 to 1 5 reduction in uk gdp by 2050 with higher cost estimates strongly influenced by pessimistic assessments of future low carbon technologies however cost impacts from the uk m m model are likely to be in the lower range for stringent co2 reduction pathways as the simplicity of the reduced form macro linkage omits competitiveness and transitional impacts on the uk economy c 2008 elsevier b v all rights reserved

optimal labour contracts under asymmetric information an introduction the review of economic studies has instituted a new series of lectures to be given annually by a younger british economist at the association of university teachers of economics meetings the choice of lecturer is determined by a panel whose members are currently professors hahn mirrlees and nobay this paper is a revised version of the first lecture in the series it was presented at the aute meeting held at the university of surrey in april 1982 and was refereed in the usual way mak

optimal nonuniform prices we consider optimal nonuniform pricing schedules where the price depends upon the amount purchased such schedules are regularly used by public utilities and other services welfare optimal nonuniform prices are related to the theory of optimal uniform prices developed by ramsey we characterize situations in which upward or downward discontinuities in pricing schedules are optimal our results are applicable to a number of related problems including optimal taxation insurance and incentives economic theory has confined most of its attention to markets with uniform prices in which the price per unit charged is invariant to the level of a customer s purchases this focus is warranted when goods are resellable since any attempt to charge nonuniform prices could be circumvented by reselling amongst customers but when goods are not resellable nonuniform prices are not only possible but common public utilities have declining block pricing with lower unit charges for large levels of consumption many agencies providing services including communications transportation even education use two part pricing with a fixed entry or retainer charge and a further charge per unit consumption nonuniform price schedules can be expected to be ever more common as services become a larger fraction of total output the increasing prevalence of nonuniform pricing policies have made them the focus of recent public and economic attention oi 1971 feldstein 1972 and ng and weisser 1974 have examined optimal two part pricing policies leland and meyer 1976 examine block pricing and show by example that optimal welfare policies may require nonuniform prices if zero profit constraints are binding in this paper we consider arbitrary nonuniform pricing policies using variational techniques two part and block pricing schedules are of course special cases of the environment we consider the work most closely related to our examination is the seminal paper by spence 1978 and subsequent analysis by roberts 1979 spence however does not pay explicit attention to the key role played by constraints on optimal pricing schedules roberts considers upward price discontinuities which lead to bunching of consumers at a given level of consumption but not downward price discontinuities which lead to regions in which no consumer chooses to consume gaps bunching or gaps may appear in the optimal price schedule even when underlying demand and cost functions are smooth and well behaved the prevalence of discontinuous pricing schedules e g the block pricing structures of public utilities argues that these questions are of practical as well as theoretical interest

the economics of risks to life this study asks two questions 1 what is the net value to the representative individual over his life time of activities that alter age specific mortality risks 2 what is the cost to the representative individual of activities that take a life at random at a given age results derived from an economic demographic model with full age specific accounting have a strong actuarial flavor alterations in the mortality schedule caused say by a medical breakthrough should be assessed on the utility of expected additional life years production and reproduction less expected social costs of support loss of life at a specific age due to an accident say should be assessed on the opportunity costs of expected lost years of living lost production and reproduction less expected social support costs the results show that current methods in general leave out an important social transfer term that value of a life lost is highly age dependent and that the degree of diminishing returns to consumption is crucial in calculations of the economic cost of risks

a reduced form optimal nonlinear income tax problem abstract for a finite population with quasilinear preferences it is shown how mirrlees optimal nonlinear income tax problem can be simplified to a reduced form problem involving only the allocation of the consumption good this result is a finite version of a proposition established in the continuum by s lollivier and j c rochet

customized bundle pricing for information goods a nonlinear mixed integer programming approach this paper proposes using nonlinear mixed integer programming to solve the customized bundle pricing problem in which consumers are allowed to choose up to n goods out of a larger pool of j goods prior work has suggested that this mechanism has attractive features for the pricing of information and other low marginal cost goods although closed form solutions exist for this problem for certain cases of consumer preferences many interesting scenarios cannot be easily handled without a numerical solution procedure in this paper we investigate the efficiency gains created by customized bundling over the alternatives of pure bundling or individual sale under different assumptions about customer preferences and firm cost structure as well as the potential loss of efficiency caused by pricing with incomplete information about consumer reservation values our analysis suggests that customized bundling enhances sellers profits and enhances welfare when consumers do not place positive values on all goods and that this consumer characteristic is much more important than the shape of the valuation distribution in determining the optimal pricing scheme we also find that customized bundling outperforms both pure bundling and individual sale in the presence of incomplete information and that customized bundling still outperforms other simpler pricing schemes even when exact consumer valuations are not known ex ante

equity considerations in utility based measures of health outcomes in economic appraisals an adjustment algorithm in this paper we consider whether methods currently used to measure utility of health outcomes are consistent with the equity criteria adopted by researchers we show that unless the chosen equity criterion is incorporated in the design of the measurement instrument the derived health state utilities are inconsistent with the equity criterion except under special circumstances adjustment algorithms are derived based on the axioms of von neumann morgenstern utility theory which take account of difference equity criteria currently adopted in the literature the proposed approach is based on simple lottery questions of the type already used widely in empirical studies

energy performance of dwelling stock in iceland system dynamics approach abstract despite the significant energy use in dwellings buildings have the highest energy savings potential among all sectors one of the main analytical challenges is how to capture the impact from inertia driven by the current dwelling stock thus a dwelling stock model was established to study the impacts of physical processes e g aging as well as the effect of social processes e g household energy conservation behaviors on energy demand for space heating in the icelandic dwelling stock the model is initialized in the year 2000 and then calibrated with datasets on the icelandic dwelling stock and hot water consumption for residential space heating analysis of the base scenario confirms that the improvement in the average energy intensity of total dwelling stock with regular turnover of the dwelling stock is insignificant and gradual which relates to the inertia of the existing stock the comparison of the results from two policy scenarios with the base case illustrates that the aggressive demolition is more effective compared to the aggressive construction in reducing the total energy demand for space heating the results of this analysis can support policy makers by providing insights regarding the potential impact of building energy efficiency policies ensuring an effective policy package

group buying on the web a comparison of price discovery mechanisms web based group buying mechanisms are being widely used for both business to business b2b and business to consumer b2c transactions we survey currently operational online group buying markets and then study this phenomenon using analytical models we build on the literatures in information economics and operations management in our analytical model of a monopolist offering web based group buying under different kinds of demand uncertainty we derive the monopolist s optimal group buying schedule under varying conditions of heterogeneity in the demand regimes and compare its profits with those that obtain under the more conventional posted price mechanism we further study the impact ofproduction postponement by endogenizing the timing of the pricing and production decisions in a two stage game between the monopolist and buyers our results have implications for firms choice of price discovery mechanisms in e markets and for the scheduling of production and pricing decisions in the presence and absence of scale economies of production

modelling socio economic and energy data to generate business as usual scenarios for carbon emissions abstract the uk government is legally committed to achieving an 80 reduction in carbon dioxide emissions compared with 1990 by 2050 the use of scenarios is wide ranging to inform policy development and forming a business as usual scenario helps to understand possible effects of different policy interventions however the term business as usual is frequently misused we show how econo physical business as usual scenarios can be developed by examining the historical behaviour of coefficients which manifest the relationship between components of an economy we endogenise economic growth by mimicking national level policies that focus on a target level of unemployment our case study demonstrates the trendability of coefficients which for one example coefficient is replicated for australia colombia taiwan and the usa we manifest a gross domestic product growth of 2 falling to 1 which contrasts with an exogenous growth of 2 3 of a comparator business as usual scenario we suggest that it may be possible to achieve a greater reduction in the business as usual carbon dioxide emissions in the uk fifth carbon budget than currently projected

uniform two part tariffs and below marginal cost prices disneyland revisited i introduction since cournot s 1838 classic analysis of a hard nosed sole proprietor of a spring pricing water to maximize his profit the simple theory of monopoly has concluded that a monopolist will produce the level of output at which marginal revenue is equal to marginal cost and sell this output at the market clearing price hicks 1935 with a negatively sloped demand curve this results in the monopoly equilibrium price exceeding marginal cost and in less output than would be demanded if price is equal to marginal cost in a seminal contribution to the analysis of twopart tariffs oi 1971 elicited some surprise when he pointed out that a profit maximizing monopolist might under some conditions choose a marginal price that is less than the marginal cost 1 later work by schmalensee 1981 described a specific set of conditions in which pricing below marginal cost would be observed despite these demonstrations the subsequent literature on uniform two part tariffs for the most part considers below marginal cost pricing a thoroughly atypical outcome 2 however as an empirical matter pricing below marginal cost is easily found disneyland like recreation ski resorts buffet service of food and the ubiquitous presence of open bowls of peanuts in bars are but a few examples srinagesh 1991 has argued convincingly that the practice of setting marginal prices below marginal cost is so common in telecommunications offerings that it can justifiably be labeled a stylized fact this paper fills the theoretical void by answering the following questions about pricing below marginal cost using two part tariffs in oi s model with demand heterogeneity is the set of demand and cost parameters that induce such pricing small or large when it occurs will the price typically be slightly or substantially less than marginal cost how large of an effect can such pricing have on profits and does it typically have a small or large effect we consider the class of all linear demand models with two types of consumers and a monopolist with constant marginal costs who charges a profit maximizing uniform two part tariff we first show that two conditions are necessary for below marginal cost pricing to occur 1 the consumer demand curves intersect at a strictly positive price and quantity 2 the marginal cost is less than the demand curve intersection price it is shown that pricing below marginal cost arises when consumers have sufficiently different demand elasticities so that the revenue losses arising from the high usage of the elastic consumer are more than offset by revenue gains obtained from the large entrance fee charged to the inelastic consumer 3 next we determine how the monopolist sets prices to maximize profits given parameter values of the model we then describe the behavior of p c the ratio of the optimal marginal price to marginal cost over the parameter space this provides the basis for determining regions in the parameter space in which p less than c i e where p c less than 1 to indicate quantitatively the potential significance of pricing below marginal cost we find that sampling uniformly over the parameter space satisfying the two necessary conditions induces below marginal cost pricing 40 of the time furthermore conditional on price being less than marginal cost the mean ratio of p c with uniform sampling is 55 what relevance do these calculations with such a simple and austere model have for understanding nonlinear pricing in the real world in an important recent paper sibley and srinagesh 1997 study nonlinear pricing in multiproduct markets they show that a critical assumption for below marginal cost pricing to occur is a uniform ordering of demand curves condition which is the generic equivalent of the non crossing of demands condition in the analysis of nonlinear pricing of a single product they demonstrate that violation of the uniform ordering condition is necessary for below marginal cost pricing to occur when demand cross elasticities are zero that such pricing easily arises when the condition is violated and indicate how extremely restrictive the condition is

step by step the benefits of stage based r d licensing contracts we examine how a licensor can optimally design licensing contracts for multi phase r d projects when he does not know the licensee s project valuation leading to adverse selection and cannot enforce the licensee s effort level resulting in moral hazard we focus on the effect of the phased nature typical of such projects and compare single phase and multi phase contracts we determine the optimal values for the upfront payment milestone payments and royalties and the optimal timing for outlicensing including multiple milestones and accompanying payments can be an effective way of discriminating between licensees holding different valuations without having to manipulate the royalty rate which induces licensees to invest less resulting in lower project values and socially suboptimal solutions interestingly we also find that multiple milestone payments are beneficial even when the licensor is risk averse contrary to standard contract theory results which recommend that only an upfront payment should be used in terms of licensing timing we show that the optimal time depends on the licensor s risk aversion the characteristics of the licensee and the project value

multiproduct nonlinear pricing typically work on mechanism design has assumed that all private information can be captured in a single scalar variable this paper explores one way in which this assumption can be relaxed in the context of the multiproduct nonlinear pricing problem it is shown that the firm will choose to exclude some low value consumers from all markets a class of cases that allow explicit solution is derived by making use of a multivariate form of integration by parts in such cases the optimal tariff is cost based

carbon reduction scenarios for 2050 an explorative analysis of public preferences this paper presents an analysis of public preferences for a low carbon future uk and compares them with three future scenarios proposed by the uk government based on data from 10 983 self selected participants who engaged in the uk department of energy and climate change my2050 online simulation participants expressed a stronger preference for demand side options than for supply side ones they also chose fuel switching to electricity and technical energy efficiency measures above more behaviour focused options renewable energy options wind solar marine and hydro were preferred to other low carbon supply options nuclear power carbon capture and storage with offshore wind power more popular than onshore nuclear power was the least popular generation option acceptability of the government s three proposed scenarios was tested by comparing these scenarios with the research findings greatest support was suggested for the two scenarios emphasising business greenness home energy efficiency electrification of home heating and travel behaviour the lowest level of support was demonstrated for the scenario based on significant growth in nuclear power with minimal increases in energy efficiency despite issues regarding the representivity of the sampled respondents the work demonstrates the possibility of using outputs from the tool to assess publically preferred pathways

the role of ex ante and ex post decisions in the valuation of life abstract this paper examines the use of ex ante and ex post criteria in the evaluation of projects involving the risk of death one issue concerns the appropriate welfare function and it is argued that this should reflect both ex post and ex ante considerations but not in the form of restrictions on the welfare function the second issue concerns the form of compensation the argument in favour of ex post compensation as a means of reducing the cost of risk bearing needs to be modified when risks involve more than a single dimension as they do in projects involving the risk of death

valuing amenity resources under uncertainty a skeptical view of recent resolutions abstract this paper questions colby and cory s recent characterization 1987 1988 1989 of the appropriate benefit measures to be used to value improvements in the quantity quality or conditions of access to environmental resources under uncertainty the paper uses graham s 1981 analysis of individual and aggregate welfare measurement under uncertainty to demonstrate the problems with colby and cory s recommendations it evaluates their classification of important research issues and summarizes in general terms the difficulties that arise in the practical implementation of the conceptual measures for benefits under uncertainty

the social value of mortality risk reduction vsl vs the social welfare function approach we examine how different welfarist frameworks evaluate the social value of mortality risk reduction these frameworks include classical distributively unweighted cost benefit analysis i e the value per statistical life vsl approach and various social welfare functions swfs the swfs are either utilitarian or prioritarian applied to policy choice under risk in either an ex post or ex ante manner we examine the conditions on individual utility and on the swf under which these frameworks display sensitivity to wealth and to baseline risk moreover we discuss whether these frameworks satisfy related properties that have received some attention in the literature namely equal value of risk reduction preference for risk equity and catastrophe aversion we show that the particular manner in which vsl ranks risk reduction measures is not necessarily shared by other welfarist frameworks jel d81 d61 d63 q51

uncertainty benefit cost analysis and the treatment of option value abstract this paper proposes a new conceptual framework for defining welfare measures under uncertainty the planned expenditure function this function describes the locus of expenditures on contingent claims that are required to realize a given level of expected utility to illustrate the convenience of the framework it is used to consider the definition of the option price the appropriate treatment of option value the valuation of risk changes and the definition of non use benefits under uncertainty

option value a general approach this article examines a potential bias if expected consumer surplus is used to measure the benefits of a price change under uncertainty this bias which is called option value may be positive or negative a general framework is developed for analyzing the determinants of the sign of option value and this framework is applied to three types of uncertainty income uncertainty quality uncertainty and uncertainty over consumer tastes in the first two cases option value has a determinate sign however in the last case option value may be positive negative or zero in an unpredictable fashion

multiproduct pricing in major league baseball a principal components analysis the empirical analysis of multiproduct pricing suffers from a lack of clear theoretical guidance and appropriate data limitations which often render traditional regression based analyses impractical this paper analyzes ticket parking and concession pricing in major league baseball for the period 1991 2003 using a new methodology based on principal components which allows inferences to be formed about the factors underlying price variation without strong theoretical guidance or abundant information about costs and demand while general demand shifts are the most important factor they explain only half of overall price variation also important are price interactions that derive from demand interrelationships between goods and the desire to maximize the capture of consumer surplus in the presence of heterogeneous demand

bundling with customer self selection a simple approach to bundling low marginal cost goods with declining costs of distributing digital products comes renewed interest in strategies for pricing goods with low marginal costs in this paper we evaluate customized bundling a pricing strategy that gives consumers the right to choose up to a quantity m of goods drawn from a larger pool of n different goods for a fixed price we show that the complex mixed bundle problem can be reduced to the customized bundle problem under some commonly used assumptions we also show that for a monopoly seller of low marginal cost goods this strategy outperforms individual selling m 1 and pure bundling m n when goods have a positive marginal cost or when customers have heterogeneous preferences over goods comparative statics results also show that the optimal bundle size for customized bundling decreases in both heterogeneity of consumer preferences over different goods and marginal costs of production we further explore how the customized bundle solution is affected by factors such as the nature of distribution functions in which valuations are drawn the correlations of values across goods and the complementarity or substitutability among products altogether our results suggest that customized bundling has a number of advantages both in theory and practice over other bundling strategies in many relevant settings

quality distortion by a discriminating monopolist the standard model of monopolistic imperfect quality discrimination involving consumer self selection has shown that no distortion occurs at the highest quality level while all lower quality levels are degraded in order to maintain profitable market segmentation this result flows from the assumption that consumers with a higher total utility of quality also have a higher marginal utility of quality the paper develops a reasonable model in which the standard assumption is not satisfied and this alternative model yields vastly different conclusions regarding the form of quality distortion in particular quality may be enhanced not degraded to maintain profitable market segmentation copyright 1989 by american economic association

evaluating the effect of technology transformation on the electricity utility industry abstract the technology shift from fossil fuelled systems to renewable energies has been promoted by governments with the purpose of decarbonising the power industry however rapid technology progress has prompted disruptive changes that transformed market structures incumbent electricity utilities particularly those based on fossil fuel plant are shifting from their stable and predictable situation to confront challenges from those that offer alternative energy services in this new environment the industry will benefit from mid to long term sector foresight the paper studies the potential impact of renewable energy sources res on electricity systems specifically on the generation and distribution businesses for this purpose a fairly detailed and integrated supply and demand based system dynamics model has been built to quantify the extent of their potential impact the model disaggregates the household sector which may generate a significant part of its electricity using rooftop solar energy this is illustrated by examining a utility engaged in the generation and distribution businesses in the colombian electricity market through simulation runs this paper concludes that subject to policy and all other things remaining equal solar rooftop generation is a major threat for utilities while the generation business is most affected in the short term the distribution business is the one most impacted in the long term and jointly they may induce the utility death spiral

decoupling global environmental pressure and economic growth scenarios for energy use materials use and carbon emissions in recent decades economic growth and increased human wellbeing around the globe have come at the cost of fast growing natural resource use including materials and energy and carbon emissions leading to converging pressures of declining resource security rising and increasingly volatile natural resource prices and climate change we ask whether well designed policies can reduce global material and energy use and carbon emissions with only minimal impacts on improvements in living standards we use a novel approach of combined economic and environmental modelling to assess the potential for decoupling for 13 world regions and globally we apply a production territorial and consumption approach to discuss regional differences in natural resource use and carbon emissions across three stylized policy outlooks a reference case with no significant changes to environment and climate policies a high efficiency outlook involving a global carbon price rising from 50 to 236 constant price per tonne of co2 between 2010 and 2050 and improvements in resource efficiency rising from 1 5 historically to between 3 5 and 4 5 in the scenarios and a medium efficiency outlook midway between the no change and high outlooks we find that global energy use will continue to grow rapidly under all three scenarios from 17 billion tonnes of oil equivalent toe in 2010 to between 30 and 36 billion toe carbon emissions would be considerably lower with a global carbon price less than half the level of the reference case 29 37 billion tonnes of co2 instead of 74 billion tonnes and also material use would grow much more slowly under a carbon price and significant investment to increase resource efficiency 95 instead of 180 billion tonnes of materials we find that oecd economies have significant potential to reduce their material throughput and carbon emissions with little impact on economic growth and that developing economies such as china could expand their economies at much lower environmental cost globally the effects of very strong abatement and resource efficiency policies on economic growth and employment until 2050 are negligible our study suggests that decarbonization and dematerialization are possible with well designed policy settings and would not contradict efforts to raise human wellbeing and standards of living the research demonstrates the usefulness of scenarios for unpacking environmental and economic outcomes of policy alternatives the findings have important implications for future economic opportunities in a highly resource efficient and low carbon global economy to set human development and achieving the sustainable development goals on a more resilient path

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

the choice of a welfare measure under uncertainty use of option price as a welfare measure when conducting a benefit cost analysis under uncertainty is appropriate only if the project under consideration will have no impact on the allocation of risk among individuals use of the willingness to pay locus as a benefit measure is appropriate only if the project will result in an efficient allocation of risk a more general welfare measure is proposed maximum agreeable payment that correctly measures the benefits and costs of any project

on welfare analysis under temporal uncertainty the implications of uncertainty for costbenefit analysis remain controversial one issue raised in the evaluation of welfare compensation tests has been the appropriate use of observable economic behavior in the measurement of agents willingnessto pay or willingness to receive in the context of surplus measure this question has received considerable attention in the analysis of the welfare impact of price changes under certainty e g willig 1976 chipman and moore 1980 hausman 1981 mckenzie and pearce 1982 moreover the introduction of uncertainty has raised a number of questions about the appropriateness of alternative welfare measures e g schmalensee 1972 1975 graham 1981 for example graham 1981 has argued that there is little basis to recommend either option price or expected surplus for a role of prominence in welfare analysis the issue rather is whether or not there exists a distribution of individual payments or receipts that maximizes aggregate willingness to pay and passes the pareto improvement test i e that leaves no individual worse off and makes at least one individual better off graham 1981 but in the implementation of the pareto improvement test how is the aggregate willingness topay supposed to be measured empirically more specifically what is the influence of uncertainty and its temporal resolution on the validity of agent surplus the welfare triangle given by the area between a compensated choice function and its corresponding price as a welfare measure some progress has been made in this direction by chavas bishop and segerson 1986 in the context of option price however as shown by graham 1981 while option price is the appropriate measure of benefits in situations involving similar individuals and collective risk it may not be the appropriate welfare measure in more general situations therefore there is a need to refine our understanding of how agent surplus can be used as a welfare measure in the general context of a potential pareto improvement test under temporal uncertainty the objective of this paper is to investigate how temporal uncertainty can affect the measurement of willingness to pay in general welfare compensation tests temporal uncertainty corresponds to the situation where new information becomes available over time which resolves at least part of current uncertainty facing economic agents this new information can influence future individual decisions as well as individual willingness to pay particular attention will be given here to the case where income compensation is conditional on the new information that will become available in the future and results in a more efficient allocation of risk among individuals this paper focuses on competitive agents e g households or firms for which welfare changes can be expressed in terms of price changes this includes the analysis of the welfare effects of various government pricing policies this also includes the evaluation of public projects based on the travel cost method which under a weak complementarity condition consists in using price changes of related private goods as an indirect means of measuring the value of a public project maler 1974 the analysis is presented in the context of a general two period model where the agents are uncertain about the state of the world as suggested by graham 1981 it is shown that the option price provides a lower bound on